UKRAINE: VISITS HIGHLIGHT POSITIVE AND STABLE MID

C O N F I D E N T I A L KYIV 000774

SIPDIS

SIPDIS

DEPT ALSO FOR EUR/UMB AND EUR/PRA

E.O. 12958: DECL: 04/16/2018
TAGS: PREL PGOV ENRG ETRD IR IZ ZR ZP UP
SUBJECT: UKRAINE: VISITS HIGHLIGHT POSITIVE AND STABLE MID
EAST RELATIONS

REF: A. 07 KYIV 2752

B. 07 KYIV 1727

C. 07 KYIV 764

Classified By: Deputy Chief of Mission Jim Pettit for
reasons 1.4(b,d)


1. (C) Summary and Comment: Although recent high-level
Ukrainian visits to the Middle East seem to suggest a growing
GOU interest in the region; when viewed in context, however,
the visits are the most recent in a string of Middle East
initiatives long on grandiose announcements of increased
cooperation and friendship but short on actual concrete
results. In general, Ukraine's major political players do
not view aggressively pursuing closer Middle East ties as a
priority given the limited role Ukraine can play in the
Middle East. As President Yushchenko's recent visits to
Egypt and Libya suggest, Ukraine's interest in the Middle
East is largely economic. The recent visits highlight the
desire of Ukraine's political leadership to keep the positive
relationship Ukraine has with Middle Eastern countries on an
even keel, while avoiding closer ties with Iran and, based on
its economic interests, maintaining balanced bilateral ties
to Israel, a country visited by President Yushchenko in
November 2007 and home to many former Ukrainians who have
invested in Ukraine. Yushchenko's visit to Libya raised some
eyebrows, however, as Yushchenko was apparently duped into
laying a wreath at the Monument to the Victims of the 1986
U.S. bombing. Additionally, Yushchenko and Qadhafi agreed to
restart a long dormant energy project (whose purpose and
details remain murky) and announced a joint venture to
service Mi-8 helicopters in Libya. (Note: MFA Arms Control
Director Belashov told us April 16 that state-owned arms
exporter Ukrspetsexport and the Ministry of Industrial Policy
are very interested in following up on possible business
deals with Libya.) End Summary and Comment.

Yushchenko's State Visits to Libya and Egypt
--------------


2. (U) President Yushchenko made an official visit to Libya
on April 7-8, and Egypt on April 9-10, ostensibly focusing on
bilateral economic relations. Yushchenko discussed possible
extended cooperation with Egypt in satellite control systems
and launches to coincide with Egypt taking control of its
first remote-sensing satellite (designed and put into space
by Ukraine). Yushchenko apparently discussed further
economic integration with his Egyptian counterparts but no
actual formal trade deal was announced. Likewise, in Libya,
with Yushchenko and Qadhafi present, the Foreign Ministers of
Ukraine and Libya signed a bilateral cooperation agreement
which included provisions for legal assistance in civil and
criminal cases; guidelines for extradition, visa-free travel
for certain visa classes; and a memorandum of joint
invQin agriculture. The proposal on agriculture
envisions Libya growing crops on Qctares of land in
Ukraine, an ambitious and highly unrealistic proposal. In
fact, no speciQmplementation were announced, leaving
most observers to question what exactly this agricultural
agreement entails. In addition to the various cooperation
agreements, Yushchenko announced Ukraine's intention to
create a joint venture with Libya to service Mi-8 helicopters
in Libya and to pursue aircraft repair projects in Libya.
Alexander Bohomolov, head of the Association of Middle East
Studies (and frequent advisor to the GOU on Middle East
issues) sees some potential for increased trade with Egypt
and Libya, but is skeptical that anything concrete was
achieved in either visit.


3. (C) More importantly, Yushchenko announced the restart
of a long dormant program (5 years old) for exploration and
production of oil and gas fields in Libya. Yushchenko blamed
"bureaucrats" for the program's lack of any discernible
progress to date. Bohomolov's assessment (he actually took
part in the original oil and gas negotiations) is that
Ukraine has neither the technology nor the will to profitably
develop oil fields in Libya. Bohomolov passed along his
belief that any money Naftohaz has spent or is spending on
this project is ending up in numbered accounts abroad.
Viacheslav Shved, Vice President of the Ukrainian Center for
Islamic Studies, a think tank closely connected with MFA and
the Presidential Secretariat, agrees with this assessment.
(Comment: In the updated deal, Libya has apparently
re-granted Ukraine the rights to develop one oil field out of
the original four oil fields agreed upon five years ago.
Many commentators have expressed the opinion that foreign
energy development projects such as these serve as nothing
more than a way for Naftohaz to siphon money from public
coffers into private accounts. Naftohaz's apparent technical
inability to develop this oil field and complete lack of

progress on this endeavor in the last five years lends
credence to this theory. From the Libyan side, using
Naftohaz to develop gas and oil fields makes little or no
business sense leading both Bohomolov and Shved to wonder
what the Libyan angle is in reviving this deal. End Comment.)



