Ukraine: Current Issues and U.S. Policy
Steven Woehrel
Specialist in European Affairs
January 4, 2012
Congressional Research Service
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Ukraine: Current Issues and U.S. Policy

Summary
On February 7, 2010, Viktor Yanukovych defeated Prime Minister Yuliya Tymoshenko to win
Ukraine’s presidency. International monitors praised the conduct of the election, although
Tymoshenko charged that the election had been fraudulent. Yanukovych was able to quickly to
form a new parliamentary majority in the current parliament by inducing scores of supporters of
the previous government to change sides. Government opponents charged that bribery and threats
to the business interests of members were used to effect the change.
The global economic crisis hit Ukraine hard. Ukraine’s real Gross Domestic Product (GDP) fell
by an estimated 15% in 2009. The economy began to recover in 2010, and GDP increased by
4.7% in 2011, due in part to a surge in demand for Ukrainian steel exports. However, living
standards for many Ukrainians remain low, leading to a rapid drop in Yanukovych’s popularity
when compared to the period soon after his inauguration. Expected slow growth in western
Europe will likely result in slower growth in 2012 for Ukraine as well.
President Yanukovych has pursued closer ties with Russia, especially in the economic sphere. A
major focus of his policy has been to seek reduced prices for natural gas supplies from Moscow.
In April 2010, he agreed to extend the lease of the Russian Black Sea Fleet in Ukraine for 25
years in exchange for a reduction in gas prices. However, the impact of the deal on gas prices has
been less than anticipated, as oil prices (on which Ukraine’s gas price is calculated) have soared
due to unrest in the Middle East. As a result, Ukraine has sought additional gas price cuts from
Moscow, so far without success.
Yanukovych has said that EU integration is a key priority for Ukraine, but U.S. and European
criticism of what is widely viewed as the politically motivated conviction and imprisonment of
Tymoshenko in October 2011 on charges of abuse of power, has called into question whether a
long-awaited association agreement with the EU (including a free trade agreement) will be signed
and enter into force. Ukraine continues to reject Russian proposals that it join a customs union
with Russia, Belarus, and Kazakhstan. Yanukovych has made clear that his country is not seeking
NATO membership, but wants to continue cooperation with NATO, including the holding of joint
military exercises.
The Obama Administration has worked to “reset” relations with Russia, but has warned that it
will not accept any country’s assertion of a sphere of influence, a reminder of U.S. support for
Ukraine’s sovereignty. The Administration has not publicly expressed concern about what some
observers view as the pro-Russian tilt of Ukraine’s foreign policy under Yanukovych.
The Administration has focused on helping Ukraine rid itself of its supplies of highly enriched
uranium, assisting Ukraine with the clean-up of the Chornobyl nuclear site, and diversifying
Ukraine’s sources of energy, including advice on developing Ukraine’s shale gas reserves.
Administration officials have expressed concerns about regression in Ukraine’s democratic
development since Yanukovych took power, including in such areas as media freedoms, election
laws and the conduct of elections, and selective prosecution of the government’s political
opponents.

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Contents
Background...................................................................................................................................... 1
Current Political Situation ............................................................................................................... 3
Current Economic Situation............................................................................................................. 4
Ukraine’s Foreign Policy ................................................................................................................. 5
NATO ........................................................................................................................................ 6
European Union......................................................................................................................... 6
Russia ........................................................................................................................................ 8
Energy Issues....................................................................................................................... 9
U.S. Policy..................................................................................................................................... 10
Congressional Response.......................................................................................................... 12
U.S. Aid to Ukraine........................................................................................................... 12
Other Legislation............................................................................................................... 13

Contacts
Author Contact Information........................................................................................................... 14

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Background
Ukraine, comparable in size and population to France, is a large, important, European state. The
fact that it occupies the sensitive position between Russia and NATO member states Poland,
Slovakia, Hungary, and Romania adds to its geostrategic significance. Many Russian politicians,
as well as ordinary citizens, have never been fully reconciled to Ukraine’s independence from the
Soviet Union in 1991, and feel that the country belongs in Russia’s political and economic orbit.
The U.S. and European view (particularly in Central and Eastern Europe) is that a strong,
independent Ukraine is an important source of regional stability.
From the mid-1990s until 2004, Ukraine’s political scene was dominated by President Leonid
Kuchma and the oligarchic “clans” (groups of powerful politicians and businessmen, mainly
based in eastern and southern Ukraine) that supported him. Kuchma was elected President in
1994, and re-elected in 1999. He could not run for a third term under the Ukrainian constitution.
His rule was characterized by fitful economic reform (albeit with solid economic growth in later
years), widespread corruption, and a deteriorating human rights record.
