Analysis: U.S. eyes Ukraine energy routes

WASHINGTON, April 7 (UPI) -- What a difference two decades and a generation make.

On Aug. 1, 1991, President George H.W. Bush in Kiev addressed a session of Ukraine's Supreme Soviet. In a speech written by his Soviet and East European Affairs Adviser Condoleezza Rice, Bush cautioned the Ukrainian lawmakers Americans "will not aid those who promote a suicidal nationalism." New York Times columnist William Safire subsequently dubbed the speech "chicken Kiev." Four months later, the Soviet Union imploded.

On April 1, during a state visit to Ukraine prior to attending the NATO summit in Bucharest, Romania, President George W. Bush, accompanied by Rice, now secretary of state, met with Ukrainian Prime Minister Yulia Tymoshenko in Kiev for discussions. The topics included diversification of Ukraine's natural gas imports, Ukraine's pursuit of a NATO Membership Action Plan for joining the alliance, and the government's battle with corruption and economic issues, including investment cooperation involving U.S. companies in large-scale privatization. Bush even discussed with his hosts the possibility of creating a free-trade zone between Ukraine and the United States. In a classic instance of diplomatic understatement, Ukrainian First Deputy Prime Minister Oleksandr Turchynov labeled the discussions "interesting."

Following his Kiev sojourn, Bush jetted off to Bucharest, where his more cautious NATO allies effectively rejected his cherished goal of a MAP for Ukraine and Georgia, another former Soviet republic. Most journalists covering the summit focused on the drama surrounding the entry tussles over Ukrainian and Georgian NATO membership, but the real legacy of Bush's Eastern European jaunt may well be his discussions in Kiev, as they have infuriated the Kremlin while essentially delivering nothing tangible to Ukraine and have effectively tarred President Viktor Yushchenko and his government as U.S. stooges.

Turchynov said Bush and Tymoshenko discussed diversifying Ukraine's natural gas supplies by signing gas deals directly with Turkmenistan, Uzbekistan and Kazakhstan with U.S. cooperation.

There is only one small flaw in Bush's view of U.S.-Ukrainian energy cooperation -- virtually all of the Caspian's natural gas export pipelines for Turkmen, Uzbek and Kazakh gas transit Russia and are under the control of the Russian state natural gas pipeline monopoly Transneft, a state strategic asset so valuable even Russian President Boris Yeltsin didn't dare privatize it. At a time of record-high energy prices, Transneft's capacities allied to Russian state monopoly Gazprom's natural gas have left the Kremlin flush with cash as European consumers dig ever deeper into their wallets. Ukraine, as vital a transit country as it is bereft of natural gas reserves, is the most prominent victim of Russia's hardball "pipeline diplomacy," a situation Bush is unable to influence. The European Union now gets around 20 percent of its gas from Russia, of which about 80 percent transits Ukraine.

Certainly Ukraine could benefit from diversifying its natural gas imports. Since 1991 it has been involved in a seemingly interminable squabble with Russia over natural gas prices. Although in the immediate aftermath of the collapse of the Soviet Union, Russia provided Ukraine and other former Soviet republics with subsidized energy, beginning in 2005 it increasingly began to charge its former fellow republics and satellite states prices more in line with the global market. On Jan. 1, 2006, Gazprom halted supplies to Ukraine over underpaid bills as it attempted to raise prices from $50 to $230 per 1,000 cubic meters. The cutoff rippled through the Eastern European pipeline network, with Austria, France, Germany, Hungary, Italy, Poland and Slovakia all reporting drops of around 30 percent.

When the dust settled, Kiev agreed to pay Gazprom $95 per 1,000 cubic meters, which, while representing a nearly 100 percent increase, was still far below the $240 per tcm that Gazprom charged Western Europe. Last month Gazprom again cut shipments to Ukraine by 50 percent over a pricing dispute, with the dispute only being resolved on March 13 when Kiev agreed to pay $179.50 per tcm.

Worse is in store: Last month a Gazprom official noted, "The forecast average price for Gazprom gas to Europe in 2008 is $378 per 1,000 cubic meters with the potential to rise to roughly $400 by year-end."

What can Bush do about this?

Nothing, not even complain, especially as he is a champion of free markets and Gazprom, after all, is only charging its customers market prices.

What Bush has done, both through his Kiev conversations and pressing Georgian and Ukrainian NATO membership, is convince the Kremlin that Washington's master design is to encircle Russia with a string of military bases. On Feb. 12 Russian President Vladimir Putin, speaking after discussions with Yushchenko at the Kremlin, said while NATO membership was a decision for Ukraine, if it were to join the Czech Republic and Poland in hosting U.S. ABM sites, "It's terrible to say, terrible even to think about, that in response to such a potential deployment on Ukrainian territory, Russia -- and theoretically we can't rule this out -- could aim its missile systems at Ukraine.''

The next day Rice labeled the remarks "reprehensible."

It is not as if the Ukrainian population is wholeheartedly in favor of joining NATO. A February poll found that 21.9 percent of respondents were in favor of joining the alliance. If, however, Kiev goes the whole route, joining NATO and permitting U.S. ABM installations on Ukrainian soil, then Ukrainians can rest secure knowing they won't freeze if Gazprom cuts gas supplies, as they will always have the possibility of warming themselves by a nuclear fire.