4. (C) Shved believes Yushchenko advisor Yousef Hares is
the main player behind the deal. (Note: Hares is President of
the Haras Group whose dealings involve metal production, real
estate, and oil production. Hares is Syrian born and
apparently has Austrian citizenship. Hares was named a
freelance advisor to President Yushchenko on the Middle-East
in October, 2007. End Note.) Shved believes that Hares has
convinced Yushchenko that the long dormant project is
profitable and could possibly open a new source of energy
resources to Ukraine. Shved surmises that Hares is rewarding
himself handsomely through kickbacks and other dubious
financial arrangements. When questioned about the deal
specifics, Yushchenko sidestepped, telling skeptical
journalists that "(w)hat counts most is that we have received
the political go-ahead to revert to the projects that were
planned five years ago and have not been implemented." Shved
says Yushchenko is only tangentially interested and not
directly involved in the Naftohaz project, noting that
Yushchenko's first priority for the visit to Libya was to
receive Qadhafi's support in naming the Holodomor (Stalin
induced 1932-1933 famine) a genocide. (Comment: At first
blush, Holodomor recognition may seem like an odd choice for
a primary bilateral foreign policy issue. However, President
Yushchenko made Holodomor recognition a top issue in his
official visit to Israel in November, 2007, and in many other
international fora. End Comment.) Apart from speculation on
various intrigues, Shved and Bohomolov on balance view the
Yushchenko visits as largely fruitless with minimal to no
concrete results.


5. (C) Yushchenko committed an embarrassing gaffe when he
inadvertently laid a wreath at the Memorial to the Victims of
the U.S. 1986 bombing of Tripoli. Ihor Hrushko, Director for
the Second Territorial Department at MFA, relayed to the DCM
that Yushchenko had been duped into laying a wreath at the
monument. Hrushko noted that the Libyan side had requested a
wreath laying at the Memorial, but Ukrainian Presidential
Protocol had rejected it. Instead, Yushchenko agreed to lay
a wreath on the grave of Qadhafi's father. Apparently, the
two sites are within a few feet of one another and Qadhafi
guided Yushchenko to the Memorial to the Victims of the U.S.
rather than his father's grave. Hrushko explained the
inscription was in Arabic, so Yushchenko followed Qadhafi's
lead. Yushchenko was then handed a second wreath and guided
by Qadhafi to lay it on his father's grave. Only then did
the Ukrainian side realize what had occurred. The schedule
for Yushchenko's official visit to Libya that MFA provided
the DCM does not include any mention of a wreath laying at
the Memorial. (Comment: We find this version of events to be
credible. Additionally, Shved and Bohomolov both indicated
that they felt Yushchenko was almost assuredly duped, with
Bohomolov adding that the Libyans are "always doing that kind
of stuff.")

Turchynov to Saudi Arabia and Yekhanurov to Algeria
-------------- --------------


6. (U) While President Yushchenko was in Egypt, First
Deputy Prime Minister Oleksandr Turchynov visited Saudi
Arabia. On April 9, the two countries signed an agreement on
mutual protection of investments and have agreed to discuss
cooperation in the aerospace, banking, and navigation
industries. Turchynov gave high marks to his meeting with
the Saudi King, calling it a good open meeting. The only
tangible result of Turchynov's visit was the announcement
that AvtoKrAZ Holding Company (a heavy vehicle supplier based
in Kremenchuk, Poltava Region) and the Abdullatif Alissa
Automotive Company signed a distribution agreement, although
the specifics of which have yet to be decided. Completing
the GOU Middle East blitz, Defense Minister Yuri Yekhanurov
visited Algeria and signed a bilateral military cooperation
agreement allowing for the exchange of defense attaches and
the retooling of Algeria's military equipment, much of which
is of former Soviet vintage.

