Russia’s Crisis Management

The global financial crisis is bad for the West, and it is bad for Russia, but many hope it can be good for their relationship. The United States and the European Union see an opportunity for Russia to help contain threats from Iran and North Korea, and Russia hopes that economic engagement with the West can help modernize its economy. This optimistic spirit of cooperation was on display at the first meeting between Barack Obama and Dmitry Medvedev last week at the G-20.

Unfortunately, as the crisis touches Eastern Europe, it also has the potential to usher in a new era of heightened tension. This, too, is an opportunity for Russia: to take advantage of economic distress to expand its sphere of influence. World leaders must keep an eye on these developments before relations can fully reset.

Russia’s crisis-born opportunism is best illustrated in the case of Ukraine. Last week, Russia independently postponed talks with Kiev because of a deal between Ukraine and the European Union over the gas supply system. Under the deal, the European Union will spend $3.4 billion to modernize Ukraine’s aging pipelines and tanks and build new gas metering stations. The deal did not make the Kremlin happy. Russia made its financial support to Ukraine and an expected loan of $5 billion contingent on the deal being revised.

The dispute over the modernization of Ukraine’s gas supply system is a dispute over the very sovereignty of Ukraine. Kiev has been hit extremely hard by the global financial crisis. The combination of economic recession and growing political dysfunction has put the country on the verge of state collapse. Russia has seized the crisis as an opportunity for realizing its ongoing strategy of de-sovereignizing the post-Soviet states. The Kremlin envisions a system of international control, exercised by a consortium of Gazprom and Gazprom-friendly Western companies over Ukraine’s gas transportation system, as the second-best alternative to Russia actually owning the pipelines.

The pipeline system is the only strategic weapon the Ukrainian state has at its disposal. Without it, Ukraine’s strategic relevance would shrink to zero. Russian Prime Minister Vladimir Putin and company are fully aware of this fact, and their ambition to get control over pipelines in the post-Soviet space is at the heart of Russia’s regional policy.

The European Union is worried about state failure in Ukraine and sees strengthening the sovereignty of the post-Soviet states as the key objective of its strategy for the region. This objective explains how the modernization loan came in. The escalating fight over Ukraine’s sovereignty could easily turn into a catalyst for greater competition in the post-Soviet space.

And Ukraine is not the only country at risk. In late March, Russian oil company Surgutneftegaz acquired a 21 percent stake in Hungarian energy company MOL from Austrian gas and oil company OMV AG without preliminarily informing the Hungarian side. Both the Hungarian government and the opposition vigorously rejected the deal. They fear that Russia is exploiting the financial crisis in Eastern Europe to put the region’s energy market under its control.

The growing tension within Russia’s ruling tandem is one more factor that will make a strategic opening to the West much more problematic than Washington hopes. In the brewing Kremlin war between the prime minister and the president, Medvedev will be cautious in opening to the West while Putin will not shy away from mobilizing anti-Western sentiment if it will help him to stay in charge.

In short, the global financial crisis might indeed offer a chance to improve relations between Russia and the West. But don’t be surprised if the relationship goes dead wrong instead.