Publication: Fortnight in Review Volume: 6 Issue: 7

Ukrainian President Leonid Kuchma’s visits to Georgia and Azerbaijan on March 15-17 highlighted the Western orientation of the three countries and their shared interests in the Caspian-Black Sea area. For the second consecutive year, Russia has interrupted oil supplies to Ukraine ahead of the agricultural spring season, just when the fuel demand soars. Moscow had announced this measure back in December, hoping to squeeze Ukraine into ceding industrial assets to Russia as payment for past deliveries of gas. The Russian government, moreover, introduced a surcharge on crude oil exports to countries outside the CIS Customs Union, thereby driving up the price of oil supplied to Ukraine. And in another unilateral move, Moscow excluded major categories of Ukrainian exports from preferential treatment under existing free trade agreements, exacerbating Ukraine’s problems in paying for Russian fuels.

Kyiv and Baku responded to that emergency by signing a supply agreement effective as of this month, with Georgia as the transit country. Under the agreement, Azerbaijan will be sending each month 50,000 tons of oil products, mainly diesel fuel–the latter priced at US $345 per ton, including transportation charges–via the Georgian ports of Poti and Batumi to Ukraine’s terminal near Odesa. Kyiv is currently negotiating with Kazakhstan for additional supplies which would transit Azerbaijan and Georgia to reach Ukraine.

While in Baku, Kuchma commented: “We have not received even one barrel of Russian oil since last December. How can one speak about partnership? Do partners behave this way? Azerbaijan has shown real partnership. Moscow is doing its best to alienate Ukraine and forcing us to seek alternative supply sources. The more Russia pressures us, the further apart we shall grow.”

The Ukrainian delegation made a strong pitch in Baku for the idea of routing Caspian oil via Georgia and Ukraine to Poland and the Baltic region. Supported by Poland and endorsed by U.S. Energy Secretary Bill Richardson last month in Kyiv, the proposed route would require: expanding the capacity of the existing Baku-Supsa (Georgia) pipeline, instituting regular tanker service from Supsa to a terminal near Odesa, expanding that terminal, and completing half the length of the pipeline from Odesa to Brody on the Ukrainian-Polish border. Although financing has yet to be secured, Kuchma declared in Baku that Ukraine is determined to complete by 2001 the terminal and the pipeline on her own territory as a matter of “vital national interest.” The Azerbaijani side, however, reacted coolly to this proposal, because Caspian oilfields will not in the next few years produce sufficient oil for more than one major export pipeline. Current plans call for maximizing the oil volume dedicated to the Baku-Ceyhan (Turkey) pipeline.