Positive Neutrality - A Rational Approach
--------------


7. (C) All commentators agree that the Middle East is not
an MFA focus. The GOU is happy for the time being
maintaining the status quo. Although increased trade and
Middle East investment are welcome, the GOU has no

overarching vision as to how to bring this about. Bohomolov
notes that Ukraine's embassies in the Middle East provide
reporting from the field, but these reports are of marginal
value and ignored since relations with the Middle East are a
low MFA priority. Shved blames the instability of the
Ukrainian political scene as part of the problem -- when
Foreign Ministers come and go so quickly, nothing meaningful
gets accomplished on issues of secondary importance.
Vladimir Saprykin, an energy analyst at the highly respected
Razumkov Center think tank, agrees. He says former Foreign
Minister Tarasyuk was completely uninterested in the Middle
East. He has no indication from his wide range of contacts
that any current high level government officials or policy
makers are engaged in Middle East issues. Even Mykola
Leshchenko, director of MFA's 3rd department (which includes
Egypt, Libya, Algeria and the Gulf States but not Iran)
tacitly admitted this, agreeing that the Middle East receives
very little attention within the MFA. Leshchenko stated the
GOU's goal in the Middle East is to maintain a "positive
neutrality". All commentators agree that FM Ohryzko will
not devote and has not devoted any more than minimal time to
Middle East issues and is focused on EU/NATO integration and
Russian relations.


8. (C) Domestic politics also factor in to Ukraine's Middle
East Policy. Politicians of all stripes are reluctant to be
seen choosing sides in Middle East conflicts lest they offend
the large Muslim Tatar community focused in Crimea; a sizable
Jewish community in Ukraine; or the multitude of Jewish
pilgrims who visit various Hasidic sites every year.
Leshchenko admits that Ukraine has no political agenda in the
Middle East (other than a just peace between Israel and
Palestine and overall regional stability). Leshchenko also
confirmed Bohomolov's view of Ukraine's embassies in the
Middle East. He indicated that the main reason for a
substantial Ukrainian diplomatic presence in the Middle East
is to handle consular issues, with economic and political
issues a distant second priority. Leshchenko says as a
practical matter a consular focus is correct. In addition to
Ukrainian tourists who visit various Middle Eastern
destinations, Leshchenko estimates 300,000-500,000 former or
current Ukrainian nationals reside in Israel, and thousands
of Ukrainian citizens are in the West Bank, Gaza, and Lebanon
who also require consular services.


9. (C) Shved and Bohomolov both indicated that they believe
Ukraine is in a good position to help the Middle East peace
process. They note the historical and social ties with
Israel and generally positive relations with Arab states.
Ukraine's lack of an obvious political interest in the Middle
East lends it a certain credibility according to the experts.
Both note, however, that Ukraine's domestic political
situation severely limits any positive role Ukraine could
play in the Middle East as major politicians spend the
overwhelming majority of their time on domestic politics.
While both are critical of the MFA's general neglect of the
Middle East, both acknowledge that Ukraine has only a small
role to play in the Middle East. Given Ukraine's limited
resources, they feel Ukraine could do things around the
margins (cultural exchanges, student exchanges, small
business initiatives and other such programs) but ultimately
admit the focusing on the Middle East is, and should be, a
secondary foreign policy priority.

Limited Investment and Trade but Booming Travel
-------------- --


10. (C) Apart from Iran, which has been very aggressive in
pursuing closer relations, Middle Eastern countries are not
pursuing stronger bilateral relations with Ukraine. (Note:
Various commentators indicated this is a result of Iran being
viewed as a pariah and trying to initiate relations with any
country that is cordial rather than Iran having any
particular interest in Ukraine. End Note.) Leshchenko noted
that the MFA is interested in having Saudi Arabia and UAE
establish missions here to help facilitate investment. Saudi
Arabia has indicated no desire to establish a mission in
Ukraine although the Saudi Monarch apparently expressed
"sympathy" to the idea on Turchynov's recent visit. UAE has
said that, although they are planning on establishing a
mission in Ukraine, they do not have the "technical capacity"
to staff an Embassy. Bohomolov pointed out that Ukraine
deludes itself into thinking it is attractive to large-scale
Middle Eastern investment. Nevertheless, the GOU
occasionally will go on trade missions to the Middle East
which are politely received. Bohomolov, who has served as an
interpreter for various trade missions, notes that the
initiatives are always poorly thought out; cannot provide any
specifics on how or where to invest; and make no feasible

sales pitch. Bohomolov said these initiatives would not
convince anybody with any business sense to invest one dime
in Ukraine; noting that he often feels somewhat embarrassed
translating these ham-handed proposals to unimpressed and
uninterested Middle Eastern businessmen. Although not
involved in any of the recent GOU visits to the Middle East,
Bohomolov indicated that he has seen no evidence that the
four recent visits were anything different. Bohomolov says
he hears sporadic reports of Arab investors in the area, but
says until Ukraine gets its internal economic house in order,
no substantial Middle Eastern money will flow into Ukraine.


