Sunday, April 25, 2010

Ukraine Strikes Gas For Fleet Base Deal

Ukraine has been hit by the global economic crisis a lot harder than almost all other countries. One result of this was the defeat of incumbent anti-Russian president Viktor Yushchenko (who received a humiliating 5.5% in the first round of Ukraine's presidential elections) in favor of the more pro-Russian Viktor Yanukovych.

Now Yanukovych has been able to give Ukraine's battered economy a big relief by agreeing to allow Russia to lease a fleet base in the Crimea peninsula for another 25 years (the lease was about to expire in 2017) in exchange for a 30% discount on natural gas delivered to Ukraine from Russia. The deal will save about $3.7 billion per year, or about 3% of Ukraine's GDP, and also likely improve prospects of additional loans from the IMF.

Domestic and foreign opponents of the deal argue that this deal compromises Ukraine's independence. Yet with the Ukrainian government being bankrupt and in need of foreign financing anyway, it is difficult to see how it could have been truly independent anyway. Moreover, renting land for a foreign military base is hardly something that destroys your independence. Germany and Japan and many others allow America to keep military bases on their soil, and yet no one argues that this compromises their independence. Even Cuba leases land for military bases to the U.S. government, but that hardly makes the Cuban government a U.S. marionette.