Loss of Crimea may have long-term impact on Ukraine's economy

Updated: 2014-04-01 16:25


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Loss of Crimea may have long-term impact on Ukraine's economy
Crimea crisis
KIEV  -- This March seems to be the most challenging month for Ukraine in its modern history as the Autonomous Republic of Crimea declared independence and decided to join Russia, pulling Ukraine into its worst crisis since 1991.

Analysts believe the ongoing turmoil may have a long-term implication for Ukraine's economy as well as internal and foreign policy.

Economists believe that Ukraine's potential economic losses from Crimea's integration into Russia may total millions of U.S. dollars.

"Ukraine may lose up to 30 million dollars a year if Russia cancels the discount on gas, offered in exchange for Black Sea Fleet stay in Crimea," said Oleksandr Okhrymenko, president of the Ukrainian Analytical Center.

Under a "gas for fleet" deal signed in April 2010, Russia granted a 100-dollar discount for gas supplies to Ukraine in exchange for extending its lease of the Russian Black Sea Fleet in Crimea for another 25 years.

Energy expert Vladimir Saprykin said that Kiev would also lose economically as it has lost control of natural resources in Crimea.

"There are a lot of promising oil and gas deposits in Crimea and it is a very profitable area," Saprykin said.

The gas reserves on the Crimea's Black Sea shore are estimated at 300 billion to 2 trillion cubic meters, while oil deposits are put at 430 million tons by local analysts.

Some Ukrainian experts said that Kiev may partially cover the losses by charging higher prices for power and water supplies to Crimea, which is connected to Ukraine by a narrow neck of land.

Sergei Sobolev, leader of "Fatherland," a pro-government Ukrainian party, said Kiev should raise tariffs on gas and electricity for Crimea by four times, while water supply fee may be increased by seven times.

"We should not subsidize the citizens of the Russian Federation," Sobolev said.

While some experts positively evaluate the possible establishment of special tariffs on Crimea, which was the fifth-biggest recipient of subsidies among Ukraine's 26 regions, others warn the move may intensify the current confrontation between Kiev and Moscow.

Although some consider Crimea's integration into Russia as a fait accompli, Kiev has not recognized it as legitimate.

The country's acting President Alexandr Turchynov said that Ukraine "will never accept the annexing of its territory" and called on the international community to mediate.

On March 27, the 193-member UN General Assembly adopted a resolution to reject Russia's absorption of Crimea with 100 countries in favor, 11 against and 58 abstentions.

Although the Ukrainian government said it was ready for talks with Russian officials on the dispute, the Kremlin has refused to engage in direct dialogue on the grounds that it questioned the legitimacy of Ukraine's new authorities.

Some experts said that Russia's tough stance may force Ukraine to abandon its balanced "multi-vector" foreign policy and seek closer relations with Western countries.

"In light of confrontation with Russia, Ukraine needs economic, political and moral international support," said Vladimir Gorbach, an analyst at the Institute for Euro-Atlantic Cooperation.

Gorbach said the signing of political chapters of an association agreement with the European Union (EU) on March 21 is a signal that Kiev is not alone in dealing with its challenges.

Director of the International Institute for Democracy Sergey Taran said that the signing of the agreement means that the EU is giving the green light for Ukraine's possible accession to the 28-member bloc.

"This agreement creates the prospect for Ukraine to join the EU as a full member, some European politicians have already started talking about it," Taran said.

However, not all Ukrainian analysts share this view.

"In the diplomatic world, there is a suspicion that Ukraine has become a victim of the big geopolitical exchange," said Konstantyn Bondarenko, head of the Institute of Ukrainian Politics.

Bondarenko suggested that the EU showed limited support for Kiev by signing only the political part of the association.

"That means that the 28-member bloc does not consider Ukraine as a new possible member," Bondarenko said.

Despite the disagreements about the future political course of Ukraine, experts agree that Kiev and Moscow should find a diplomatic, mutually beneficial settlement of the current crisis.

After all, the economies of the two post-Soviet states are deeply interdependent and their people have close social and historical links, analysts say.

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