Putin Emerges From Gas Wars With Yushchenko Sidelined

14:44, 21 January 2009
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The accord let...

Russia`s gas agreement with Ukraine will warm up Eastern Europe after 12 freezing days without sufficient heat or power, according to Bloomberg. It may also warm up relations between Prime Minister Vladimir Putin and Ukraine, where the deal elevates Putin`s preferred political power broker and weakens his rival.

The accord let Putin portray himself as a strong leader at a time of economic turmoil and boosted Ukrainian Prime Minister Yulia Timoshenko over Putin`s political foe, President Viktor Yushchenko.

“It certainly looks like a good deal for Putin,” said Chris Weafer, chief strategist at UralSib in Moscow. “He has won his game of chicken with Ukraine. It also looks like a victory for Timoshenko. She has emerged as the can-do politician who brokered a deal.”

Yushchenko is pushing for Ukraine to join the European Union and the North Atlantic Treaty Organization over Russian objections. While he and Timoshenko came to power on a pledge of pulling Ukraine from Russia`s influence in the 2004 Orange Revolution, Yushchenko`s popularity has tumbled since a similar gas price dispute in 2006 and Timoshenko has been more willing to deal with Russia.

Russia emerged with its reputation in better shape than after a previous attempt at pushing a West-leaning neighbor around: the August military invasion of Georgia.

``Russia will get more confident and become more assertive`` leading to possible confrontations with the U.S. and Europe, said Peter Havlik, the deputy director of the Vienna Institute for International Economic Studies, at a Euromoney conference today in the Austrian capital.

Gas Standoff

Putin and Timoshenko presided over the signing of a 10-year contract yesterday, ending a standoff that deprived millions of Europeans of heat and power. Both countries` reputations have been battered as European leaders called for the building of alternative pipeline routes and faster implementation of nuclear power projects.

Putin took pains to praise Timoshenko after the accord was signed and promised to do “everything we can to support Ukraine.”

“These are the best possible agreements and are fully in the interests of both Russia and Ukraine,” he said. “In this very complicated situation, she took upon herself the responsibility for making these most important decisions, which allowed us to find a way out of a dead end.”

Putin has weakened Yushchenko, 54, more than he was able to undermine Georgian President Mikheil Saakashvili after Georgia`s army was routed in a five-day August war. Russia invaded to protect local Russians in the separatist region of South Ossetia.

Sagging Popularity

Saakashvili, who also is pushing to join NATO, remains in power as his opposition flounders. Yushchenko`s party has a popularity rating of 4.5 percent, according to a survey last month by the Kiev-based Razumkov Center for Economic and Political Studies.

Saakashvili, 41, also can boast pledges from Washington to rebuild the nation`s shattered military and a promise to provide Georgia with $1 billion in humanitarian and economic assistance.

“Saakashvili is luckier,” said Yulia Latynina, a political commentator on the Ekho Moskvy radio station.

In Ukraine, the currency has tumbled 80 percent, the government has sought $16.5 billion in aid from the International Monetary Fund and yields on Ukraine`s $105 billion of government and company debt are the highest of any country with dollar- denominated bonds except Ecuador, which defaulted in December.

To be sure, even if Yushchenko is knocked out of the political arena, Timoshenko, 48, would still face a serious fight against pro-Russian opposition leader Viktor Yanukovych.

`Continued Infighting`

Ukraine is tired of the “continued infighting between the president and prime minister,” said Kaan Nazli, director of Medley Global Advisors LCC, a New York-based policy intelligence service. “The conflict will first and foremost benefit Yanukovych as the polls show a majority of the Ukrainian public disagree with the government`s handling of the conflict.”

Russian gas flows via Ukraine were halted on Jan. 7 after OAO Gazprom accused Ukraine of siphoning off transit flows for its own needs, a charge the country denies. Europe relies on Russia for a quarter of its gas, 80 percent of which is carried via Ukraine.

The deal will see Ukraine pay higher, European prices for Russian gas starting in 2010, after a 20 percent discount this year. At the same time, 2009 transit fees paid by Russia to send gas through Ukraine will remain at last year`s level.

Russia can use the money. While gas prices are based on oil prices, currently falling, Gazprom would have earned an extra $12 billion last year had it charged Ukraine market prices for gas, according to Uralsib. The deal comes as Russia`s economy is poised to enter a recession this year and budget revenue is falling on depressed demand for the nation`s main export.

Putin, 56, touted the accord as putting an end to Soviet-era discounts for Russia`s neighbors and a final shift to transparent market pricing.

“Today`s decision unblocks a range of issues in the economic sphere,” he said after the signing.


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