Balkanalysis.com

On 19 September, the leaders of Russia, Ukraine, Kazakhstan and Belarus met in Yalta, and came to a historic agreement on forming a “Common Economic Space.”

The zone, loosely uniting the four largest former Soviet states, has significant ramifications. It was created

“…with the intention of opening borders to trade, unifying tax and customs systems and creating shared energy, transport and tariff policies. This common market would, according to Russian President Vladimir Putin, ‘increase (the) competitiveness of our goods in international markets, ease contacts between manufacturers within the Commonwealth of Independent States and create good conditions for the development of our economies.’”  Russian officials and their CIS peers believe that such an “integrated” economic partnership could be beneficial- considering that none of these countries belong to the WTO or the EU. However, it is not in American interests to see a resurgent Russia in any way, shape or form:

“…the Yalta deal is ‘not in Ukraine’s national interest,’ said the new U.S. ambassador, John Herbst. It may derail Ukraine’s attempts to join the European market, echoed EU enlargement commissioner Guenther Verheugen. It will be hard for U.S. policy-makers to comprehend why Ukraine, which professes its commitment to Western values, in practice prefers the company of Russia and Belarus, warned U.S. special envoy Bruce Jackson.”

It was mildly ironic to see the US Ambassador pledge American support for Ukraine’s joining the WTO- despite that the US has continually threatened the country, once over selling arms to Macedonia, and more recently by alleging that president Leonid Kuchma oversaw the sale of radar systems to Saddam Hussein.

While the zone would have certain advantages for the countries involved, some of the potential disadvantages have fed criticisms of the plan among nationalist politicians in each country, who fear that the zone is merely the manifestation of Russia’s dreams of renewed empire.

And, according to Interfax, Russia does not plan to reduce prices for gas exports to the Ukraine under the agreement, Russian Ambassador to Ukraine Viktor Chernomyrdin has said. Starting tomorrow, Russia will start selling its energy resources at world prices- regardless of who the importer is.

According to Chernomyrdin, there are no “terms or conditions” governing energy sector exports envisioned within the economic zone negotiations. A further slap in the face was Chernomyrdin’s statement that Russia does not plan to withdraw its Black Sea Fleet from Ukrainian territory anytime soon.

Why is this rezoning taking place now? At bottom is Russia’s new confidence on the world stage, stemming from its powerful natural resources sector and the enviable fact that it did not get bogged down in the Iraq mess and can to some extent dictate terms to George Bush in his effort to save face.

Russian oil and gas have taken on greater importance to the US and Europe. The Russia Journal reported today that natural gas giant Gazprom plans to export 145 billion cubic metres of gas annually to Europe by 2005, and 195 billion cubic metres by 2010. In contrast, 2002’s figures stood at 127 billion. Russian president Vladimir Putin has also stated optimistically that Russia could provide up to 10 percent of the US’ oil needs in the next 5-7 years.

According to the IMF, Russia’s economy should see 6 percent growth in 2003 and 5 percent in 2004. Another positive sign is that the IMF has a more favorable outlook for Russia’s GDP growth than in April, when it estimated 4 percent growth in 2003 and 3.5 percent in 2004. In contrast, the IMF lowered its outlook for Europe’s GDP growth- from 1.1 percent to 0.5 percent in 2003 and from 2.3 percent to 1.9 percent in 2004.

Senior Deputy Finance Minister Alexey Ulyukayev claims that GDP grew 6.9 percent between January-August 2003. Mr. Ulyukayev also believes that this year’s growth might exceed expectations. Russian Prime Minister Mikhail Kasyanov also spoke last week on keeping inflation below this year’s projected level (12 percent). And President Vladimir Putin also commented on inflation, stating that “we are reducing it all the time, (and) I believe this year is will be even lower.”

Putin, reputed to be a crafty strategist, is well aware that he has a strong card to play. The fact that he announced the new economic zone on the eve of visiting with President Bush in Camp David indicates a certain boldness and confidence. Putin expects the Americans to agree, if not openly. Predictably, the only reply we had from Dubya was that “I like him. He’s a nice guy to spend quality time with.”

Time will tell whether Russia’s economic zone gets off the ground. Western cynics are hoping that it doesn’t. However, while it may be apt to point out that Russia’s economy is tiny compared to that of the EU, the four CIS states have an enormous collective landmass, natural resources and workforce. In this age of fragmentation and dislocation, it is only natural that after a certain point reunification (to some extent) takes place. An interesting recent example is the plan for such a zone in central Europe- basically, along the contours of the old Austro-Hungarian Empire.

The “Common Economic Space” will no doubt keep the analysts guessing for some time to come. For his part, Vladimir Putin today kept the world guessing over the fate of the Kyoto Accord on global warming, which Russia must ratify in order to take effect.