MOSCOW COMFORTABLE WITH UKRAINIAN DEVELOPMENTS

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 000930

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/24/2016
TAGS: PREL PGOV ENRG RS UP
SUBJECT: MOSCOW COMFORTABLE WITH UKRAINIAN DEVELOPMENTS

REF: MOSCOW 584

Classified By: Minister-Counselor for Political Affairs Kirk Augustine.
Reasons: 1.4(B/D).


1. (C) SUMMARY. Moscow continues to tell itself that it got
the best of Kiev in the year-end negotiations on gas supply,
according to the Russian MFA and a number of Embassy
contacts. As they see it, the gas deal was an economic boon
for Gazprom and the GOR, despite allegations of corruption
and ambiguities about the contract. They expect damage to
Russia's reputation as a reliable energy partner to be
short-lived. The lighthouse seizure in the Crimea was
regarded as a transitory issue linked to Ukrainian
electioneering, with a resolution likely after the scheduled
February 14 visit of Russian DFM Karasin to Ukraine. Our
contacts see the political status quo in Ukraine, with no
person or bloc in a commanding position, as being in Moscow's
interest. END SUMMARY.

Broad Acceptance of the Gas Offensive
--------------


2. (C) "We won" the gas dispute, MFA Ukraine Desk Senior
Counselor Vadim Gusev told us in a January 19 meeting. He
said the GOR achieved its main objective -- world market
prices for Russia's gas. Echoing points made by FM Lavrov in
a January 17 press conference (ref A),Gusev pointed to the
22 percent rise in Gazprom's capitalization just ten days
after inking the deal as an indicator that the markets had in
the end responded positively to the gas deal. Like other GOR
officials at all levels, Gusev insisted that the gas
controversy was a purely commercial dispute.


3. (C) Some Russian print editorials initially questioned
taking a hard line with a Slavic neighbor that shares
important industrial and commercial infrastructure, not to
mention social and cultural ties, and some analysts warned
during and after the crisis that the GOR's line on Ukraine
could push Kiev more precipitously into the West's embrace.
Since returning from an extended New Year's break, however,
the Moscow media have generally been supportive of the gas
deal, although some on the print side have accented concerns
about corruption in the gas sector and government.


4. (C) Many of our non-government contacts agreed with the
MFA's verdict, assessing that Moscow scored points with the
gas deal and expecting any damage to Russia's reputation to
be short-lived. Carnegie's Nikolay Petrov (frequently
critical of Kremlin policies) contended that the government's
strategy and tactics were "not bad," although its PR campaign
was not skillfully handled. Petrov said Yushchenko had been
effectively boxed into a corner and had to sign the deal, and
any other Ukrainian politician sitting in the President's
seat would have done the same. Petrov conceded that the
dust-up had dented Russia's international image and predicted
the Kremlin would take active measures in the near term to
address the problem. Ivan Safranchuk, Director of the Center
for Defense Information, agreed that the negative fall-out of
the gas deal would range from "short-term to shorter-term,"
since investors would increasingly be chasing Gazprom
dividends (he noted how quickly investors had forgotten
Yukos). Safranchuk pointed out that Ukraine was only one
element of the Kremlin's broader energy strategy, and said
the Kremlin sees no need to make concessions to Ukraine.
RFE/RL correspondent Vitaliy Portnikov declared that the big
winner in the gas deal was "corruption," but concurred that
Moscow had clearly bested Kiev. All three contacts strongly
believed that high-level officials on both sides lined their
pockets from the deal.


5. (C) Many of our contacts viewed the gas dispute with
Ukraine as a sign that the GOR had taken a generally sensible
new direction in its external policy. MGIMO Dean of
Political Science Aleksey Bogaturov (an advisor to Duma CIS
Committee Chairman Andrey Kokoshin) told us the gas dispute
was "nothing special" and cast it as a reasonable response to
Kiev's Western tilt. Dmitriy Furman of the Institute of
Europe (Russian Academy of Sciences) agreed that the dispute
reflected Moscow's revised post-Orange Revolution thinking
and represented a pragmatic, non-ideological turn vis-a-vis
the CIS. Petrov of Carnegie added that Kiev could not have
it both ways, blaming the GOR both for neo-imperialism and
for moving to world market gas prices.


6. (SBU) At the same time, other analysts noted the
downsides of the gas deal for Russia, with Carnegie's Dmitriy
Trenin, for instance, telling an interviewer that even if the
general policy of moving to world market prices was correct,
the "style" in which it was implemented had been
counterproductive, causing a "ricochet" that damaged Russia's
international standing, including its chairmanship of the

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G-8. On the "left-patriotic" front, there was criticism of
Putin for having "backed down" in the face of international
concern and allegations that the whole purpose of the gas
price hike was to financially benefit high-level industry and
government officials on both sides of the dispute.

