For years, Leonid Kuchma's balancing act has paid off. Using his country's strategic location as leverage, Ukraine's president has long managed to straddle the contradictory pulls of European pressure for Western-style reforms and Russian policy in the "post-Soviet space."
All that may be about to change, however. Over the last year, Kiev's pro-Western thrust has lost ground, as mounting pressure from Moscow has begun to nudge Ukraine back into the Kremlin's orbit.
Nowhere is this more visible than in Ukraine's energy sector. The country's extensive, highly developed pipeline system is an essential part of Russia's energy plans; an estimated 90 percent of Russian natural gas exports currently pass through Ukraine on their way to European markets. What's more, because of its geographic location, Ukraine has a bright future as an energy conduit to the West for Caspian states like Kazakhstan.
Nevertheless, Russia now increasingly dominates Ukraine's energy outlook. Through massive, ill-advised gas diversions from Russian pipelines between 1998 and 2000, Kiev racked up a multibillion-dollar debt to Moscow. The resulting settlement, finally negotiated between Russia's Gazprom and Ukraine's Naftohaz Ukrayiny this summer, gives Moscow the ability to pay energy transit fees with gas instead of rubles. This is a potentially lethal development for Ukraine's long-term energy independence, since it reduces commercial revenues and increases Kiev's already heavy reliance on Russian gas.
In tandem with Berlin, Moscow last year also managed to woo Kiev into a trilateral natural gas transportation consortium. The deal, signed in June 2002, provides for a substantial European investment in the rebuilding of Ukraine's crumbling pipeline infrastructure. The quid pro quo is greater Russian control over Ukraine's energy sector — and a potentially dramatic change in the political balance between Moscow and Kiev.
Problems are also brewing on another energy front: Ukraine's own, much-touted Odessa-Brody pipeline. Originally created by Kiev as an alternative regional energy corridor, it could eventually carry as much as 560,000 barrels of Caspian oil daily to Europe. And, through discussions with Poland, Ukraine has even explored the possibility of extending Odessa-Brody to the Baltic, where it would link up with existing Europe-bound transport routes.
But here too, Kiev's clout could soon dwindle. Plagued by a lack of Central Asian and European interest in the costly project, the Kuchma government has increasingly contemplated acquiescing to Russian pressure to "reverse" the pipeline and use it to ferry Russian oil to the Black Sea — a move that could all but end Ukraine's grand plans for a role in Caspian development.
Russian attempts at energy hegemony are not the only problem. Lingering legislative disparities, and lackluster trade with EU member states, have stunted Ukraine's progress toward European integration. And in response, the Kuchma government has increasingly begun to toe the Russian economic line. This September, it made a long-awaited decision to join the "Common Economic Space" proposed by President Vladimir Putin of Russia.
Kuchma's decision to hitch the Ukrainian economy to this Kremlin construct, which envisions a common system of trade for Russia, Ukraine, Belarus and Kazakhstan pegged to the Russian ruble, dims prospects for further westward economic integration on Kiev's part. So does Ukraine's rampant domestic corruption and continued governmental abuses, which have served to stifle Western investment and left Ukraine increasingly vulnerable to the Kremlin's manipulations.
Moscow is also moving on Kiev militarily. Ukraine, on the eastern edge of an expanding NATO, is a logical candidate for eventual membership. Such a possibility, however, has caused great unease in Moscow, where the Kremlin understands that the Western-style military reforms required as part of NATO's Partnership for Peace could help decide Kiev's European direction. That's why Russian officials have stepped up military contacts with their Ukrainian counterparts in recent months, heavily promoting greater integration between the military industries — and armed forces — of both countries.
Despite periodic lip service to "strategic partnership" with Ukraine, neither Washington nor European capitals have so far seriously attempted to address this drift. When they do, measures like accelerated dialogue for accession to the European Union and NATO, and greater attention to Ukraine's potential as a Caspian energy transporter, could go a long way toward convincing Kiev that its economic independence and political future lie with the West.
In the meantime, however, Moscow already appears to be making a persuasive argument that just the opposite is true.