IN THIS ISSUE

* Yanukovych wins the Ukrainian presidential election as new uncertainties emerge
* Russian military doctrine promises continued hostility toward NATO enlargement
* Russia announces major decision to postpone Shtokman gas project
** New in the Jamestown blog on Russia and Eurasia (http://www.jamestown.org/blog):
- Property Rights in Russian-Occupied Abkhazia: Now a Cause for Tension between the Kremlin and Its Tiny Protége.

Yanukovych Faces Uphill Struggle for Control of Ukraine, Despite Victory in Presidential Election

Pavel Korduban

As expected, opposition leader Viktor Yanukovych has won the February 7 presidential election runoff. Unlike in 2004, when Yanukovych lost a controversial poll to Viktor Yushchenko and his supporters were accused of large-scale election fraud, this time international observers said the election was free and fair. However, Prime Minister Yulia Tymoshenko has not recognized her defeat. If Yanukovych fails to form a new coalition in parliament on the spur of the moment in order to oust Tymoshenko from the government, Ukraine will face several months of uncertainty and probably early parliamentary polls. This election showed once again that the country remains deeply divided: while 16 western and central regions voted for Tymoshenko, the 10 more densely populated eastern and southern regions were behind Yanukovych.

Yanukovych won the January 17 first round by a margin of over 10 percent and opinion polls predicted about the same result for the runoff. However, exit polls produced the average margin of 4.5 percent, and the official vote count by the Central Electoral Commission (TsVK) showed that Yanukovych scored 49 percent against Tymoshenko’s 45.5 percent, so the margin is only 3.5 percent. The fact that Yanukovych won so unconvincingly gives Tymoshenko hope that if the election were invalidated in several constituencies where, as her team claims, irregularities were reported, it should be possible to dispute the general outcome, said Tymoshenko’s allies (UNIAN, February 8). Tymoshenko told her team at a late-night meeting on February 8 that she would “never recognize Yanukovych's legitimacy after such an election,” Ukrainska Pravda reported on February 9, citing its source in her party.

Tymoshenko likely is playing for time, seeking to remain prime minister as long as possible in order to keep her fragile coalition in parliament. She will hardly stand any chance in the courts. In 2004, Ukrainian courts ruled that the runoff was rigged as thousands of protesters against election fraud took to the street, and the international community did not recognize the runoff result. The situation is different now. However, court disputes will likely slow down the post-election transition.

Tymoshenko’s right-hand man First Deputy Prime Minister Oleksandr Turchynov was not ready to say early on February 8 whether Tymoshenko’s supporters would stage any protests (Ukrainska Pravda, February 8). European and CIS observers were unanimous in their verdict: despite some irregularities, the election was generally free and fair. Observers from the parliamentary assemblies of the Council of Europe and NATO called on Yanukovych and Tymoshenko to accept the outcome of the election. The European Union High Representative for Foreign Affairs Catherine Ashton and European Parliament President Jerzy Buzek praised the election as democratic (Interfax, UNIAN, February 8)

Speaking after the announcement of the exit poll results, Yanukovych said he expected Tymoshenko to resign (Inter TV, February 7). She does not have to, according to the constitution, but there are signs that a new pro-Yanukovych majority is in the making in parliament and consequently a vote of no confidence in Tymoshenko may be on the agenda of the parliament quite soon. Yanukovych said he has not yet decided who should become the next prime minister. Observers name four candidates: the former Finance Minister Mykola Azarov; the businessman from Donetsk and crony of steel tycoon Rinat Akhmetov, Borys Kolesnykov; the former Fuel and Energy Minister Yury Boyko (all from Yanukovych’s party); and outgoing President Viktor Yushchenko’s ally Yury Yekhanurov, who served as prime minister in 2005-2006.