Ukraine’s 2004 presidential elections were characterized by electoral fraud and massive street
protests. The oligarchs chose Prime Minister Viktor Yanukovych as their candidate to succeed
Kuchma as President. The chief opposition candidate, former Prime Minister Viktor Yushchenko,
was a pro-reform, pro-Western figure. After the November 21 runoff vote, Ukraine’s Central
Election Commission proclaimed Yanukovych the winner. Yushchenko’s supporters charged that
massive fraud had been committed. Hundreds of thousands of Ukrainians took to the streets, in
what came to be known as the “Orange Revolution,” after Yushchenko’s chosen campaign color.
They blockaded government offices in Kyiv and appealed to the Ukrainian Supreme Court to
invalidate the vote. The court invalidated the runoff election and set a repeat runoff vote.
Yushchenko won the December 26 re-vote, with 51.99% of the vote to Yanukovych’s 44.19%.
The “Orange Revolution” sparked a good deal of interest in Congress and elsewhere. Some hoped
that Ukraine could finally embark on a path of comprehensive reforms and Euro-Atlantic
integration after years of half-measures and false starts. However, subsequent events led to
disillusionment among Orange Revolution supporters, both in Ukraine and abroad. President
Yushchenko soon fell into squabbling with Yuliya Tymoshenko, his main backer during the
Orange Revolution and his first Prime Minister, over policy and over mutual allegations of
corruption, slowing progress on reforms.
In 2006, Yushchenko reluctantly reappointed his former 2004 presidential election opponent
Viktor Yanukovych as Prime Minister, after Yanukovych’s Party of Regions won the most seats in
parliamentary elections that year. Yanukovych’s government then worked steadily to whittle away
at Yushchenko’s powers and political influence. In response, President Yushchenko dissolved the
Ukrainian parliament. Yanukovych charged that the move was unconstitutional. The contending
sides eventually worked out a compromise and on September 30, 2007, Ukraine held early
parliamentary elections. The Party of Regions remained the largest party in the legislature.
However, the Yuliya Tymoshenko Bloc and Yushchenko’s Our Ukraine-People’s Defense group
won enough seats to form a new government. After lengthy negotiations, President Yushchenko
nominated Tymoshenko as his candidate for Prime Minister. The parliament approved
Tymoshenko as Prime Minister on December 18, 2007, with 226 votes, the barest of majorities in
the 450-seat assembly.
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Over the next two years, Ukraine’s government lurched from one political crisis to another.
Perhaps the key problem was the familiar one of tensions between Tymoshenko and President
Yushchenko. In addition to policy differences and intense personal enmity and distrust between
the two leaders, the conflict was also due to jockeying for power in advance of upcoming
presidential elections, in which both were to be candidates. As Ukrainian leaders engaged in this
three-sided political battle, an overwhelming majority of Ukrainians grew disgusted with the
Ukrainian political class, according to opinion polls. Observers say that this is in part due to the
fact that Ukrainian leaders continued to squabble despite the global economic crisis, which
inflicted severe blows on Ukraine's economy.
Ukraine held new presidential elections on January 17, 2010. As expected, Viktor Yanukovych
came in first, winning 35.32% of the vote. Yuliya Tymoshenko, doing somewhat better than some
pre-election polls indicated, won 25.05%. Serhei Tihipko, a former Prime Minister whose support
was strongest in pro-Russian eastern Ukraine, won 13.05%. Former parliament speaker Arseniy
Yatsenyuk won 6.96%. Incumbent President Yushchenko did very poorly, winning a mere 5.45%.
Other candidates split the rest of the vote. Voter turnout was 67%. The results set up a second
round runoff vote between Yanukovych and Tymoshenko on February 7. Yanukovych won
48.98% of the vote, beating Tymoshenko, who won 45.47%. As in previous Ukrainian elections,
the results showed a sharp regional split, with Yanukovych winning in Russian-speaking eastern
and southern Ukraine, while Tymoshenko prevailed in central and western Ukraine, where
Ukrainian nationalism is stronger. However, Yanukovych’s overwhelming margins in the east
(particularly in his home base, the Donetsk and Luhansk regions) more than offset Tymoshenko’s
modest victories in some western areas.
International monitors praised the conduct of the election. Joao Soares of Portugal, head of the
observer team from the Organization for Security and Cooperation in Europe, said the February 7
vote was an “impressive display of democratic elections.” In a possible hint to Tymoshenko, he
added that it was “now time for the country’s political leaders to listen to the people’s verdict and
make sure that the transition of power is peaceful and constructive.”1 Exit polls by independent
groups did not show a significant departure from the announced results. Tymoshenko charged that
Yanukovych’s supporters had engaged in massive fraud, but that she would not call her supporters
out into the streets to challenge the result. Analysts suggested that this was because a disillusioned
public would not turn out for mass demonstrations as they had in 2004.
