27 April 2010

Riots In Ukraine's Parliament

Quite a few people were upset about Mr. Yanukovich's recent decision to renew Russia's lease on the port at Sevastopol for 25 years, and the situation deteriorated even further today when Ukraine's parliament approved the deal by a slim majority. Opposition leaders like Yulia Tymoshenko claim (and are probably correct) that the deal will drag Ukraine increasingly into Moscow's orbit.

Ukraine didn't get nothing for the deal. Russia is going to give them a 30% discount on natural gas worth about $40 billion over the next decade. Unfortunately, what Ukraine really needs is for gas prices to stay high so it can diversify its energy infrastructure away from its reliance on Russian natural gas. Ukraine's net consumption of natural gas as a share of its total energy consumption has increased by 10% since the early 1990's, and it imports 70% of its natural gas from Russia. Cheap gas is only going to provide a disincentive to invest in alternative sources of power and energy efficiency. Ukraine is shackling itself with some very large chains.

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