Lighthouse Dispute Seen on a Different Track
--------------


7. (C) Voicing the official GOR line, Gusev insisted that
the lighthouse in Crimea seized by Ukraine belonged to the
Black Sea Fleet (BSF) per the 1997 agreement and that
procedures for joint use of the lighthouses were covered by
that agreement. He said Russia was not "looking for a
fight," however, and concluded that the matter could be
resolved during DFM Karasin's February 14 visit to Ukraine
under the aegis of the Inter-Governmental Commission's
Committee on the BSF.


8. (C) None of our unofficial contacts saw the controversy
over the lighthouse as Ukrainian pay-back for Russia's
putative win in the gas deal. Instead, our contacts
characterized the row as internecine Ukrainian political
posturing, more about pre-electoral back-stabbing than an
expression of Kiev's policy toward Moscow. Several observers
pointed to the positive glow -- "brotherly relations"
according to the MFA's Gusev -- surrounding the January 11
Putin-Yushchenko meeting in Astana to support their view that
Yushchenko was not behind the lighthouse seizure. Gusev
noted that Yushchenko gained "no advantage" from that
controversy and thus was unlikely to have instigated it.
Referring to reports that the Ukrainian Presidential
Administration was not initially in the loop on the Yalta
lighthouse seizure, Gusev wondered who really was in charge
in Kiev, and conjectured that the controversy might be a
political gambit by Ukrainian FM Tarasyuk. Several other
contacts also fingered Tarasyuk as being involved and agreed
that the seizures would be to Yushchenko's detriment in the
upcoming election. Notwithstanding the mutual official
recriminations (including rumblings by Defense Minister
Sergey Ivanov linking the issue ultimately to continued
Russian acceptance of the bilateral border),none of our
interlocutors were particularly excited by the lighthouse
controversy, considering it a matter of secondary importance
that would soon be resolved.

Ukrainian Elections
--------------


9. (C) New Moskovskiye Novosti Chief Editor Vitaliy
Tretyakov told us that the Kremlin was not backing any
candidate in the Ukrainian election. Carnegie's Petrov and
MGIMO's Bogaturov agreed. All three said Moscow wanted
stability in Ukraine and found the current situation there --
with no party or bloc dominant -- very much to its advantage.
In terms of forecasting, Portnikov saw a possible Yanukovich
alliance with either former PM Tymoshenko or Parliamentary
Speaker Lytvyn, while Petrov found a Yanukovich-Tymoshenko
alliance to be the most likely outcome, based on opinion
polls and the view that Lytvyn was not a genuinely autonomous
candidate with a sufficiently strong base. According to
Petrov, despite her designs on the Prime Ministership,
Tymoshenko was exceptionally pragmatic and would take a back
seat to Yanukovich if her showing in the polls was not
sufficiently strong.


10. (U) Other analysts have argued that the gas crisis had
led to an evolution in the Kremlin's previous reflexive
preference for Yanukovich in a way that makes clear the
political flexibility of all concerned. With Yushchenko
acting as the chief Ukrainian advocate of a gas deal that
Moscow sees as advantageous and Yanukovich and most of the
rest of the Ukrainian political spectrum critical of it,
there appeared, as the Center for Political Technologies
noted, "a basis for normal bilateral relations for the first
time since the Orange Revolution...now Viktor Yushchenko can
become more pro-Russian than his opponent, Russia's recent
ally Viktor Yanukovich."

Comment
--------------


11. (C) The GOR and many Russian politicians and analysts
were surprised by the strength of international criticism of
Russia's hard line on the Ukraine gas deal, but most
dismissed it quickly as "yet another" manifestation of a
growing "anti-Russian bias" in the West. Further efforts by
Moscow to bring Ukraine back into a Moscow-centric orbit will
certainly follow. Given the unique place that Ukraine
occupies in Russia's history and self-concept, successful
implementation by Kiev of an unambiguously "European"
modernization strategy would establish within Russia's own

MOSCOW 00000930 003 OF 003


cultural-historical sphere a powerful counter-model to the
direction Moscow has taken under Putin. Conversely, nothing
could more vigorously stimulate the pleasure centers of the
Russian political elite's collective psyche or do more for
Putin's domestic standing and legacy (at least as perceived
in the short term) than for him to be able to reel Ukraine
back into a reasonably secure position of subordination.


12. (C) Putin will thus continue to try to use both "sticks"
and "carrots" to show Ukrainians that succumbing to a Western
temptation would cost them more (in a broad and not simply
economic sense) than they would gain. As in the gas war, he
will try to avoid confrontation with the West, if at all
possible, and cast all overt Russian actions as being
consistent with contemporary international standards. Even
supporters of such efforts recognize, however, that if
Russian actions prove too ham-handed, they could easily turn
counterproductive both with regard to Ukraine's evolution and
to Russia's relations with the U.S. and Europe. The standard
by which the Russian political class -- and probably the
public in the 2007 and 2008 elections -- judges such actions
will be entirely pragmatic, i.e., the degree to which they
are successful.
BURNS