On March 11, 2011, the Ukrainian parliament approved Yanukovych’s choice for the post of
Prime Minister, Mykola Azarov. Azarov has been a loyal associate of Yanukovych for many
years. He served as First Deputy Prime Minister and Finance Minister during Yanukovych’s two
terms as Prime Minister. The government is supported by the Party of Regions, the Communist
Party, and the Lytvyn Bloc. However, in order to secure a majority, additional support from
deputies of the former ruling coalition was required. As has happened after previous presidential
elections, the new leader was able to gain that support. Opposition leaders charged that those who
switched did so because they were bribed or threatened with government retaliation against their
businesses if they did not comply. The opposition also said that the defections from a party
faction were unconstitutional. However, the Ukrainian Constitutional Court later ruled that the
method of the government’s formation was legal.

1 The reports of the International Election Observation Mission can be found at http://www.osce.org/odihr/.
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Current Political
Main Groups in Ukraine’s Parliament
Situation
Party of Regions: The largest party in Ukraine’s
parliament. It draws its support from eastern Ukraine,
where suspicion of Ukrainian nationalism is high and
The current government has been less
support for close ties with Russia is strong. It defends the
politically turbulent than the previous one, due
economic interests of powerful oligarchic groups in
to the highly disciplined nature of the Party of
eastern Ukraine. It has 192 members in the 450-seat
parliament.
Regions and President Yanukovych’s
undisputed leadership of Ukraine’s executive
Yuliya Tymoshenko Bloc-Fatherland: Mainly a
branch. President Yanukovych’s formal
vehicle for the ambitions of the charismatic, sometimes
combative Tymoshenko, it has little ideological cohesion.
powers were further boosted in October 2010,
It became the second-largest group in the Ukrainian
when the Constitutional Court invalidated
parliament largely because many Ukrainians saw
constitutional amendments adopted during the
Tymoshenko as the most stalwart defender of the
Orange Revolution that had ceded some of the
populist, anti-corruption ideals of the Orange Revolution.
president’s power over the government to the
However, since Tymoshenko’s defeat in the 2010
presidential elections, scores of members of the bloc
parliament.
have defected to parliamentary factions that support
Yanukovych. It currently has 102 members in the
President Yanukovych and his supporters have
parliament.
portrayed themselves as a team of
Our Ukraine-People’s Self Defense bloc: This bloc
professionals engaged in the practical work of
is composed of a number of parties favoring free market
governing, as opposed to the unproductive
economic reforms and a pro-Western foreign policy. It
squabbling of the Yushchenko period. The
draws its support from western Ukraine, where
Ukranian nationalism is strong. It was former President
opposition, led by Tymoshenko, charges that
Yushchenko’s main base of support. It lost cohesion as
the government has not achieved significant
Yushchenko’s popularity waned. After Yushchenko lost
results while in office, except for engaging in
the presidential election, some of its members left the
massive corruption and favoring the business
bloc to join factions supporting Yanukovych. It currently
interests of its oligarchic backers. After a brief
has 65 members in the parliament.
“honeymoon” period after the presidential
Communist Party: The Communist Party has been
election, the Yanukovych administration
overtaken by the Party of Regions in its eastern Ukraine
dropped sharply in public opinion polls (as its
strongholds and has a largely elderly electorate. It
opposes market economics and favors strong ties to
predecessors have done), due in part to the
Russia. It has 25 members in the parliament.
lingering effects of the international economic
crisis on Ukrainian living standards.
Lytvyn Bloc (People’s Party): A centrist bloc headed
by Volodmyr Lytvyn, the current parliament chairman.
Lytvyn has changed sides several times in Ukraine’s
Ukraine’s government has been strongly
political struggles, backing the side with the upper hand
criticized over its human rights record.
at the moment. It renamed itself the People’s Party in
Ukrainian journalists and international groups
2010. It has 20 members.
such as Reporters without Borders have
Reforms for the Future: Formed in February 2011,
charged that the government pressures the
this group supports the government. It was formed from
media to engage in self-censorship. Private
defectors from opposition factions. It has 20 members.
media owners have reportedly been have
threatened with harm to their businesses if their outlets did not moderate their criticism of the
government. In what appears to be a serious conflict of interest, Valery Khoroshkovsky, the head
of the SBU, Ukraine’s security service, also controls Inter, Ukraine’s largest media empire. Critics
charge he has used his position to harass journalists and influence the government and courts to
attack his rivals.
U.S. and EU officials have expressed concern that opposition leaders have been targeted for
selective prosecution. In the most prominent case, on October 11, 2011 Tymoshenko was
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convicted of abuse of power arising out of her role in signing a natural gas supply agreement with
Russia and sentenced to seven years in prison. In December 2011, an appeals court upheld the
conviction. In the same month, Ukrainian authorities arrested Tymoshenko again on charges of
embezzlement, fraud, and tax evasion while she headed an energy company in the 1990s. Also in
December, she was transferred to a penal camp in the Kharkiv region of eastern Ukraine.
