VZCZCXRO6326
RR RUEHDBU
DE RUEHMO #0930/01 0301357
ZNY CCCCC ZZH
R 301357Z JAN 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 0025
INFO RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 000930 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 01/24/2016 
TAGS: PREL PGOV ENRG RS UP
SUBJECT: MOSCOW COMFORTABLE WITH UKRAINIAN DEVELOPMENTS 
 
REF: MOSCOW 584 
 
Classified By: Minister-Counselor for Political Affairs Kirk Augustine. 
  Reasons: 1.4(B/D). 
 
¶1. (C)  SUMMARY.  Moscow continues to tell itself that it got 
the best of Kiev in the year-end negotiations on gas supply, 
according to the Russian MFA and a number of Embassy 
contacts.  As they see it, the gas deal was an economic boon 
for Gazprom and the GOR, despite allegations of corruption 
and ambiguities about the contract.  They expect damage to 
Russia's reputation as a reliable energy partner to be 
short-lived.  The lighthouse seizure in the Crimea was 
regarded as a transitory issue linked to Ukrainian 
electioneering, with a resolution likely after the scheduled 
February 14 visit of Russian DFM Karasin to Ukraine.  Our 
contacts see the political status quo in Ukraine, with no 
person or bloc in a commanding position, as being in Moscow's 
interest.  END SUMMARY. 
 
Broad Acceptance of the Gas Offensive 
------------------------------------- 
 
¶2. (C)  "We won" the gas dispute, MFA Ukraine Desk Senior 
Counselor Vadim Gusev told us in a January 19 meeting.  He 
said the GOR achieved its main objective -- world market 
prices for Russia's gas.  Echoing points made by FM Lavrov in 
a January 17 press conference (ref A), Gusev pointed to the 
22 percent rise in Gazprom's capitalization just ten days 
after inking the deal as an indicator that the markets had in 
the end responded positively to the gas deal.  Like other GOR 
officials at all levels, Gusev insisted that the gas 
controversy was a purely commercial dispute. 
 
¶3. (C)  Some Russian print editorials initially questioned 
taking a hard line with a Slavic neighbor that shares 
important industrial and commercial infrastructure, not to 
mention social and cultural ties, and some analysts warned 
during and after the crisis that the GOR's line on Ukraine 
could push Kiev more precipitously into the West's embrace. 
Since returning from an extended New Year's break, however, 
the Moscow media have generally been supportive of the gas 
deal, although some on the print side have accented concerns 
about corruption in the gas sector and government. 
 
¶4. (C)  Many of our non-government contacts agreed with the 
MFA's verdict, assessing that Moscow scored points with the 
gas deal and expecting any damage to Russia's reputation to 
be short-lived.  Carnegie's Nikolay Petrov (frequently 
critical of Kremlin policies) contended that the government's 
strategy and tactics were "not bad," although its PR campaign 
was not skillfully handled.  Petrov said Yushchenko had been 
effectively boxed into a corner and had to sign the deal, and 
any other Ukrainian politician sitting in the President's 
seat would have done the same.  Petrov conceded that the 
dust-up had dented Russia's international image and predicted 
the Kremlin would take active measures in the near term to 
address the problem.  Ivan Safranchuk, Director of the Center 
for Defense Information, agreed that the negative fall-out of 
the gas deal would range from "short-term to shorter-term," 
since investors would increasingly be chasing Gazprom 
dividends (he noted how quickly investors had forgotten 
Yukos).  Safranchuk pointed out that Ukraine was only one 
element of the Kremlin's broader energy strategy, and said 
the Kremlin sees no need to make concessions to Ukraine. 
RFE/RL correspondent Vitaliy Portnikov declared that the big 
winner in the gas deal was "corruption," but concurred that 
Moscow had clearly bested Kiev.  All three contacts strongly 
believed that high-level officials on both sides lined their 
pockets from the deal. 
 
¶5. (C)  Many of our contacts viewed the gas dispute with 
Ukraine as a sign that the GOR had taken a generally sensible 
new direction in its external policy.  MGIMO Dean of 
Political Science Aleksey Bogaturov (an advisor to Duma CIS 
Committee Chairman Andrey Kokoshin) told us the gas dispute 
was "nothing special" and cast it as a reasonable response to 
Kiev's Western tilt.  Dmitriy Furman of the Institute of 
Europe (Russian Academy of Sciences) agreed that the dispute 
reflected Moscow's revised post-Orange Revolution thinking 
and represented a pragmatic, non-ideological turn vis-a-vis 
the CIS.  Petrov of Carnegie added that Kiev could not have 
it both ways, blaming the GOR both for neo-imperialism and 
for moving to world market gas prices. 
 
¶6. (SBU)  At the same time, other analysts noted the 
downsides of the gas deal for Russia, with Carnegie's Dmitriy 
Trenin, for instance, telling an interviewer that even if the 
general policy of moving to world market prices was correct, 
the "style" in which it was implemented had been 
counterproductive, causing a "ricochet" that damaged Russia's 
international standing, including its chairmanship of the 
 
MOSCOW 00000930  002 OF 003 
 
 
G-8.  On the "left-patriotic" front, there was criticism of 
Putin for having "backed down" in the face of international 
concern and allegations that the whole purpose of the gas 
price hike was to financially benefit high-level industry and 
government officials on both sides of the dispute. 
 
