The whole reason behind Cyprus’ sudden decision
to impose a new tax on banking deposits was due to the country’s need for a
bailout of 10 billion euros from the European Union. The tax was a condition of
the help.
Russia, whose political and economic elite holds
anything between 5 and 10 billion euros in those deposits, according to Cyprus
Central Bank Chief Panicos Demetriades, hinted early on that it could help out
financially to such a friendly country in dire needs.
Russia has foreign exchange reserves worth $537
billion (as of January), the world’s fourth largest, according to Reuters. So
it certainly could afford to lend a few of those billions — particularly
considering that it would be on more or less commercial terms.
What happens next is Russia changes its mind. And
says it will reconsider its policy of holding part of its reserves (more than 40 percent
at the moment) in euros.
Timothy Ash, a prominent London-based analyst,
says that Moscow kills two birds with its tactic. “Indicating that it might
help countries like Cyprus and Iceland, it is both a means to reveal the weak
state of the West, i.e., that it is unable to sort its own problems out, but at
the same time it is an opportunity to ‘big up’ its own new found financial and
economic prowess,” he says.
So, for Ukraine, which is currently in the
middle of negotiations with Russia, the lessons are very serious and
long-ranging. For one, Russia’s promise of help or deal, means nothing. It can
back out any minute just to flex its muscles, even when it has nothing to lose
and possibly has something to gain.
So this would be a good premise to consider
during the negotiations over Ukraine’s gas transit network. Russia has been
trying to bully Ukraine into signing a two-way consortium to manage its gas
transit system. But there are more conditions being attached to it.
Prime Minister Dmitry Medvedev said recently
that Ukraine has to guarantee that the consortium agreement with Gazprom cannot
be annulled under any circumstances. For this, Ukraine would have to denounce
the Energy Charter with the European Union.
The Energy Charter, an agreement of 53 European
and Asian countries, is based on the idea of designing a reliable international
energy supply network, which is mutually beneficial. It sets the rules for
international energy relations in a clear, transparent and competitive manner.
Gazprom’s management of Ukraine’s pipeline
would violate one of the basic principles of the European Energy Charter, which
does now allow producers of gas to control supply routes. About
29 percent of Europe’s total gas supplies come via
Ukrainian pipes.
Gazprom is already in conflict with the Energy
Charter, which became a basis for a European Commission investigation in
September 2012. Gazprom is accused of preventing diversification of gas supply
routes, hindering gas flow across borders and imposing unfair prices for gas.
Ukraine, which falls victim to Russian gas
bullying very often, would lose out if it accepted Medvedev’s conditions. The
nation, whose energy imports are nearly 100 percent dependent on Russia, could
very much benefit from being a member of a treaty that outlaws such behavior –
if it actually bothered to use the treaty for its own good.
Moreover, Russia insists that when the gas
transit system is under its management, no third party should be able to access
the pipeline. That includes Shell, Chevron and ExxonMobil who are all at
different stages of working towards extracting gas in Ukraine, out of shale and
offshore.
For these companies whose activity can
potentially make Ukraine independent from Russian gas, it is vital to access
the existing pipeline. This is a precondition to their operation, since the
alternative option is to build their own pipelines to distribute the gas they
extract, which would make the operation economically unsound.
Russia, whose tactic is to sabotage alternative
energy supplies in Ukraine, of course, objects and has expressed it in no
ambiguous terms.
But even if Ukraine accepts all those
conditions that Russia is piling up, its recent behavior with Cyprus (as well
as Ukraine’s own history with it) has shown that it might decide it does not
want to proceed with the deal.
The
failed Russian Cyprus bailout is a fantastic case study that shows that Russia
is driven by self-interest only, and chooses to demonstrate power just for its
sake. Ukraine should build its strategies taking this precious knowledge into
account.
Kyiv Post editor Katya Gorchinskaya
can be reached at [email protected].