Another concern is about the government’s commitment to holding free and fair elections. The
State Department criticized Ukraine’s October 2010 local elections as being less free and fair than
the presidential election earlier in the year. It noted that local non-partisan election observers had
criticized numerous procedural violations on election day, as well as flaws in the electoral law.
Given this record, and the prosecution of Tymoshenko and other opposition figures, analysts are
concerned about whether October 2012 parliamentary elections will even less free and fair.
Current Economic Situation
Until the global economic crisis, Ukraine was experiencing substantial economic growth, with
GDP increasing by an average of 7.5% between 2000 and 2007. The growth was fueled mainly by
consumption, including an import boom fed by heavy domestic and foreign borrowing. This was
reflected in a widening trade deficit and current account deficit. Ukraine’s growth was also due to
strong demand for products of the country’s large steel and chemicals industries.2 Despite this
growth, Ukraine remains much poorer than other European countries. Its GDP per capita in
purchasing power parity terms is only 22% of that of the EU and only 40% of Russia’s. Likewise,
in 2010 its foreign direct investment (FDI) per capita was $979, less than half of that in Russia
and about a quarter of Poland’s FDI per capita. Foreign companies often cite such issues as
rampant corruption and serious shortcomings in the rule of law (including a weak judiciary) as
key stumbling blocks to foreign investment.
Due to the unsustainable basis of its growth and the lack of confidence caused by its squabbling
political leadership, Ukraine was hit very hard by the global economic crisis. Ukraine’s real Gross
Domestic Product fell by 15.1% in 2009. The economy has rebounded, however. Real GDP rose
by 4.2% in 2010, according to the Economist Intelligence Unit, and by an estimated 4.7% in
2011. Ukraine’s recovery has been assisted by a sharp increase in demand for steel, which has
spurred exports. A downturn in Europe is expected to result in slower growth in 2012, however.
The decrease in domestic demand during the crisis reduced Ukraine’s serious problem with
inflation, which reached as high as 31% in May 2008, on an annualized basis. Consumer price
inflation Nevertheless, annual average inflation remained quite high at 10.8% in the second
quarter of 2011, on a year-on-year basis. Ukraine’s currency, the hryvnya, dropped from 5.05 to
the US dollar at the end of 2007 to 7.7 at the end of 2008, strengthening only slightly since then.
This development was devastating for Ukrainian banks as well as for many Ukrainian savers, as
many deposits and loans were denominated in foreign currencies before the financial crisis.
There have been concerns about the transparency of the privatization process under the
Yanukovych administration. In just one example, in January 2011, Ukrtelecom, the state-owned
telecommunications firm, was sold to Epic, an Austrian financial firm reputed to have close ties

2 Economist Intelligence Unit Country Report: Ukraine, June 2008; “Ukraine: Slowing Growth Suggests Stagflation
Risk,” Oxford Analytica, August 14, 2008.
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with Ukrainian officials and businessmen. It was the only bidder. Critics charged that the criteria
for eligibility for the sale were rigged to exclude other bidders. Foreign investors in the
agriculture sector expressed anger at Ukraine’s limitation of grain export licenses, which
appeared to be granted preferentially to companies with close ties to government officials.
In July 2010, the International Monetary Fund approved a $15.15 billion standby loan for Ukraine
to support its reform efforts. The objectives of the loan include cutting the general government
deficit to 3.5 percent of GDP in 2011 and 2.5 percent in 2012; improving the financial health of
Naftohaz, the state-run natural gas firm, by increasing prices for natural gas to consumers; and
finishing the effort to recapitalize the Ukrainian banking system, which was gravely weakened by
the financial crisis; and increasing the independence of the National Bank of Ukraine with a focus
on domestic price stability under a flexible exchange rate regime. Two tranches of the loan have
been disbursed so far. The government is negotiating with the IMF to secure additional tranches.
Progress has been slow, as IMF demands for an increase in energy prices for domestic consumers
are highly unpopular with the Ukrainian public. Ukraine has sought financial help from Russia
and other sources to make up for the suspension of the IMF loan.3
Ukraine’s Foreign Policy
Since achieving independence in 1991, conflict between Ukraine’s political forces has led its
foreign policy to appear incoherent, as the contending forces pulled it in pro-Western or pro-
Russia directions or simply neglected foreign policy as less important than domestic political
combat and the division of the spoils of victory. Before the election of Yushchenko as President in
2005, Ukrainian leaders gave lip service to joining NATO and the European Union, but did little
to meet the standards set by these organizations. Ukrainian leaders also promised closer ties with
Russia in exchange for Russian energy at subsidized prices, but balked at implementing
agreements with Russia that would seriously compromise Ukraine’s sovereignty, such as ceding
control over Ukraine’s energy infrastructure to Moscow.
