The bitter energy dispute between Ukraine and Russia has been resolved in a comprehensive agreement that Kiev and Moscow signed yesterday -- though there have been several false starts over the past three weeks. But if this latest pact holds, then by all accounts it is Russia that blinked first. While Ukraine's leaders will not crow about their success, Ukraine has pretty much gotten what it wanted: below-market rates for its own 2009 gas purchases. Ukraine's leaders also made it abundantly clear that they were not some unimportant factor in Russia-European gas trade. They showed that their gas pipeline system is critical to the continental gas transit system.
The conflict, which has interrupted gas flows to Europe for nearly two weeks, has been waged only in part over economic interests. In far greater measure it has been the expression of a political struggle. Moscow sensed that Ukraine's pro-Western politicians were bitterly divided, and that it could exploit their personal rivalries.
Almost four years ago, Viktor Yushchenko was elected Ukraine's president and widely hailed as the hero of the nonviolent mass civic protests known as the Orange Revolution. Today he is a leader who has lost the support of most Ukrainians; his approval ratings have fallen from well over 60% during the Orange Revolution to less than 5% now. He has even been abandoned by the majority of his own political movement, the Our Ukraine bloc, which last month ignored the president's calls to bring down the government and affirmed its backing for Prime Minister Yulia Tymoshenko.
As Mr. Yushchenko's political star has waned, that of Ms. Tymoshenko, his erstwhile Orange Revolution partner, is ascendant. Still, with Ukraine's economy already in free fall, Ms. Tymoshenko's recent success in withstanding the president's attempt to remove her as prime minister may prove to be a Pyrrhic victory and she, too, may see a steep drop in public support. Amid the gas row with Russia, plummeting industrial production, a fall of more than 50% in Ukraine's currency against the dollar, and massive layoffs on the horizon, Ukraine's president and prime minister need to find a modus vivendi. The political elite needs to consolidate and pass emergency measures to cope with an economic tsunami.
In recent months, neither leader appeared willing to compromise, and both engaged in an escalating campaign of political mudslinging. President Yushchenko and his staff accused Ms. Tymoshenko of "treason" as a result of her efforts to reach accommodation with Russia by taking a softer stance on the Georgia-Russia conflict and her tepid support for joining NATO. On Dec. 23, a top Yushchenko aide denounced Ms. Tymoshenko's ties to George Soros, whom the aide described as "an international currency speculator." Without any credible evidence, the aide called on the State Prosecutor's office to investigate whether Mr. Soros was profiting from speculation on Ukraine's weak currency.
In turn, Ms. Tymoshenko, also on scant evidence, accused the president and the head of the Central Bank of conspiring to bring down the value of the national currency, the hryvnia, and of providing liquidity to a bank allegedly associated with a pro-Yushchenko businessman. These actions, she claimed, enabled the businessman to profit from the currency's decline.
It's no wonder, then, that Ukraine's toxic political atmosphere represented a tantalizing opportunity for Russia to exploit internal divisions. Vladimir Putin has never accepted Ukraine's pro-Western tilt since the Orange Revolution. By provoking internal and international anxieties, the Kremlin sought to promote a change at the top in Ukraine and to reassert its influence in a fellow Slavic country in its geopolitical backyard.
But Russia appears to have miscalculated. First, its efforts to blame Ukraine alone for the gas cutoff were rejected by Europe, which understood that Russia played an important part in provoking and prolonging the crisis. As important, Ukraine had wisely stockpiled several months of gas reserves and proved able withstand Moscow's pressure to settle on unfavorable terms during the harsh winter months.
Now Russian Prime Minister Vladimir Putin has agreed with Ms. Tymoshenko that Russia will sell gas to Ukraine at a 20% discount to European market rates, in return for below-market transit fees. European market prices for gas in 2009 are expected to be no more than $250 per thousand cubic meters amid the global downturn -- a significant increase over what Ukraine paid in 2008, but far less than Russia had been demanding.
Perhaps most surprisingly, the gas dispute with Russia has unified Ukraine's pro-Western leaders. President Yushchenko and Prime Minister Tymoshenko adopted common positions and made joint statements in the face of the Russian energy cutoff to Ukraine and Europe. Above all, they appear to have quietly called a temporary political truce and stopped their bickering during the gas crisis and Ms. Tymoshenko's skilled negotiating sessions.
As a result, the gas crisis has created a new chance for the beleaguered President Yushchenko to restore some luster to his faded image by reassuming the role of a unifier and statesman. Even with his support slipping and his chances for re-election slight, Mr. Yushchenko has an opportunity to vindicate his term in office. This is because Ukraine's presidency has significant powers, including veto power, control over security and defense forces, and the right to appoint key local and regional officials. In recent months Mr. Yushchenko has used these powers primarily to thwart and undermine Ms. Tymoshenko. If he redirects his energies to constructive dialogue, he can help promote sound fiscal policy and accelerate privatization efforts which the political deadlock had blocked.
He is well-equipped for such a role. As a banker and economist by profession, Mr. Yushchenko has a strong sense of rational economic policy. He can also act as an important, constructive counterweight to the occasional populism of Prime Minister Tymoshenko.
By building on their cooperation and success during the gas crisis, the two leaders can at long last stumble into creating a tandem that can help restore some confidence domestically and abroad in Ukraine's ability to cope with major crises and to get things done.
In the past, both Mr. Yushchenko and Ms. Tymoshenko showed the courage to make tough choices that helped move Ukraine forward. Now, in the face of unrelenting Russian pressure, they have shown that they can restore some measure of cooperation. If they continue on this path, they will meet the severe economic challenges that Ukraine still faces and once again set back Mr. Putin's efforts to establish hegemony in the region -- the same task they accomplished four years ago during the Orange Revolution.