Brookings: Taking Stock in Ukraine
The political crisis that began last November when then-Ukrainian President Viktor Yanukovych declined to sign an association agreement with the European Union has triggered conflict between Russia and Ukraine and a sharp deterioration in relations between the West and Moscow. Seven points provide key context for understanding what is happening.
First, Ukraine today finds itself in a vulnerable position largely due to bad decisions by its own political leaders. They put off needed economic reforms because they feared the political consequences. And sometimes—Yanukovych being the prime example—they put personal power and greed ahead of the national interest.
Those bad decisions had costs. For example, in 1990, shortly before the USSR collapsed, GDP per capita in the Ukrainian Soviet Socialist Republic and neighboring Poland were roughly equal. If anything, Poland trailed. Today, Poland’s GDP per capita is three times that of Ukraine. Polish leaders made the often-tough decisions; Ukraine’s did not.
Ukraine was and remains one of the most energy-inefficient countries in the world. In 1998, it produced 18–19 billion cubic meters (BCM) of gas per year. At that time, a major international energy company concluded that Ukraine could easily increase domestic production to 30–35 BCM per year—and it gave the Ukrainian government the geological data to show it.
Sixteen years later, Ukraine’s annual gas production is only 20 BCM. The government held down the price for domestically produced gas so that it would have “cheap” gas in order to subsidize heating and energy to households. At that price, no one had an incentive to produce more gas. Many analysts believe Ukraine cannot get through the coming winter without cutting some kind of gas purchase deal with Russia. That question would not have arisen if Ukraine’s leaders had made better decisions years ago and the country were now producing 30 BCM of gas.