A Setback in Ukraine's Relations with the European Union

4 MINS READNov 21, 2013 | 16:49 GMT
A Setback in Ukraine's Relations with the EU
Ukrainian President Viktor Yanukovich at a news conference in Vienna on Nov. 21.

In the wake of the Ukrainian parliament's decision not to allow prisoners to seek medical treatment abroad and the government's decision to put preparations for the signing of agreements with the European Union on hold, it is unlikely that the European Union and Ukraine will sign the proposed association and free trade agreement at the third Eastern Partnership summit Nov. 28-29.

Though a deal is unlikely, Ukraine will remain focused on the long-term goal of stronger ties with the European Union to balance against the influence of Russia. As the contest for influence in Ukraine continues, Slovakia will become more important for its potential ability to supply Ukraine with natural gas.

Kiev's decisions are related to Ukraine's historical efforts to maintain its independence by balancing between East and West. Although closer ties with the European Union could help mitigate Russian influence in the long term, there are few immediate economic benefits Brussels can offer to counteract what Moscow would do to punish the Ukrainian economy for closer ties with the union. In recent months Russia has demonstrated its ability to weaken Ukrainian economic sectors through trade restrictions. At the same time, Russian President Vladimir Putin probably offered investment and better energy deals during recent bilateral meetings as incentive for Ukraine not to sign the association agreement.

If no agreement is signed with the European Union, Ukraine would probably look to normalize relations with Russia. Even if Ukraine normalized ties with Russia, it would still be in the national interest to keep its options open for closer ties with the West, particularly to weaken Russia's leverage in the natural gas sector. Apart from efforts to increase domestic natural gas production, Ukraine's pipeline connections to EU members are important alternative supply lines.

Ukraine: A Critical Decision Lies Ahead For Kiev

Russian-European Natural Gas Networks

Earlier in the week, the European Union said it could help Ukraine weaken Russia's grip, particularly in the natural gas sector. Ukrainian and EU officials said Nov. 19 that Slovakia and Ukraine were working on a deal that would allow Ukraine to get some of its natural gas from the West instead of Russia. The natural gas would come from reverse flows, meaning it would still be Russian but it could be purchased at a lower price than what Ukraine's national natural gas company pays when it buys directly from Gazprom.  

In the past year, Ukraine has imported natural gas from Poland and Hungary in this manner, but it was at relatively low volumes. These instances of reverse flows make it more difficult for Gazprom to introduce high price differentials between markets and limit Ukraine's imports from Gazprom. In 2012, Ukraine imported 30 billion cubic meters of natural gas from Russia, and it hopes to cut imports this year.

Slovakia's Importance

Because of pipeline capacity, the most important reverse flow option for Ukraine is the connection to Slovakia. Pipelines with a technical capacity of more than 80 bcm per year currently transport natural gas from Ukraine to Slovakia. Under the reverse flow plan, it is likely that a new interconnector would be built for around 20 million euros ($27 million) to transport natural gas back to Ukraine. Slovakia could send an estimated 10 bcm of natural gas to Ukraine per year, Ukrainian officials said.

European Union

European Union

Its role in the natural gas discussion means Slovakia will likely face constant pressure from the European Union, Ukraine and Russia. Bratislava's hesitance is an important reason that the reverse flow has not materialized. Slovakia fears that its relationship with Russia will sour if it offers Ukraine an alternative supply of natural gas.

In October, Gazprom CEO Alexei Miller visited Slovakia to discuss the bilateral energy relationship with Prime Minister Robert Fico. Both sides agreed to strengthen ties, though nothing was publicly announced. Unlike in other countries, Russia does not have a stake in Slovakia's natural gas network and thus has little direct control. In addition, EU legislation will make it difficult for Moscow to gain influence in the country's natural gas sector.

However, Russia can still try to strengthen ties by, for example, offering lower natural gas prices or investment in other areas. Like Bulgaria and Hungary, the Slovakian government tries to appease voters through lower energy prices. Moscow can also threaten to reduce the role of Slovakia as a transit state if the South Stream natural gas pipeline is completed. 

While Slovakia is one of the European Union's best options to aid Ukraine in its feud with Russia over natural gas prices and supplies, Brussels has limited options to pressure Bratislava. The bloc could threaten to reduce EU funds flowing into Slovakia, but this is difficult because so many institutions are involved in the decision to release funds and the union lacks a cohesive foreign policy.

Given the unlikelihood of the association agreement being signed, it is also less likely that natural gas will flow from Slovakia to Ukraine anytime soon. Nonetheless, the possibility of reverse flow is likely to remain one of the main advantages for Ukraine in its dealings with Russia over natural gas in the future.

The battle for influence in Ukraine between the West and Russia will persist, and Kiev will continue to try to use their interest to its advantage and to ensure that neither side gains complete control.

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