23 May 2014, 15:29

Ukraine crisis takes toll on Russia-Ukraine trade relations

Ukraine crisis takes toll on Russia-Ukraine trade relations
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Ukraine's trade ties historically spread across the former Soviet states. More than 60% of the country's exports go mostly to Russia, Belarus and Kazakhstan, with the two former being its key import partners. Some countries like Germany, China, and Poland have been gaining importance in recent years, but so far Russia remains Ukraine's key trading partner.

The ongoing crisis couldn't help but take its toll on the trade relations between the two neighbors.

“Exports to Russia fell by 30% in the first two months of this year compared with the first two months of 2013, and that is down to a drop in Russian orders,” Charles Seville, director for sovereigns at Fitch Ratings in London said.

Oleg Kouzmin, an economist at RenCap, says the gas issue looks like one of the most challenging for the Ukrainian government now.

“Ukraine's economy has a fairly limited ability to balance the current account by a weaker currency, they would wait to lower imports growth as in Ukraine the huge amount of imports comes from gas. If the economy slows down, it can stop buying consumer goods from abroad but it can't stop buying gas,” said Oleg Kouzmin.

Gas is a fuel that makes up about 40% of the country's primary energy consumption. While mounting debts threaten to crimp flows from Russia, its primary supplier, Ukraine's industrial production requires twice as much energy as an advanced industrial nation. Years of discounted gas prices have left the country's industry with a large thirst.

Joerg Doerler, A.T. Kearney Principal, Moscow, Head of Oil & Gas Practice in Russia and CIS, calls for a constructive dialogue between all sides.

“I think a solution can only be achieved if all parties get around the table and try to balance their interests – the interests of Russia, of having stable and reliable gas supplies to Europe through the Ukrainian network and achieving fair prices, on the Ukrainian side also to have stable and reliable supplies from Russia and then be able to pay their debts at a reasonable price, and then Europe ensuring they get the stable supplies of the Russian gas,” Joerg Doerler said.

After holding talks with Russian energy minister and a Gazprom representative this Monday, EU energy commissioner Gunther Oettinger promised to resolve the gas dispute between Russia and Ukraine by the end of this month.

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