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This Week

TIME TO DISARM RUSSIA

Last week saw yet another round of Russian-Ukrainian energy debt accusations and cut-off threats, producing the latest flurry of “Gas War” headlines in the international press. Russia’s repeated use of the self-same energy weapon has succeeded in dividing successive Ukrainian governments, with those in power seemingly unable to take the final step away from the Russian embrace and switch to a transparent, market-oriented relationship. Isn’t it time to start paying world prices and disarm Russia’s energy arsenal once and for all? More

UKRAINE INKS NEW ENERGY GRID DEAL

Ukrainian officials secured a financial boost from European financial institutions last week to help finance the improvement and modernisation of the domestic power sector. The four-stage project will involve a EUR 300 million loan and help facilitate better energy distribution throughout the country, allowing Ukraine to get the most out of its domestic power-generating potential More

TEMPTING INVESTORS TO AN ANCIENT ISLE

The Economics Ministry unveiled plans last week for a special economic zone on Snake Island in the Black Sea. The move is part of an on-going dispute between Ukraine and Romania over the demarcation line between the territorial waters of the two countries, with the tiny island playing the role of Ukraine’s ambitious frontier outpost More

NEW GOVERNMENT BOOSTS CONSUMER CONFIDENCE

Last month research company GfK Ukraine and the Kyiv-based International Centre for Policy Studies announced the latest results of their research on the mood of local consumers, with a marked upturn in optimism due to returned political stability More
 

News

TEMPTING INVESTORS TO AN ANCIENT ISLE

The Economics Ministry unveiled plans last week for a special economic zone on Snake Island in the Black Sea. The move is part of an on-going dispute between Ukraine and Romania over the demarcation line between the territorial waters of the two countries, with the tiny island playing the role of Ukraine’s ambitious frontier outpost

Ukraine’s claim to Snake Island dates back to 1948, when the rocky outcrop was officially annexed by the Soviet Union as part of the general redrawing of eastern European borders that came in the wake of the Red Army’s WWII victory. Soviet Ukraine was greatly enlarged as a result of these largely unilateral border agreements, acquiring huge swathes of land in what had previously been pre-war Poland, Romania and Hungary. Snake Island played a tiny part in this geopolitical revision which, unlike the Soviet seizures of Halychina, the Trans-Carpathians, Bukovina and Besarabia, was not accompanied by ethnic conflict and mass political repression.

As a result little was heard of Snake Island for the next forty years, when it was used as a sparsely-manned Soviet radar post and Cold War surveillance base. Romania was at the time a communist Soviet satellite which had previously allied itself with Hitler’s Germany during the invasion of the USSR and as such was not in a position to argue with the Kremlin. However, since the collapse of the Soviet Union Snake Island has become the focus of a bitter legal wrangle between Bucharest and Kyiv as they fight for the oil and gas-rich territorial waters that the owners of the island can lay claim to.


Post-Soviet territorial disputes


The collapse of the Soviet Union ushered in a whole new era of international territorial disputes across the former USSR, but despite being the beneficiary of the largest post-WWII territorial gains of any Soviet republic, independent Ukraine has thus far managed to avoid becoming submerged in the kind of conflicts that have led to bloodshed in Transnistria and throughout the Caucasian region. The Snake Island imbroglio is the one exception to Ukraine’s current territorial integrity, with the case currently before the International Court of Justice in The Hague.

Romania initially attempted to claim outright sovereignty over the island, but moderated its claim in 1997 as part of a bid to join NATO, which necessitated the settling of all territorial disputes. Since the signing of the 1997 agreement the debate has turned away from sovereignty and turned to the actual status of the island. The Romanian side has moderated its position and now argues that Snake Island is not technically an island at all and as such should not be taken into consideration when drawing up the territorial waters of the two neighbouring states.

At stake are the rights to the continental shelf surrounding the island which contains significant oil and gas reserves, with numerous international energy giants lining up to ink deals with either Bucharest or Kyiv once the maritime territorial boundary is defined. If Ukraine’s claim is acknowledged then Kyiv will be able to lay claim to a far greater share of Black Sea continental shelf as national territorial waters, strengthening the country’s position as it seeks to develop its own energy reserves in the Black Sea and increase its energy independence.


Defending Soviet imperial gains


Faced with Romanian claims that Snake Island is technically just a cliff, Ukraine’s response has been to build up the infrastructure of the island in a bid to demonstrate that it is a fully functioning part of Ukraine proper. Since 2003 Kyiv has established a scientific research base on the island as well as a small village, which have both been placed under the jurisdiction of Odessa Regional Administration.

The creation of a free economic zone is thought to be the latest ruse to establish Snake Island as a going concern, but it remains unclear exactly what kind of investment state officials have in mind for the tiny outpost. Former Economy Minister Serhiy Terehin was quoted in Ekonomicheskiye Izvestia saying that the scheme was at best bizarre. “A free economic zone would encourage the construction of a casino on the island, but who would go there?” he reflected with more than a hint of irony.


An unlikely tourist trap


The best chance Ukraine would seem have for attaching investment onto the island would be to focus on exclusive tourism. The special economic zone itself has been dubbed the Achilles Zone in reference to the ancient association Snake Island enjoys with the hero of Greek legend. Achilles was said to have a temple on the isle and is even rumoured to have been buried there. Archaeologists have uncovered the remains of various impressive ancient Greek and Thracian temple structures on the island and in the surrounding waters, adding credibility to the Achilles claims.

Paul Johnson
Business Ukraine
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