Yekhanurov was named as a candidate by Taras Chornovil, a former aide to Yanukovych (Ukraina TV, February 8). He could be a compromise candidate if Yanukovych managed to form a new coalition with Yushchenko’s Our Ukraine (NU). However, Kolesnykov, who played a key role in Yanukovych’s campaign as a deputy head of his headquarters, dismissed this as a rumor. One business daily reported that Azarov would most probably be nominated to replace Tymoshenko (Delo, February 9). Azarov had said more than a week before the election that he would be a candidate for the post of prime minister (UNIAN, January 27).

If Tymoshenko does not resign voluntarily, uprooting her may become a difficult task for Yanukovych. Unlike before the constitutional amendments, which came into force in 2006, it is now up to parliament and not the president to choose the prime minister. But Yanukovych’s Party of Regions (PRU) was in a minority before the election. In theory, it could form a new majority together with the communists, the centrist bloc of Speaker Volodymyr Lytvyn and NU. However it would be hard to reconcile the communists with nationalists from the NU. Oleksandr Holub, one of the leaders of the communists, ruled out a coalition with nationalists for his party (UNIAN, February 9). NU deputies made it clear that they would not hurry to join the PRU either (Ukrainska Pravda, UNIAN, February 9).

Early parliamentary elections could be an option for Yanukovych, but in order to call them he would need to prove that there is no coalition in parliament. This may be hard for him to do. While Tymoshenko de facto has not controlled a majority in parliament since 2008, de jure her majority coalition exists. Moreover, if Yanukovych decides to call for early elections, a victory for his party and its allies would be far from certain, given his unconvincing victory on February 7. Even if the courts throw out Tymoshenko’s appeals, Yanukovych will still have to brace himself for weeks if not months of difficult talks with potential allies.

New Russian Military Doctrine Opposes NATO Enlargement

Roger McDermott

After several delays, the long-awaited new Russian military doctrine was finally approved by President Dmitry Medvedev on February 5. The document did not include the rumored lowering of the nuclear threshold, despite recent public comments on the issue to the contrary made by the Secretary and Deputy Secretary respectively of the Security Council, Nikolai Patrushev and Yuri Baluyevskiy (EDM, February 8). However, it defined NATO’s eastward enlargement as the main external military danger facing Russia: “The efforts to impart global functions, which are implemented in violation of the norms of international law, to the force potential of the North-Atlantic Treaty Organization (NATO), bring the military infrastructure of NATO member countries closer to the Russian borders, including by way of the bloc’s enlargement,” adding that US ballistic missile defense plans might undermine global stability, as well as referring to the militarization of space and the deployment of non-nuclear high-precision weapons. “Territorial claims to the Russian Federation and its allies, as well as interference in their internal affairs,” are also listed among military threats to Russia. These threats appear to be growing, linked to the proliferation of weapons of mass destruction (WMD), missiles and missile technology (www.kremlin.ru, February 5).

The doctrine lists multiple potential threats to Russian security, ranging from states building up their military deployments in close proximity to Russia and attempts to use violence to change the constitutional order in the country, or violate its sovereignty and territorial integrity. Reference is made to illegal armed groups operating on its territory (in the North Caucasus) while the potential for regional conflict is highlighted. Some of Russia’s neighbors are described, without identifying them, who apparently demonstrate military force capabilities during exercises close to the Russian border, and other states with either partial or full mobilization. The implication is that Russia is surrounded by potentially hostile powers and its leadership is aware of the risk posed by “frozen conflicts,” where some actors might choose to use force to resolve these disputes. “The existing international security structure, including its international law mechanism, does not provide equal security for all states,” clearly underscoring the need for other states to take seriously Medvedev’s European security initiative (www.kremlin.ru, February 5).