In contrast, President Yushchenko put integration into the global economy and Euro-Atlantic
institutions at the center of Ukraine’s foreign policy. Ukraine achieved one key foreign policy
goal in May 2008, when it joined the World Trade Organization (WTO). In the longer term,
Yushchenko wanted Ukraine to move toward eventual membership in the European Union and
NATO. He had limited success in this area, however. Relations with Russia were troubled
throughout Yushchenko’s presidency.
President Yanukovych’s foreign policy appears to resemble that of the pre-Yushchenko period,
but with a stronger pro-Russia tilt. He continues to express support for EU integration for
Ukraine, but the extent to which he is committed to undertaking the steps needed to reach this
goal is unclear. He improved ties with Russia, but has so far tried to tactfully evade Russia’s most
ambitious demands for economic and military integration. He has departed from previous
Ukrainian presidents by clearly rejecting NATO membership for Ukraine.

3 Economist Intelligence Unit Country Report: Ukraine, December 2011.
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NATO
Ukraine currently has an “Intensified Dialogue” with NATO. President Yushchenko sought a
Membership Action Plan (MAP), a key stepping-stone to joining the Alliance. The MAP gives
detailed guidance on what a country needs to do to qualify for membership. NATO declined to
offer Ukraine a MAP at the April 2008 NATO summit in Bucharest, despite strong support from
the United States and almost all central European NATO members. Germany and France played
the leading role in blocking the effort. They raised questions about Ukraine’s qualifications for a
MAP and also expressed concerns that granting a MAP to Ukraine would hurt relations with
Russia. In a move that surprised many observers, the summit communique also contained an
unqualified statement that Ukraine (and Georgia) “will become members of NATO,” without
specifying when that might happen.
The conflict between Russia and Georgia in August 2008 may have had an important impact on
Ukraine’s hopes of receiving a MAP. European NATO countries that have opposed a MAP for
Ukraine may be even more reluctant to agreed to one, fearing a sharp deterioration in relations
with Moscow and perhaps even being embroiled in a military conflict with Russia in the future.
On December 2, 2008, NATO foreign ministers agreed to work with Ukraine on “annual national
programs” within the framework of the existing NATO-Ukraine Commission, which assists
Ukraine’s defense reform efforts. The Bush Administration, the main supporter of a MAP for
Ukraine, may have seen this approach as a way for Ukraine to make progress toward NATO
membership without calling it a MAP. However, France and Germany, unwilling to provoke
Moscow, warned strongly against viewing the compromise as a shortcut to NATO accession,
saying that a MAP would still be required. In addition to concerns among some European
countries about Russia’s response, critics point out that opinion polls have repeatedly shown that
a large majority of Ukrainians oppose NATO membership.
President Yanukovych has dropped former President Yushchenko’s MAP aspirations, a move that
has pleased Russia. He said that Ukraine will continue cooperating with NATO in defense reform
and other areas, but without seeking membership in the alliance. Ukraine has continued to
participate in joint exercises with NATO. Russia has been irked by continuing political
consultations between NATO and Ukraine, including on issues affecting Russia, such as the Black
Sea Fleet.
Ukraine has not contributed substantial numbers of troops to Afghanistan, at least in part due to
bad public memories of the Soviet occupation of Afghanistan in the 1980s, but has supported a
provincial reconstruction team. According to the website of the NATO-led ISAF peacekeeping
force, Ukraine had 23 soldiers in Afghanistan in December 2011. As of December 2011, Ukraine
deployed 136 troops as part of KFOR, the NATO-led peacekeeping force in Kosovo.
European Union
Ukraine seeks eventual EU membership. Most EU countries have been cool to Ukraine’s possible
membership, perhaps because of the huge burden a large, poor country like Ukraine could place
on already-strained EU coffers. Indeed, EU officials have tried to dissuade Ukraine from even
raising the issue. However, Poland and the Baltic states have advocated Ukraine’s eventual
membership in the EU, in part because they see a stable, secure Ukraine as a bulwark against
Russia. Nevertheless, even the most optimistic supporters of Ukraine’s EU membership
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acknowledge that it could be many years before Kyiv is ready to join, but believe that formal EU
recognition of Ukraine’s eligibility could speed the reform process in Ukraine.
Ukraine currently has a Partnership and Cooperation Agreement (PCA) with the EU, as well as a
Ukraine-EU Action Plan within the context of the EU’s European Neighborhood policy. The
agreements are aimed at providing aid and advice to assist Ukraine’s political and economic
transition and to promote closer ties with the EU. At an EU-Ukraine summit in December 2005,
the EU announced that it would grant Ukraine market economy status, which made it easier for
Ukrainian firms to export to the EU without facing antidumping duties.
