Energy Dependency, Politics, and Corruption in the Former Soviet Union Margarita Balmaceda has done pioneering research into the development of energy trade in Eurasia since the collapse of communism. This book is a major contribution to our understanding of the ways in which the energy relations of the post-Soviet states have enriched elites in both energy-producing and energy-consuming countries at the expense of transparency and balanced economic growth. It highlights how the energy magnates in Russia and Ukraine are interconnected in ways that defy conventional concepts of national interest and sovereignty and suggests that we re-examine our understanding of energy security in this strategic part of the world. (Angela Stent, Director, Center for Eurasian, Russian and East European Studies, Georgetown University) Energy has become a major element to Russia’s attempts, under Putin, to restore its influence over former Soviet territories and reaffirm itself as the dominant regional power. This book investigates how Russia has manipulated its neighbors’ dependency on Russian energy supplies to achieve its own foreign policy goals, focusing in particular on relations with Ukraine. Based on a multitude of primary Ukrainian and Russian sources until now not brought to the attention of Western readers, it examines important events such as Russia’s January 2006 suspension of gas supplies to Ukraine, and the implications for Ukraine’s “Orange Revolution,” other post-Soviet states and Western Europe. The case of Ukraine provides a taste of what might be in the horizon for other European states given Russia’s ability and renewed willingness to use the energy weapon. However, the book goes further in showing how domestic political conditions in the post-Soviet states may facilitate Russia’s use of energy as a foreign policy weapon, investigating the local groups that often receive significant profits from allowing Russia to control energy markets and energy transit possibilities. With European countries becoming more dependent upon Russian energy, this book will be of interest not only to Russian studies and Eastern European studies experts, but to scholars of international relations and European politics. Margarita M. Balmaceda is Associate Professor in the John C. Whitehead School of Diplomacy and International Relations, Seton Hall University, and an Associate of the Harvard Ukrainian Research Institute and of the Davis Center for Russian and Eurasian Studies at Harvard University. Her publications on Russian, post-Soviet and East European politics, include, as editor, On the Edge: the Ukrainian-Central European-Russian Security Triangle (2000) and Independent Belarus: Domestic Determinants, Regional Dynamics and Implications for the West (2002). She has taught and conducted research extensively in the Central-East European region, including through Fulbright, Humboldt Foundation, and other grants in Russia, Ukraine, Belarus, Hungary, and Lithuania. BASEES/Routledge series on Russian and East European studies Series editor: Richard Sakwa, Department of Politics and International Relations, University of Kent Editorial committee: Julian Cooper, Centre for Russian and East European Studies, University of Birmingham Terry Cox, Department of Central and East European Studies, University of Glasgow Rosalind Marsh, Department of European Studies and Modern Languages, University of Bath David Moon, Department of History, University of Durham Hilary Pilkington, Department of Sociology, University of Warwick Stephen White, Department of Politics, University of Glasgow Founding editorial committee member: George Blazyca, Centre for Contemporary European Studies, University of Paisley This series is published on behalf of BASEES (the British Association for Slavonic and East European Studies). The series comprises original, high-quality, research- level work by both new and established scholars on all aspects of Russian, Soviet, post-Soviet and East European studies in humanities and social science subjects. 