From confrontation towards compromise: assessing Ukraine-Russia gas trade relations 1992-2002

This thesis examines Ukraine's tenuous relations with Russia over natural gas trade and transit from 1992 to 2002. With the collapse of the USSR, Ukraine not only inherited a large gas dependence on Russia, but also  ownership of vital pipelines transiting gas to Europe. Throughout the 1990s, the two countries were engaged in a dispute over establishing mutually agreeable gas terms of trade. Complicating the dispute was Ukraine's failure to pay higher gas prices to Russia for imports. This resulted in debt accumulation, and ultimately, an escalation of the dispute culminating in drastic gas supply cutoffs and siphoning incidents. Despite repeated recommendations from international organisations to privatise and liberalise the energy sector, Ukraine persisted in following a 'nationalist transition' course that curtailed foreign direct investment in state-controlled energy assets and continued to heavily subsidise domestic natural gas use. Furthermore, the transit leverage Ukraine inherited was compromised by rent-seeking business elite closely linked to the government. The thesis shows   that Ukraine's turbulent relations with Russia over gas trade and transit issues can be understood via two strands of international relations theory (realism and neo-liberalism). Ukraine's failure to implement energy reform was perpetuated by fears of Russian encroachment on its sovereignty on the one hand, and a lack of trust in the successful outcome of Western-recommended reforms on the other. The institutional and economic inefficiencies that Ukraine inherited from the former Soviet system, the political and economic turmoil experienced by Ukraine during the 1990s, and Ukraine's nationalist policies, complicated its efforts to move from a confrontational  towards a more cooperative energy trade relationship with Russia.