In March 2007, the EU and Ukraine announced the opening of negotiations on a New Enhanced
Agreement to replace the PCA. Talks on an EU-Ukraine free trade area began in February 2008.
In September 2008, the EU agreed to call the new Ukraine-EU accord currently under negotiation
an “Association Agreement.” In May 2009, the EU launched the Eastern Partnership program
within the context of their European Neighborhood policy, which also includes non-European
countries. Although the EU insists that the regional approach taken by the Partnership (which
includes Belarus, Moldova, Georgia, Armenia, and Azerbaijan) will improve EU cooperation with
these countries, it is not clear that the initiative offers Ukraine significantly more than previous
efforts.
The EU has budgeted €470 million ($682 million) in aid for reforms in Ukraine for 2011-2013.4
The assistance covers such areas as energy cooperation, strengthening border controls, bolstering
the judiciary and the rule of law, and addressing environmental concerns.
EU countries were angered by the January 2009 natural gas standoff between Russia and Ukraine,
which led to a cut-off of natural gas supplies to EU countries for two weeks. However, the EU did
not assign sole blame for the crisis to Ukraine, despite Moscow’s diplomatic and public relations
efforts aimed at doing so. After the stand-off, the EU took steps to try to work with Ukraine to
prevent another gas cutoff. In March 2009, the EU agreed to provide EU assistance to help
modernize Ukraine’s gas pipeline system in exchange for greater transparency by Ukraine in how
the system is run. However, the project has been stymied by Ukraine’s inability or unwillingness
to meet the EU’s terms for the loan. Perhaps most importantly, Russia, the pipeline’s chief gas
supplier, objected strongly to the plan.
President Yanukovych has said that he favors the completion of the Association Agreement, visa-
free travel to the EU for Ukrainians, and eventual EU membership for Ukraine. In November
2011, Ukraine and the EU finished negotiations on almost all of the Association Agreement,
including the free trade agreement. However, Kyiv was reportedly unsuccessful in its efforts in
seeking language in the agreement that could have been interpreted as providing an EU
membership perspective for Ukraine.
The agreement was expected to be initialed by EU leaders and Yanukovych at a summit in Kyiv
on December 19, 2011. However, this did not occur. The two sides issued a communique stating
only that the two sides had reached a “common understanding on the full text of the Association
Agreement” and that the “way is now open” for the “technical completion of the final

4 “Commissioner Stefan Fuele Signed Today A Memorandum of Understanding on the National Indicative Program for
Ukraine,” EU press release, March 2, 2011 at
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/250&format=HTML&aged=0&language=EN&guiLan
guage=en.
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consolidated version” of the agreement but that the conclusion of the accord would depend on
Ukraine’s performance on the issues of “common values and the rule of law.”5 In other remarks
European Council President Herman Van Rompuy noted that the Tymoshenko case is one
example of Ukraine’s shortcomings in the rule of law.
Russia
Ukraine’s closest, yet most difficult and complex relationship is with Russia. President Putin
strongly backed Yanukovych’s fraudulent “victory” during the 2004 presidential election
campaign and reacted angrily to the success of the Orange Revolution. Russian observers with
close ties to the Kremlin charged that the Orange Revolution was in fact a plot engineered by the
United States and other Western countries. Relations during the Yushchenko presidency were
rocky. Russia was irked by Yushchenko’s efforts to support greater democratization in the region,
impose tighter border controls on Transnistria, a pro-Moscow, separatist enclave within
neighboring Moldova, and forge closer links with Georgia.
Ethnic Russians make up 17.3% of Ukraine’s population, according to the 2001 Ukrainian census.
They are concentrated in the southern and eastern parts of the country. They form a majority in
the Crimea (a peninsula in the Black Sea in southern Ukraine), where they make up 58.3% of the
population. In the Crimean city of Sevastopol, the home base of the Russian Black Sea Fleet,
71.6% of the population are Russians. In addition, ethnic Ukrainians in the east and south also
tend to be Russian-speaking, are suspicious of Ukrainian nationalism, and support close ties with
Russia. Russian officials have tried to play on these regional and ethnic ties, not always
successfully, as demonstrated by the 2004 Ukrainian presidential election. Perhaps learning a
lesson, Russia did not intervene so openly in the 2010 Ukrainian presidential vote. While
Yanukovych was favored by Moscow, Prime Minister Putin made it clear that Russia could work
with Tymoshenko as well. President Medvedev and other Russian leaders expressed open scorn
for Yushchenko, who observers believed was destined to lose anyway.
