Ukrainian energy independence ain't just a Ukrainian problem

As you probably know, the vice president has been in Iraq, Ukraine, and Georgia this week. He made noises about ethnic strife in Iraq (consistent with his long history of supporting the partition of that country), poked Russia in the eye by continually and vocally supporting Ukraine and Georgia's quest to join NATO, and facilitated some strong-man grandstanding by the pesky but polished Mikheil Saakashvili. But believe it or not, Biden actually did something good on this foreign jaunt!

U.S. Vice President Joe Biden chastised Ukraine's political leadership on Wednesday, saying Kiev risks squandering its celebrated Orange Revolution through governmental infighting that has stalemated needed economic reforms, including liberalizing Ukraine's gas market to end dependence on foreign powers and their suppliers.

Ukraine's precarious security situation is, of course, largely a result of its close proximity to Russia. Aside from its sheer vulnerability to aggressive military action, the country's internal politics are complicated by a substantial pro-Moscow, Russian-speaking minority. And on top of all that, Kiev is dependent on Russian natural gas supplies to meet its energy needs.

Russia is often (understandably and legitimately) faulted for using the gas spigot to manipulate Ukraine in times of crisis and disagreement. By cutting supply, Moscow can effectively -- and literally -- freeze out those ingracious brats in "little Russia" who wish to define their own national interests. What you don't hear much about, however, is the Ukrainian political leadership's complicity in the whole deal. (Ok, "complicity" may be too strong, but there's certainly some fault.)

Mr. Biden saved his toughest criticism for the government's handling of the energy sector, where the government provides large subsidies on imported natural gas that is sold domestically. Analysts have argued the disparity between market prices and the cheap government-sold gas has created a black market where corruption is rampant.

In addition, analysts said, the large subsidies have forced Kiev to rely on below-market-price imports from Russia, which allows Moscow to directly influence Ukraine's domestic economy. Twice in the past three years, disputes between Russia and Ukraine over gas payments have shut down a major gas pipeline that transits from Ukraine to the rest of Europe, leaving parts of Eastern and Central Europe shivering during the winter.

Although he didn't mention Russia by name, Mr. Biden said reform of the energy sector was essential to Ukraine's independence and national security, saying only if the country liberalized its gas market would it be free of dependence on foreign powers and their suppliers.

"Your economic freedom depends more, I suspect in this country, on your energy freedom than on any other single factor," Mr. Biden said, urging conservation as well as reform. "That will be a boon to your economy and an immeasurable benefit, I respectfully suggest, to your national security." Mr. Biden also announced the establishment of a joint U.S.-Ukrainian working group on energy security.

It's always easier to subsidize essential goods to win domestic popularity, particularly when those goods are produced indigenously. The complicating factor, of course, is when the goods are imported (see Venezuela), or when processing into useful commodities takes place out of the country (Iranian oil gets exported for refining, then re-imported where it's sold at a massive discount; economic turmoil ensues). So Yushchenko and Tymoschenko et al. aren't innocent here, and they can take concrete steps to help assert their country's independence from its bullying neighbor.