Lighthouse Dispute Seen on a Different Track 
-------------------------------------------- 
 
¶7. (C)  Voicing the official GOR line, Gusev insisted that 
the lighthouse in Crimea seized by Ukraine belonged to the 
Black Sea Fleet (BSF) per the 1997 agreement and that 
procedures for joint use of the lighthouses were covered by 
that agreement.  He said Russia was not "looking for a 
fight," however, and concluded that the matter could be 
resolved during DFM Karasin's February 14 visit to Ukraine 
under the aegis of the Inter-Governmental Commission's 
Committee on the BSF. 
 
¶8. (C)  None of our unofficial contacts saw the controversy 
over the lighthouse as Ukrainian pay-back for Russia's 
putative win in the gas deal.  Instead, our contacts 
characterized the row as internecine Ukrainian political 
posturing, more about pre-electoral back-stabbing than an 
expression of Kiev's policy toward Moscow.  Several observers 
pointed to the positive glow -- "brotherly relations" 
according to the MFA's Gusev -- surrounding the January 11 
Putin-Yushchenko meeting in Astana to support their view that 
Yushchenko was not behind the lighthouse seizure.  Gusev 
noted that Yushchenko gained "no advantage" from that 
controversy and thus was unlikely to have instigated it. 
Referring to reports that the Ukrainian Presidential 
Administration was not initially in the loop on the Yalta 
lighthouse seizure, Gusev wondered who really was in charge 
in Kiev, and conjectured that the controversy might be a 
political gambit by Ukrainian FM Tarasyuk.  Several other 
contacts also fingered Tarasyuk as being involved and agreed 
that the seizures would be to Yushchenko's detriment in the 
upcoming election.  Notwithstanding the mutual official 
recriminations (including rumblings by Defense Minister 
Sergey Ivanov linking the issue ultimately to continued 
Russian acceptance of the bilateral border), none of our 
interlocutors were particularly excited by the lighthouse 
controversy, considering it a matter of secondary importance 
that would soon be resolved. 
 
Ukrainian Elections 
------------------- 
 
¶9. (C)  New Moskovskiye Novosti Chief Editor Vitaliy 
Tretyakov told us that the Kremlin was not backing any 
candidate in the Ukrainian election.  Carnegie's Petrov and 
MGIMO's Bogaturov agreed.  All three said Moscow wanted 
stability in Ukraine and found the current situation there -- 
with no party or bloc dominant -- very much to its advantage. 
 In terms of forecasting, Portnikov saw a possible Yanukovich 
alliance with either former PM Tymoshenko or Parliamentary 
Speaker Lytvyn, while Petrov found a Yanukovich-Tymoshenko 
alliance to be the most likely outcome, based on opinion 
polls and the view that Lytvyn was not a genuinely autonomous 
candidate with a sufficiently strong base.  According to 
Petrov, despite her designs on the Prime Ministership, 
Tymoshenko was exceptionally pragmatic and would take a back 
seat to Yanukovich if her showing in the polls was not 
sufficiently strong. 
 
¶10. (U)  Other analysts have argued that the gas crisis had 
led to an evolution in the Kremlin's previous reflexive 
preference for Yanukovich in a way that makes clear the 
political flexibility of all concerned.  With Yushchenko 
acting as the chief Ukrainian advocate of a gas deal that 
Moscow sees as advantageous and Yanukovich and most of the 
rest of the Ukrainian political spectrum critical of it, 
there appeared, as the Center for Political Technologies 
noted, "a basis for normal bilateral relations for the first 
time since the Orange Revolution...now Viktor Yushchenko can 
become more pro-Russian than his opponent, Russia's recent 
ally Viktor Yanukovich." 
 
Comment 
------- 
 
¶11. (C)  The GOR and many Russian politicians and analysts 
were surprised by the strength of international criticism of 
Russia's hard line on the Ukraine gas deal, but most 
dismissed it quickly as "yet another" manifestation of a 
growing "anti-Russian bias" in the West.  Further efforts by 
Moscow to bring Ukraine back into a Moscow-centric orbit will 
certainly follow.  Given the unique place that Ukraine 
occupies in Russia's history and self-concept, successful 
implementation by Kiev of an unambiguously "European" 
modernization strategy would establish within Russia's own 
 
MOSCOW 00000930  003 OF 003 
 
 
cultural-historical sphere a powerful counter-model to the 
direction Moscow has taken under Putin.  Conversely, nothing 
could more vigorously stimulate the pleasure centers of the 
Russian political elite's collective psyche or do more for 
Putin's domestic standing and legacy (at least as perceived 
in the short term) than for him to be able to reel Ukraine 
back into a reasonably secure position of subordination. 
 
¶12. (C)  Putin will thus continue to try to use both "sticks" 
and "carrots" to show Ukrainians that succumbing to a Western 
temptation would cost them more (in a broad and not simply 
economic sense) than they would gain.  As in the gas war, he 
will try to avoid confrontation with the West, if at all 
possible, and cast all overt Russian actions as being 
consistent with contemporary international standards.  Even 
supporters of such efforts recognize, however, that if 
Russian actions prove too ham-handed, they could easily turn 
counterproductive both with regard to Ukraine's evolution and 
to Russia's relations with the U.S. and Europe.  The standard 
by which the Russian political class -- and probably the 
public in the 2007 and 2008 elections -- judges such actions 
will be entirely pragmatic, i.e., the degree to which they 
are successful. 
BURNS