Russia at Home and Abroad: Explaining Russia’s Bargain with Ukraine

Following yesterday’s article which described Russia as ‘a giant with feet of clay’ in its efforts to promote integration in the CIS, Paul Hansbury responds with some reflections on Russia’s deal with Ukraine.

Yesterday Vladimir Sarkisyants argued that Russia’s trade deal with Ukraine is an example of the former’s vulnerability.  I agree with this argument.  It is the sources of this weakness that are of interest in the following paragraphs.  In many respects President Putin’s third term is a classic demonstration of the entanglement of domestic and international politics, and the concessions Russia has recently made to Ukraine can be viewed as an effort to placate domestic voices rather than any effort to outmanoeuvre the West (this latter opinion was argued by Nick Cohen in the Observer).

Putin’s third term commenced in the midst of a series of street demonstrations.  One of the first laws passed in Putin’s new presidency was a restriction on the right of citizens to demonstrate, yet Putin has been and continues to be a popular leader. The difference is that now the seeds of doubt have been planted amongst the leadership about the sustainability of this popularity.

Clearly Putin does not want to be in Yanukovych’s position, and so any opportunity to shore up his domestic popularity is welcome in the short-term.  It may be that this week’s release of Khodorkovsky and Pussy Riot (amongst others) has liberal elements of the domestic audience partly in mind.  The high profile prison releases, though, are the tip of an iceberg – there are hundreds of prisoners in Russia who were not given fair trials and who are going nowhere.  As Pussy Riot claims, the amnesty is a public relations stunt.

The Ukraine deal can also be seen as a response to new pressures to secure domestic support.  As yesterday’s article notes, the independence of Ukraine is still not accepted by many conservative-minded Russians twenty-two years after the dissolution of the Soviet Union on 26 December 1991, with the status of the Crimea and the Black Sea Fleet among the divisive issues.  Political rhetoric about Slavic brotherhood has been a recurring theme in debates about Russia’s policy towards Ukraine since 1991, and has never fully disappeared.  Boris Yeltsin once described Russians and Ukrainians as peoples living in a ‘communal apartment,’ peoples who shared both a history and a destiny.  Yanukovych has been more receptive to such talk than was his predecessor, Viktor Yushchenko.

The flipside of ‘rescuing’ Ukraine from the EU is that this is costly to Russia: a promise to buy $15 billion of Ukrainian Eurobonds as well as reducing the cost of natural gas sold to Ukraine by a third.  Yet, once Putin had agreed to discussions with Yanukovych, he needed to take a deal back to his domestic constituents, for many of whom money spent on Ukraine (or Belarus) is not money squandered.  Holding Ukraine inside the Russian sphere of influence is popular with conservative Russians, who outnumber the liberal opposition that has criticised Kremlin spending in its near abroad.  After two decades of rhetoric about brotherhood, how could Putin have held talks with Yanukovych and then cut loose Ukraine in its hour of need?  It was deemed appropriate to offer Ukraine support, and natural resource discounts were the first option available.

During Putin’s first two terms, he was blessed with high natural resources prices and these allowed the government breathing space in its domestic programme.  In this third term two new factors must be brought to bear on the continuance of natural resources as providing bedrock for the economy.  First, the fracking revolution is reducing outside powers’ dependence on Russian oil and gas, as well as reducing demand more generally in the global economy.  Second, China has developed a significant economic interest in Central Asia which by-passes Russia, otherwise the intermediary for these states in the international marketplace.  Together these make it doubtful that Russia could afford to make similar concessions in the future.  It is the longer term costs of such deals that cannot be overlooked and which threaten to further weaken Putin’s domestic game, especially if natural resources prices fall.

If Yanukovych survives, Ukraine has won concessions from Russia whilst not bowing to EU pressure to release its own most famous prisoner, Yulia Tymoshenko.  Internationally Yanukovych has driven some hard bargains in spite of a domestic situation more troublesome than Putin’s – or should that rather be because of his troublesome domestic situation?  Yanukovych’s domestic base is too weak to have accepted anything less; in game theory speak – the ‘win-set’ was narrower than Putin’s.  The question, in fact, is whether the deal is sufficient to keep Yanukovych in power.  Keeping Yanukovych in power is Putin’s aim too.


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