Ukraine's extension of Russian base's lease may challenge U.S. goals in region

Eggs rained down on lawmakers and smoke bombs clouded the chamber in the Ukrainian Parliament as lawmakers opposed an extension of a port-leasing agreement with Russia in exchange for cheaper gas prices. Betty Nguyen reports.
By Philip P. Pan
Wednesday, April 28, 2010

MOSCOW -- Ukraine's decision to host a Russian naval base for 25 more years in exchange for cheaper gas, a deal ratified Tuesday despite egg-throwing and a brawl over it in the Ukrainian parliament, does little to alter the immediate military balance in the Black Sea but presents other challenges for U.S. goals in the region.

Secretary of State Hillary Rodham Clinton has played down the significance of the pact, saying it should be seen as part of an effort by Ukraine's new president, Viktor Yanukovych, to improve ties with both Russia and the United States in a "balancing act" that "makes sense to us."

But analysts say the deal could hurt Western efforts to support Ukraine's fitful democratic transition, by allowing it to postpone reforms within its corrupt energy sector and by provoking another round of infighting in the country after years of political instability.

Some also warn that the deal could boost those determined to restore Russia's influence over its neighbors and could complicate NATO plans to use the Black Sea as a base against potential foes in the Middle East and Central Asia. The Pentagon, for example, has considered putting part of its missile shield against Iran on ships in the Black Sea.

Russian Prime Minister Vladimir Putin, visiting Kiev before the ratification vote, hailed the deal as a breakthrough in ties with Ukraine and emphasized how much money Russia was giving up to keep its fleet in Sevastopol, on the southern tip of Ukraine's Crimean Peninsula.

"The proposed price seemed absolutely exorbitant," he said, saying the discount amounted to $40 billion to $45 billion in savings for Ukraine. "It would be possible to build several bases with this money, but for us, this is an issue of cooperation with Ukraine rather than just the financial aspect."

But Ukraine, which has been battered by the global recession and is seeking a bailout from the International Monetary Fund (IMF), most probably would not have been able to pay the prices Russia had been asking for natural gas. As a result, critics say, Ukraine could have negotiated a discount without extending the base lease, originally set to expire in 2017, especially because it owns the pipelines that Russia uses to deliver the gas it sells to Europe.

The deal gives Ukraine about 30 percent off the prices set in the contract it signed with Moscow last year, after a standoff during which the Kremlin cut gas supplies to Europe. But that contract set prices so high that the newly negotiated discount brings them down only to current market levels, said Edward Chow, a senior fellow at the Center for Strategic and International Studies.

"They gave something -- extending the naval base lease -- in order to get what they were really entitled to from the beginning," he said of the Ukrainians, noting that Russia had already renegotiated contracts with other customers in Europe and given them discounts because of falling demand and prices.

The new agreement, Chow said, is the latest in a series of deals that have benefited powerful industrialists in Ukraine and allowed the country to avoid cleaning up its corrupt gas sector, thought to be a source of funds for politicians. Like those before it, he added, the new deal is so flawed that it is unlikely to endure and could again threaten the supply of gas to Europe.

For example, he said, the pact requires Ukraine to buy more gas in subsequent years, perhaps more than it needs. But it doesn't require Russia to continue using Ukraine's pipelines, a key source of income for Kiev. The Kremlin plans to build pipelines that circumvent Ukraine.

David J. Kramer, a George W. Bush administration official who is now at the German Marshall Fund, said the deal could "feed some of the worst instincts in Russian psychology" about the former Soviet Union, especially after an uprising in Kyrgyzstan toppled a government opposed by the Kremlin.

"They may feel they're on a roll, and usually, before too long, the Russians overplay their hand and do it in an unhelpful, unproductive way," Kramer said. But he added that he is more worried about the polarizing effect of the deal on Ukrainian politics, which could make it difficult for Yanukovych to govern effectively.

The intensity of emotions over the decision to extend the Russian lease until 2042 was evident Tuesday as fistfights broke out in parliament and opponents set off smoke bombs and threw eggs at the speaker. But Yanukovych's slim majority prevailed, allowing him to push through a new budget without a sharp rise in utility fees and clear the way for the IMF loan.

The new lease has also caused concern in other countries on the Black Sea, especially Georgia, which Russia defeated in a brief war in 2008. Although the Russian fleet is in poor shape, Moscow plans to upgrade it with Mistral-class helicopter carriers from France.

Radu Tudor, a defense analyst in Romania, one of three NATO allies on the Black Sea, said the Russians' extended presence in Sevastopol poses less of a military problem than a political one.

"They continue to see security as they did in the Cold War, with NATO as the enemy," he said. "So it's going to be much harder now to transform the Black Sea from a Russian lake into a NATO sea."

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