1.1. Ukraine and Russia: Trading insults.
Souvenirs of a common history
Nobody could accuse Sergei Glazyev of ambiguity.
New Russian trade restrictions with Ukraine were a warning against the “suicidal” step of signing an association agreement with the European Union, said President Vladimir Putin’s chief economic adviser. And if it went ahead, the rules could become even tighter.
For its part, the EU termed Russia’s stance “unacceptable”. Russia is making increasing efforts to deter the biggest country in its former empire from looking west and to prod it into joining the rival, Kremlin-led Eurasian Customs Union instead.
As an EU summit in Vilnius in November nears, the means include soft power (talk of a shared Orthodox heritage), carrots (cheap gas and access to markets) and sticks (trade sanctions).
Russia wielded the stick in July with a ban on confectionery produced by Roshen, a big Ukrainian company, allegedly because it contained carcinogens. This was odd: other customers had not complained.
On August 14th Ukraine’s employers’ federation, whose members account for 70% of GDP, said stricter Russian customs procedures were paralysing trade. Russia accounts for a quarter of Ukraine’s exports; the restrictions could cost up to $2.5 billion in the second half of the year, the group said. Roshen said it will lay off 400 workers.
Zaporizhstal, a steelmaker, has pre-emptively halted exports to Russia.
Its parent company, Metinvest, owned by Ukraine’s richest man, Rinat Akhmetov, has complained about delays and selective searches that damage goods. But the pressure seems to have been applied unequally.
Only some businesses reported blockades. Others said goods flowed unhindered.
The leading light in the employers’ federation is Dmitry Firtash, an influential tycoon who once ran a lucrative gas intermediary called RosUkrEnergo (now defunct), and whose business interests are closely linked to the Russian market.
Putting pressure on him, some think, could be a good way of reaching Ukraine’s president, Viktor Yanukovych.
The losses from the trade squeeze may be less than claimed. Dragon Capital, an investment bank in Kiev, put the figure close to $500m. Ukrainian officials now say Russia has backed down, though nobody in Moscow has confirmed this.
At any rate, Ukraine is in no position to wage a trade war. Record payments to redeem foreign debt are due this year.
The economy is in recession and foreign-currency reserves have tumbled below the safety threshold of three months’ worth of imports. Russia can also apply pressure on other fronts, such as gas. Ukraine is approaching winter still 3.5 billion cubic metres (bcm) short of the paltry 12.5bcm of reserves it plans to have for the start of the “heating season” on October 1st.
Last year it had 20bcm. Naftogaz, the state gas company, is drowning in debt and burns a growing hole in the state budget each month.
In previous years, Russia’s attempts to apply political pressure by cutting gas deliveries have hit Ukraine—and EU countries that import Russian gas through it.
Wojciech Kononczuk of OSW, a Warsaw think-tank, estimates that Ukraine should have at least 5 to 6bcm more by now.
The Kremlin will watch and wait as its negotiating position strengthens, and Ukraine’s weakens, he reckons.
A gas war is unlikely: there will be a deal, the only question being whether, for Ukraine, it will be “very bad or just bad”. Another tussle with Moscow concerns the airwaves.
Mr Firtash owns Ukraine’s biggest television channel Inter, while
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