steps toward the construction of a pipeline circumventing Ukraine – its only route to Europe to date.

For technical reasons, Russia hasn’t been capable of shutting off gas supplies to Ukraine because to do that, it would also stop supplies to Europe.

The new Russian pipeline (to be built in about a decade) would theoretically pump around 30 billion to 60 billion cubic meters per year to Europe via Belarus and Poland.

In theory, it would help Russia pump more of its gas to Europe.

Europe, which consumes about 400 bcm annually, gets around 80 bcm of gas a year from Russia. Much of the rest comes from Algeria and Norway.

Europe’s demand for gas, however, is expected to increase dramatically in the next decade. One of the main reasons: A new “Green Germany” is planning to close down its nuclear power plants.

How would Europe get the rest of its Russian gas? Via Ukraine’s pipeline.

Once patched up, Ukraine’s pipeline could supply Europe with about 200 bcm annually.

Today, it transports about 120 billion cubic meters per year, with Ukraine getting 30 billion cubic meters as payment for the transit. The rest goes to Europe. Ukraine uses about 80 bcm a year.

Thus, Russia still would need to pump gas through Ukraine for many years.

But that’s not exactly good news for Ukraine.

Continued tension between the two countries would no doubt continue. Russia would say Ukraine is stealing gas … blah, blah, blah …

Russia has already started talks with European officials, and Ukraine has been left out. Ironically, the only country to take a public stand on “European-minded” Ukraine’s side was neighboring Poland. At first, Poland’s support seemed like good news for Ukraine. In reality, it just bought Ukraine some time and was even worse in the long-term. Static between Russia and Poland is even worse than tension between Russia and Ukraine.

A cold relationship between the two neighboring countries would continue. This would be bad for Ukraine, Russia and Europe.

Money is not made from wars like it once was. Markets dependent on growth and expansion now rule the world. Stability is imperative.

So what is Ukraine to do? Sell its entire pipeline to Russia?

Perhaps.

Russian oligarchs no doubt would rather control Ukraine’s more economical transit than one circumventing the country.

Putting the entire pipeline in the hands of Russia would not be so bad for Ukraine. The Russians would patch it up and force Ukrainian consumers to pay up. As a result, much of the friction between Russia and Ukraine would dissipate.

The situation would be stable.

Ukraine, however, appears to have come up with a better solution – a solution that Russia might not like today, but is sure to appreciate tomorrow.

Many Ukrainian officials have been busy the past two months ballooning the idea of giving control of the country’s pipeline over to a Ukrainian-Russian-European consortium, where each side gets a decent share.

In doing so, Ukraine has done more then slip into the gas talks between Russia and Europe.

If the deal falls through (and it probably will in one to five years), it would achieve more than stability between Ukraine and Russia. It would bring both Ukraine and Russia closer to Europe.

Let’s face it. Ukraine can’t integrate into Europe and leave an angry Russia behind. That would lead to a very tense relationship. Russia has made this clear in recent years.

Someone in the Ukrainian government (maybe Kuchma) apparently realized this when the Western-minded Tarasiuk from the post of foreign minister. He was a nice guy, but he seemed to think he could get Ukraine into Europe while ignoring Russia.

It’s no coincidence that the consortium idea came up at the same time Tarasiuk got fired.

Nevertheless, Russia’s Gazprom cronies will still will be fighting for the rights to the Ukraine’s entire pipeline.

But if – or when – Europe embraces the consortium idea more actively, Russia, as a country, won’t be able to turn it down.

Russia needs better access to world markets, including Europe. While Europe can’t turn away from Russian gas, it can – and does – place quotas on Russian and Ukrainian imports.

Remember the days when kings used to marry off their daughters to neighboring kingdoms to achieve alliances? Things haven’t changed much since then.

By splitting the pipeline among all three sides, everyone ends up satisfied, interdependent and secure.

The Ukrainian side has just started floating this idea. It’s now up to Europe to fully embrace it.

But does Europe want Russia (or Ukraine for that matter) in the European Union?

It’s probably thinking about this right now.

And what would then happens to the rest of the former Soviet republics that today have close ties to Russia? Do they get left out? The answer is no.

Let’s face it. Globalization is spreading, and the EU is only temporary.

Neither Ukraine, nor Russia, need to be EU members. They just need to start breaking down economic barriers and forming new economic bridges.

Computer-wired investors can’t be held back anymore by trade barriers. If they are, they will run business offshore.

There are a couple of hitches to such a deal. How much does the pipeline cost? And who gets how much of a stake?

The EBRD estimated the value of Ukraine’s pipeline at $26 billion. Remember, however, it’s outdated and still needs to be patched up. Some Ukrainians say it’s worth more and that the country might be better off waiting for a higher price.

Nonsense.

Ukraine’s economy is already behind.

By splitting ownership rights in the pipeline at around 30 percent among itself, Russia and Europe, Ukraine could get enough cash to cover most of its debts – both foreign and domestic. Then the nation could turn away from major foreign loans and start concentrating on real reforms.

Or, Ukraine could use the revenues to diversify its energy sources. It seems $26 billion could buy a lot of wind-powered electricity generators, for instance.

Others, however, say “the country should never sell such a strategic enterprise.” It would be compromising the country’s national interest, they say.

Again, one of Ukraine’s major national threats are its intimidating neighbor and the fact that it’s pretty much still closed off from the West economically.

The consortium pipeline deal would cool down Russia by bringing it closer to Europe and open doors to Western markets.