1 Ukraine’s 3 Local Communities and Foreign and Security Post-Communist Policy, 1991–2000 Transformation Roman Wolczuk Edited by Simon Smith 2 Political Parties 4 Repression and in the Russian Resistance in Communist Regions Europe Derek S. Hutcheson J.C. Sharman 5 Political Elites and the 14 Russian Literary Culture New Russia in the Camera Age Anton Steen The word as image Stephen Hutchings 6 Dostoevsky and the Idea of Russianness 15 Between Stalin and Hitler Sarah Hudspith Class war and race war on the Dvina, 1940–46 7 Performing Russia–Folk Geoffrey Swain Revival and Russian Identity Laural J. Olson 16 Literature in Post- Communist Russia and 8 Russian Transformations Eastern Europe Edited by Leo McCann The Russian, Czech and Slovak fiction of the changes 1988–98 9 Soviet Music and Society Rajendra A. Chitnis under Lenin and Stalin The Baton and Sickle 17 Soviet dissent and Russia’s Edited by Neil Edmunds transition to democracy Dissident legacies 10 State Building in Ukraine Robert Horvath The Ukranian parliament, 1999–2003 18 Russian and Soviet Film Sarah Whitmore Adaptations of Literature, 1900–2001 11 Defending Human Rights Screening the word in Russia Edited by Stephen Hutchings Sergei Kovalyov, Dissident and Anat Vernitski and Human Rights Commissioner, 1969–2003 19 Russia as a Great Power Emma Gilligan Dimensions of security under Putin 12 Small-Town Russia Edited by Jakob Hedenskog, Postcommunist livelihoods and Vilheln Konnander, Bertil Nygren, identities–a portrait of the Ingmar Oldberg and Christer intelligentsia in Achit, Pursiainen Bednodemyanovsk and Zubtsov, 1999–2000 20 Katyn and the Soviet Anne White Massacre of 1940 Truth, justice, memory 13 Russian Society and the George Samford Orthodox Church Religion in Russia after 21 Conscience, Dissent and communism Reform in Soviet Russia Zoe Knox Phillp Boobbyer 22 The Limits of Russian 31 Western Intellectuals Democratisation and the Soviet Union, Emergency powers and states 1920–40 of emergency From Red Square to the Alexander N. Domrin Left Bank Ludmila Stern 23 The Dilemmas of Destalinisation A social and cultural history of 32 The Germans of the Soviet reform in the Khrushchev Era Union Edited by Polly Jones Irina Mukhina 24 News Media and Power in 33 Re-constructing the Russia Post-Soviet Industrial Olessia Koltsova Region The Donbas in transition 25 Post-Soviet Civil Society Edited by Adam Swain Democratization in Russia and the Baltic States 34 Chechnya–Russia’s Andres Uhlin “War on Terror” John Russell 26 The Collapse of Communist Power in Poland 35 The New Right in the Jacqueline Hayden New Europe Czech transformation and 27 Television, Democracy and right-wing politics, Elections in Russia 1989–2006 Sarah Oates Seán Hanley 28 Russian Constitutionalism 36 Democracy and Myth in Historical and contemporary Russia and Eastern development Europe Andrey N. Medushevsky Edited by Alexander Wöll and Harald Wydra 29 Late Stalinist Russia Society between reconstruction 37 Energy Dependency, and reinvention Politics and Corruption Edited by Juliane Fürst in the Former Soviet Union Russia’s power, oligarchs’ 30 The Transformation of Urban profits and Ukraine’s Space in Post-Soviet Russia missing energy policy, Konstantin Axenov, Isolde Brade 1995–2006 and Evgenij Bondarchuk Margarita M. Balmaceda Energy Dependency, Politics and Corruption in the Former Soviet Union Russia’s power, oligarchs’ profits and Ukraine’s missing energy policy, 1995–2006 Margarita M. Balmaceda First published 2008 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 This edition published in the Taylor & Francis e-Library, 2007. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Routledge is an imprint of the Taylor & Francis Group, an informa business © 2008 Margarita M. Balmaceda All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Balmaceda, Margarita Mercedes, 1965– Energy dependency, politics and corruption in the former Soviet Union : Russia’s power, oligarchs’ profits and Ukraine’s missing energy policy, 1995–2006 / Margarita M. Balmaceda. p. cm.—(Basees / Routledge series on Russian and East European studies ; 37) Includes bibliographical references and index. 1. Energy policy—Russia (Federation) 2. Energy policy—Ukraine. 3. Russia (Federation)—Foreign relations—Ukraine. 4. Ukraine— Foreign relations—Russia (Federation) I. Title. HD9502.R82B36 2007 333.790947'090511—dc22 2007013949 ISBN 0-203-93434-2 Master e-book ISBN ISBN10: 0–415–43779–2 (hbk) ISBN10: 0–203–93434–2 (ebk) ISBN13: 978–0–415–43779–0 (hbk) ISBN13: 978–0–203–93434–0 (ebk) Contents List of illustrations ix Acknowledgments xi Note on transliterations xiv Maps xv 1 Introduction: energy, integration and disintegration in the former USSR 1 PART 1 Frame of reference and context of the energy question 21 2 The energy-foreign policy nexus 23 3 De facto policy-making system and energy policy: the Ukrainian