Ukraine’s reputation is battered and bruised by the gas war

22nd January 2009, Comments 0 comments

Regardless of who started the crisis, Ukraine’s reputation has suffered more than Russia’s, analysts say.

Kiev -- A tarnished reputation and an economy threatened by higher gas prices are just two of the major losses Ukraine has suffered in the recent gas war.

Russian gas may have begun flowing to Europe through Ukraine Tuesday, but European consumers will not soon forget being left in the cold for nearly two weeks and much of the anger is focusing on Kiev, analysts said.

"Regardless of who may have started the crisis, which seems to have been Russia, Ukraine's reputation has suffered," said Andrew Wilson, an expert on Ukraine at the European Council on Foreign Relations.

Analysts said the images of both countries had suffered during the crisis, which saw gas supplies to Europe cut off after Moscow accused Ukraine of stealing gas destined for the continent.

Russia had cut domestic supplies to Ukraine on New Year's Day, after the two countries failed to resolve a bitter dispute over gas prices and payments.

But analysts said the fallout of the crisis will be more keenly felt in Ukraine, where Kiev's pro-Western government has been seeking closer ties with Europe and has come to count on the EU backing it against Russia.

"While there is a lot of sympathy in Europe for Ukraine  ... that patience and benefit of the doubt is wearing thin," said Tomas Valasek of the London-based Centre for European Reform. "Russia had a lot less to lose in terms of its image in Europe because it was already so bad. But Ukraine had a lot to lose -- and it lost a lot."

The crisis has increased the amount of people in the EU that are skeptical about closer ties with Ukraine, said Volodymyr Fesenko of the Kiev-based Penta political studies center.

"Ukraine has become the next big disappointment for Europe,” he said. “In the end, Europe did not care to understand whether Ukraine was in the right or not. It saw only fact: we are not getting gas."

Meanwhile the country's economy, already in freefall from the global financial crisis, will have to deal with a significant increase in gas prices that is sure to hit its gas-dependent and crucial heavy-industry sector.

Analysts were already predicting that Ukraine's economy would shrink by about six percent this year, before the country agreed to pay more for gas this year and an even higher rate in 2010, when it moves to full European prices.

The economic impact of the gas crisis will also determine who in Ukraine's deeply divided political scene will eventually benefit from the deal, analysts said.

Ukrainian Prime Minister Yulia Tymoshenko, who negotiated the deal, is a bitter political rival of President Viktor Yushchenko and the two were frequently at odds during the crisis.

Both are expected to be candidates in a presidential election due in late 2009 or early 2010.

The Ukrainian presidency quickly came out against the deal Tuesday, with the deputy head of the presidential administration, Oleksandr Shlapak, saying he was "disappointed and devastated" by the agreement.

Wilson said the political fallout will depend on the final gas price Ukraine ends up paying under market rates throughout the year.

Ukraine will pay much higher gas prices in the early months of 2009 than it did last year, but its rates may fall significantly if market prices drop in the next few months.

"Tymoshenko was the main actor in reaching the agreement and seems most likely to take the credit or blame for it," Wilson said. "If the period of high prices is relatively short and the long-term price stabilizes ... then this will be seen as a victory for Tymoshenko."

Michael Mainville /AFP/Expatica

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