Ruslan Pukhov, the Director of the Moscow-based Center for Analysis of Strategies and Technologies (CAST), regards the new doctrine as realistic and not provocative: “We never know how the world will look like in ten years. There are several states that claim part of Russia’s territory to be their national territory –for instance, Japan. Also, the border has not been demarked with some of Russia’s neighbors, so we cannot exclude that an international alliance might use armed force against Russia.” Other Russian analysts, such as Alexander Nikitin, the Director of the Center for Euro-Atlantic Security of the Moscow State Institute of International Relations, highlight the future risk posed to Russia by instability in Afghanistan and Pakistan (Russia Today, February 5)

In terms of its conventional forces posture, the doctrine outlines the priorities for their future development. This includes maintaining the ratio between permanent readiness formation formed in 2009 and the reserve, improving the quality of combat training as well as refining cooperation between the branches and arms of service, which was exposed as an enduring weakness during the Russia-Georgia war in August 2008. It also states that the supply of modern military hardware and weapons must be ensured, as the armed forces are modernized (www.kremlin.ru, February 5). This element only makes sense when read against the background of the ongoing military reform, though there are elements and aims of the reform that remain more opaque. It makes provision for peace support and other types of conflict resolution through the Collective Security Treaty Organization (CSTO) and its newly formed Collective Operational Reaction Forces (CORF), and potential future participation in operations with a UN mandate.

Viktor Zavarzin, the Head of the State Duma Defense Committee explained the key political driving force underlying Russian defense reform, referring to the military doctrine, saying that enhancing the country’s military capabilities was the only way to prevent NATO expansion and deal with other security threats. Zavarzin noted the potential enlargement of the Alliance and the growth of its interests, combined with threats stemming from the proliferation of extremism and terrorism as necessitating its military buildup to protect the country’s territorial integrity (ITAR-TASS, February 6).

The new doctrine declares Russia’s right to use military force beyond its borders “for the purpose of the protection of the interests of the Russian Federation and its citizens, as well as the maintenance of international peace and security.” Downplaying the provision, which President Medvedev had previously signed into law, Pukhov stressed that the US and France also reserve the right to protect their citizens abroad, and asked, “why should Russia not do the same?”

Moreover, the doctrine prioritizes Russian international military cooperation, and lists these in order of importance:

1. Belarus: promoting interoperability and the Union State.

2. CSTO: consolidating collective defense and strengthening joint military forces.

3. CIS: ensuring regional and international security, with an emphasis on peacekeeping operations.

4. Shanghai Cooperation Organization (SCO): consolidating efforts to confront emerging threats.

5. United Nations and other international, including regional, organizations: mainly in relation to peacekeeping (www.kremlin.ru, February 5).

On February 6, during an interview on the sidelines of the 46th Munich Security Policy Conference, the NATO Secretary-General Anders Fogh Rasmussen criticized several aspects of the new Russian military doctrine. He singled out the negative depiction of NATO enlargement, which he emphasized, contradicted existing efforts to improve NATO-Russia relations and did not reflect reality (ITAR-TASS, February 7).

President Barack Obama’s “reset” policy vis-à-vis Russia faces longer-term challenges, particularly in relation to the issue of NATO enlargement. The new Russian military doctrine defining NATO enlargement as the main external military danger confronting the country is unsurprising; it confirms the anti-NATO trend in Russian security documents that has developed since 1993. Advocates of the reset must now hope that the doctrine turns out to be a PR exercise, rather than reflecting dogma: otherwise future NATO-Russia relations will depend on the willingness of the Alliance to abandon its enlargement commitment given to Georgia and Ukraine in Bucharest in April 2008.

Shtokman Gas Project Postponed: Implications for Russia, Europe and the US

Vladimir Socor

On February 5, the Gazprom-led Shtokman Development Company and operator of the supergiant gas project in the Russian Arctic, announced that investment decisions and field development are being postponed. The investment decision for field work is being rescheduled, from the end of 2010 to late 2011. Decisions on future gas exports by pipeline and in liquefied form are being delayed until March and December 2011, respectively. The start of production for pipeline-delivered gas to Europe will be postponed from 2013 to 2016. And the start of LNG production for export to the United States is postponed from 2014 to 2017.

The joint venture includes Total of France and Norway’s Statoil as minority partners, alongside Gazprom. The board of directors’ announcement alludes in passing to “changing market trends, particularly regarding LNG,” as a reason for delaying the Shtokman project (Interfax, February 5, 6).

