The results of the meeting in Moscow between Russian President Vladimir Putin and Ukrainian President Viktor Yanukovych today are in. The two presidents met today as scheduled to discuss the economic situation and international relations of Ukraine.
Moscow has lowered the price at which Ukraine will buy Russian gas from $400 to $268.5 per 1000 cubic meters, a cut of one third. This price cut is in keeping with predictions announced last week by Ukrainian Prime Minister Mykola Azarov, who had announced that he expected Russia would lower delivery prices for Russian gas after the visit. Moscow also agreed to buy $15 billion worth of Ukrainian government bonds--essentially a $15 billion dollar loan.
Moscow also plans to resume supplying oil to Ukraine's refinery in Odessa, which can process 70 000 barrels per day. Russia's preliminary export schedule indicates that Russia could send 750 000 tonnes of oil in the first quarter of 2014, worth approximately $600 million. The Odessa plant was shut down in 2010 due to poor financial performance, but was bought and reopened by VETEK last October.
Russia is Ukraine's main source of energy and bank loans, and is Ukraine's most important trading partner. Currently Ukraine exports $16 billion to Russia in goods per year, roughly the same amount as Ukraine exports to Europe. Ukraine is extremely dependent on Russia for oil and gas--its biggest import--which it pipes to Europe.
Ukraine already carries massive debt to Russia. Ukraine needs to pay Russia $17 billion next year for its outstanding gas bill alone.
Also at the meeting Putin and Yanukovych discussed economic and industrial cooperation. The two signed agreements on these issues and committed themselves to implementing the free trade deal signed two years ago. The leaders announced that they did not discuss customs unions.
Trade between Russia and Ukraine fell 11% in 2012 and 14.5% in 2013. Ukrainian officials have announced their priority to restore trade relations with Russia before proceeding with their stated direction of the European Union.
The Ukrainian leadership has been explicit about its direction. It has stated that Ukraine's direction is with Europe, and it intends to one day join the EU. The leadership has stated that its view on trade agreements with the EU and with Russia is not about foreign policy choice, but about reforms. The leadership has stated that deals with one of these two partners does not mean turning away from the other.
Russia has so far been successful at maintaining Ukraine's loyalty by alternating punishing and rewarding economic measures . In August, Russia banned Ukrainian chocolate imports, which might have cost Ukraine $200 million, and asked its partners Belarus and Kazakhstan to do the same. Recently, Russia threatened to impose $46 million in sanctions against Ukraine, targeting especially Ukrainian imports. Russia has also threatened to demand immediate payment of outstanding loans.
On the other hand, the recent withdrawal of Ukraine from an immediate EU agreement has caused some EU members to become short with Ukraine, and the USA has mentioned possible sanctions against Ukraine.
Ukraine is vulnerable to the conditions of its trading partners because the country is massively in debt. Ukraine's debt has been rising steadily over the years and is currently $134 billion, as reported by the Ukrainian National Bank, which is 36% of GDP. Ukraine depends heavily on Russia for its economic health, but looks to Europe for its future, hoping for reforms.
The Ukrainian people are also split over which road to take, uncertain of which set of circumstances will be worse. They worry about becoming subject to either Russia or Poland and Germany, and have been demonstrating for both positions. Ukraine's Research and Branding group, a non-governmental organization, released figures early this month that show that 46% of Ukrainians favor the EU, while 36% favor Russia. Ukraine is a heavily regional country, though, with a large Russian population in the east and a large European-oriented population in the west and center.