11. (C) Bohomolov says business relations with the Middle
East are alive and well, but strictly commercial. Leshchenko
put the total value of trade between Ukraine and Middle
Eastern states (excluding Iran which is around $800 million)
at around $3.1 billion in the last nine months of 2007. Of
that, Ukraine exports make up $2.9 billion, mainly in metals,
fertilizers, industrial chemicals, and food stuffs.
Leshchenko puts imports from the Middle East at around $200
million, which are mostly citrus fruits and similar
foodstuffs. Bohomolov agreed with the numbers, but opined
that there is little foreseeable area for greater economic
integration. According to him, Ukrainian businessmen
(including himself) tried during the Kuchma era to capitalize
on old Soviet-Arab business relations with virtually all of
the Gulf States and Iran. Bohomolov said, except for a few
niche firms (travel agencies geared to Russian speakers
visiting the Emirates and Egypt),nobody made a go of it.
Some larger firms have been successful selling foodstuffs,
metals, and chemicals; however, the vast majority of small to
mid-sized businesses failed miserably and have little desire
to re-enter the Middle Eastern marketplace. Bohomolov blamed
the complex way of doing business in Arab countries as
baffling to fairly unsophisticated Ukrainian firms. In his
opinion, basic commerce is currently the only viable way for
Ukrainian firms to conduct business in the Middle East.


12. (C) For the average Ukrainian, the Middle East has
proven to be a popular tourist destination. Bolstered by
Ukraine's proximity to the Middle East, warm weather, and the
relative ease of obtaining visas (Egypt is visa free),
Ukrainians flock to the Middle East during the cold winter
months. As salaries rise and more Ukrainians can afford to
travel, tourism to the Middle East will continue to boom.
Thousands of Ukrainians visit Sharm-el-Sheikh, other parts of
Egypt, Israel, and the UAE each year. Ubiquitous billboards
in Metro Stations and along city streets advertise Middle
East packages and charters for all budgets (American Embassy
employees also frequently take advantage of these offers).

Iranian Gas - Too Good to be True
--------------


13. (C) Obtaining gas via pipeline through Iran is an issue
that does not go away. Shved noted that since independence,
the GOU has flirted with the idea of creating pipelines from
Iraq (oil) and Iran (gas) linked to Europe through Ukraine.
An alternative source of energy would free Ukraine from
Russian political blackmail; it would be profitable to
Ukraine to collect transport fees; and Ukraine has the
infrastructure and know-how to transport Middle Eastern oil
and gas to the EU. Former President Kuchma made numerous
visits to the Middle East including Libya and Iran but
achieved vary little by way of actual results. Kuchma's push
for greater relations culminated in former Iranian President
Khatami's official visit in the fall of 2003. Shved dryly
noted that every so often, Ukraine engages in half hearted
discussions with Middle Eastern countries about energy
supply. Shved says the idea of obtaining gas from Iran is
always floating around in the background but is entirely
unrealistic. Saprykin agrees with Shved's assessment.
Saprykin says economic and technical realities make the idea
of diversifying Ukraine's energy supply by using Middle
Eastern sources unrealistic.


14. (C) Shved and Saprykin say that Ukrainian politicians
are initially interested in a gas pipeline to Ukraine from
Iran but quickly discard the idea when faced with the actual
realities. Shved noted that as Prime Minister both
Yanukovych and Yushchenko had studied the issue briefly.
Yushchenko went as far as sending Petro Poroshenko (a top
Yushchenko aide and advisor) in early 2005 to visit Iran and
explore the feasibility of pipeline projects. The Iranian
Ambassador to Ukraine, Said Musa Kazemi, lamented in a recent
newspaper interview the lack of progress in Ukranian-Iranian
relations in the last few years. Shved and Saprykin agreed
saying that since early 2005, Iranian-Ukrainian relations
have been effectively dead. Both noted that the Iranians

have been very aggressive in trying to restart talks but none
of the major political players in Ukraine are remotely
interested. According to Saprykin, all three politicians
(Yushchenko, Tymoshenko, Yanukovych) are keenly aware of the
major technical issues to overcome. Apart from the technical
problems, Ukraine's political leaders of all stripes see
engaging Iran as at least detrimental and potentially
suicidal as far as Ukraine's EU or NATO aspirations.


15. (U) Visit Embassy Kyiv's classified website:
www.state.sgov.gov/p/eur/kiev.
Taylor