From the joint venture’s inception in 2007, many outside observers had regarded the start of commercial production at Shtokman as unlikely to materialize before 2020, considering the physical and financial challenges to this Arctic project. Production costs were expected to raise the price of Shtokman gas exorbitantly. On top of those resilient challenges, the Shtokman project suddenly confronted in 2009 the expansion of globally traded LNG on both sides of the Atlantic, and the development of unconventional gas in the United States.

Thus, a decision to postpone the Shtokman project became unavoidable. If anything, the postponement’s time-frame as declared seems understated. The project may now be regarded as suspended, with a high likelihood of further postponements, given the long-term nature of ongoing market trends. Growing availability of competitively priced Middle Eastern LNG, in parallel with surging US production of unconventional gas, are consigning the Shtokman project to redundancy. Shtokman gas now looks even less attractive commercially to European consumers and is no longer in demand by economic criteria on US markets.

From Moscow’s standpoint, this means lower projections of the overall gas output for the coming decade. Shtokman was the declared top priority for gas field development in Russia; the first major, export-oriented new development (apart from Sakhalin in the Pacific) since the Soviet era. Long-proposed investments in other new Russian fields (Bovanenkovo and other fields in Yamal’s north) have yet to materialize. High investment costs render those Arctic fields even less attractive to international companies after the advent of LNG and unconventional gas.

With Shtokman suspended, and Bovanenkovo development postponed again, the prospect of a Russian gas shortfall in the years ahead (as anticipated also by Gazprom itself, prior to the 2009 recession) is taking on sharper contours.

Shtokman’s halt carries positive implications for Europe from the standpoints of supply diversity and market competition. Pipeline-delivered gas from Shtokman would have further increased European reliance on Russian-delivered gas; and it would boost gas prices through the high-priced Shtokman gas.

One portion of Shtokman’s future output was presumably to be pumped from the Barents Sea, across the Kola Peninsula, into the second line of Gazprom’s Nord Stream pipeline on the Baltic seabed. With the Shtokman project’s halt, the second line of Nord Stream would have to be at least delayed and possibly cancelled. This would depend on Shtokman’s ultimate fate, unless Gazprom re-directs gas volumes from other fields or other consumers to supply Nord Stream’s second line.

Nord Stream was planned to export 55 billion cubic meters (bcm) of gas (at 27.5 bcm through each line), to Germany as prime consumer and the Netherlands and France as lesser consumers. The first stage is planned to become operational by 2015, made possible by multi-billion Euro credit guarantees from the German government. While French and Dutch participation can be regarded as a supply-diversification measure on the national level (though not on the European), Germany’s participation increases the country’s already high dependence on Russian gas, with the attendant political ramifications.

German and other companies that staked their strategies on Russian gas are now trying to escape the constraints of long-term, oil-indexed, take-or-pay contracts with Gazprom. Such obligations, meanwhile, complicate those companies’ efforts to take advantage of the fast-growing spot markets and LNG availability in Europe.

Shtokman gas was a hypothetical source for the Nord Stream pipeline’s second stage. Officially, Russia has not earmarked any gas resources for Nord Stream’s second stage thus far. German consumers and industry would benefit by its demise.

Unconventional gas extraction (from shale and other “hard gas” formations) in the United States is rapidly transforming the international gas trade. The US overtook Russia in 2009 as the world’s leading producer with 624 bcm (Bloomberg, January 13). Unconventional gas has turned the US from a net consumer into a self-sufficient market in 2009, and potentially into a net exporter through LNG.

As recently as mid-2009, Gazprom was advertising its plans to capture a sizeable US market share through LNG from Shtokman. It must now renounce this goal.

Along with LNG development, the globalized gas trade is challenging Gazprom’s business model in Europe. That model was predicated upon continental pipelines, market compartmentalization, long-term dependent partners, captive consumers, and (in recent years) the anticipation of gas becoming a scarce commodity in Europe, to be administered by gas-rich Russia for Europeans. Thus, exorbitant production costs or purchase prices were to be paid to Russia for “access” to its gas. The Shtokman project can now be seen as a relic of that period and its disproved assumptions.

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