One of President Yanukovych’s top foreign policy priorities has been to improve relations with
Russia. In April 2010, Russia and Ukraine agreed to extend the stay of the Russian Black Sea
Fleet in Crimea until 2042, from the original withdrawal date of 2017. In exchange, Russia agreed
to provide Ukraine with discounted prices for natural gas supplies for 10 years, a benefit that the
two sides estimated as worth $40 billion. Russian companies, with Russian government support,
have also stepped up efforts to buy key industrial assets in Ukraine since Yanukovych has come
to power. While they have achieved some successes, they have also faced opposition from
Ukrainian oligarchs who desire to maintain control of major companies.
However, some of Russia’s boldest proposals for improving ties with Ukraine appear to have
gone further than Kyiv can support. Yanukovych continues to stress Ukraine’s neutral, “non-bloc”
status. He has said Ukraine will not join Moscow’s counterpart to NATO, the Collective Security
Treaty Organization. Russia is pressing Ukraine to join its customs union with Belarus and
Kazakhstan. Ukraine has rejected these overtures, saying the customs union is not compatible
with the agreements Ukraine signed with other countries before it joined the World Trade
Organization. The EU has also warned that it would not be compatible with the EU-Ukraine free
trade agreement that is part of the Association Agreement.

5 For the text of the EU-Ukraine joint statement see
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/127064.pdf.
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Energy Issues
The most severe crises in Russian-Ukrainian relations have occurred over energy. Ukraine is
heavily dependent on Russia for its energy supplies. About 80% of its oil and natural gas
consumption comes from Russia. However, Ukraine’s vulnerability to Russian pressure has been
mitigated by the fact that the main oil and natural gas pipelines to Central and Western Europe
transit its territory. Over two-thirds of Russia’s gas exports pass through Ukraine. Ukraine is also
Gazprom’s single largest gas consumer. Until the Yushchenko presidency, Russian firms supplied
energy to Ukraine at prices far below market rates. Energy sales have been conducted by non-
transparent intermediary companies, offering the elites of both countries opportunities to profit.
Russia’s efforts to increase gas prices to market levels provoked a crisis in 2006 that resulted in
cutoff of Russian gas to Western Europe. After Yushchenko came to power in 2005, the Russian
government-controlled natural gas monopoly Gazprom insisted on a more than fourfold increase
in the price that it charged Ukraine for natural gas. When Ukraine balked at the demand, Russia
cut off natural gas supplies to Ukraine on December 31, leading also to cuts in gas supplies to
Western Europe. The gas supplies were restored two days later after a new gas supply agreement
was signed.
A second gas crisis occurred in January 2009. The state-controlled Russian natural gas firm
Gazprom stopped gas supplies to Ukraine on January 1 after the two sides failed to reach
agreement on several issues, including a debt allegedly owed by Ukraine to Gazprom and the
price that Ukraine would pay for gas supplies for 2009. The cut-off was supposed to affect only
supplies for Ukraine; Russia continued to send gas through Ukraine destined for other European
customers. However, within a few days, Russia accused Ukraine of diverting these supplies for its
own use, and by January 6 cut off all deliveries through Ukraine to the rest of Europe. The EU
sharply criticized the cutoff, calling for a rapid resumption of supplies, but refused to take sides in
what it termed a “commercial dispute.”
Many large European countries (and Ukraine itself) did not suffer greatly from the 2009 cutoff,
despite frigid temperatures, due in part to substantial amounts of gas in underground storage
facilities. However, some countries, particularly in the Balkans, were hit hard. Negotiations
between Russia and Ukraine repeatedly broke down, with each side accusing the other of bad
faith and trying to enlist European support for its views. An increasingly angry EU threatened to
re-evaluate its relationship with both countries unless the impasse was resolved. Finally, on
January 18, Russia and Ukraine reached an agreement, and gas supplies to Europe resumed on the
20th.
Russia has sought control of Ukraine’s natural gas pipelines and storage facilities. Its efforts have
been unsuccessful so far, due to Ukrainian objections that Kyiv could not cede control of one of
its key economic assets. As a result, Russia has worked to develop options to diminish Ukraine’s
role in gas supply to Western Europe. Gazprom is developing gas pipelines under the Baltic Sea
(called Nord Stream) and through the Balkans (called South Stream) to Western Europe. Both
would bypass Ukraine. Nord Stream made its first deliveries of gas in late 2011, while South
Stream (if it is built) will not be available until at least 2015. These efforts could sharply reduce
Ukraine’s leverage over Russia on energy supplies. Russia could demand that Ukraine sell it
control of its gas pipeline system at a lower price that it otherwise could. Russia could also feel it
would have a freer hand to put greater pressure on Ukraine on other issues, including political
ones. Key Western European countries could feel they have less of a stake in Ukraine’s future, if
they, like Russia, were no longer dependent on Ukrainian gas transport infrastructure.
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Yanukovych, who is supported by oligarchs who own energy-hungry steel and chemicals
industries, has stressed the need to secure lower natural gas prices from Russia. He has sharply
criticized the gas agreement between Russia and Ukraine signed by Tymoshenko in 2009, saying
that the gas was far too expensive for Ukraine. The April 2010 Black Sea Fleet agreement was
one step Yanukovych has taken to try to secure cheaper gas supplies. However, the impact of the
deal on gas prices has been less than anticipated, as oil prices (on which Ukraine’s gas price is
calculated) soared due to unrest in the Middle East.
Russia continues to pressure Ukraine to make further concessions if it wants further gas price
cuts. Russia and Ukraine have agreed that Ukraine can pay for its gas in Russian rubles rather
than in dollars. Moscow has tried to persuade Ukraine to join a customs union with Russia,
Belarus, and Kazakhstan by offering it cheaper gas if it does so, so far without success. Russia
has also advocated the merger of Gazprom with Ukraine’s state-controlled gas firm Naftohaz,
which would amount to a Russian takeover of the Ukrainian company, due to the former’s much
larger size. Yanukovych has rejected this project, but has offered Russia part-ownership of
Ukraine’s gas pipeline system in exchange for guaranteed gas volumes for Ukrainian gas
pipelines and access to Russian gas and oil deposits. According to this plan, EU companies would
also participate in a new company that would control the gas transit system.
U.S. Policy
U.S. officials supported the “Orange Revolution” in Ukraine in late 2004 and early 2005, warning
the former regime against trying to impose fraudulent election results, and hailing Yushchenko’s
ultimate victory. During Yushchenko’s presidency, U.S. officials were upbeat about Ukraine’s
successes in some areas, such as joining the WTO, holding largely free and fair elections, and
improving media freedom, while acknowledging difficulties in others, such as fighting
corruption, establishing the rule of law, and constitutional reform.
The United States took steps to upgrade its economic relations with Ukraine. In January 2006, the
United States reinstated tariff preferences for Ukraine under the Generalized System of
Preferences (GSP). Ukraine lost GSP benefits in 2001 for failing to protect U.S. intellectual
property, particularly CD and DVD piracy. U.S. officials hailed Ukraine’s efforts to improve its
record on this issue.
The Bush Administration was sharply critical of Russia’s behavior during the January 2006
natural gas standoff between Russia and Ukraine. Secretary of State Condoleezza Rice stated that
Russia had made “politically motivated efforts to constrain energy supply to Ukraine.”6 On
January 22, 2009, after the resolution of the second major Russia-Ukraine gas crisis, a State
Department spokesman said the conflict “underscores the need for transparent, market-oriented
arrangements for the sale and shipment of natural gas and the importance of diversifying energy
supplies.”7
The Bush Administration strongly supported Ukraine’s request to receive a Membership Action
Plan from NATO at the 2008 Bucharest summit. Although the United States was unsuccessful in

6 The State Department. Statement, January 1, 2006; Daily Press Briefing, January 3, 2006; Secretary Condoleezza
Rice, Remarks at the State Department Correspondents Association’s Breakfast, January 5, 2006.
7 “Statement on Agreement to Restore Gas Flows to Europe,” January 22, 2009, http://useu.usmission.gov.
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persuading NATO to give Ukraine a MAP, Administration officials hailed NATO’s commitment
in the summit communique to grant Ukraine membership in the future. They scored another
success in getting NATO to agree to the development of annual national plans within the context
of the NATO-Ukraine Commission, although differences continued to exist between the United
States and those countries (particularly France and Germany) on whether such plans could
advance Ukraine’s NATO membership aspirations in the absence of a MAP.
In an effort to signal support for Kyiv after its failure to secure a MAP, the United States signed a
“Charter on Strategic Partnership” with Ukraine on December 18, 2008. The charter discusses
areas of current and future cooperation between the two countries. The Partnership Commission
has met on several occasions, and has established working groups dealing with a wide range of
issues, including energy security, science and technology, and political dialogue and rule of law.
In 2009, some Ukrainian analysts expressed concern that the Obama Administration’s “reset” in
U.S.-Russian relations could lead to a downgrading of U.S.-Ukrainian ties, or even the making of
concessions to Russia at Ukraine’s expense. Perhaps in order to calm these fears, Vice President
Biden visited Ukraine on July 20, 2009, in the wake of President Obama’s visit to Moscow earlier
that month. Biden expressed strong U.S. support for Ukraine’s aspirations to join NATO and
rejected the idea of a Russian sphere of influence in the region. He said that the “reset” in ties
with Russia would not come at Ukraine’s expense. He added that, on the contrary, it could help
Ukraine by defusing “zero-sum” thinking in Moscow about U.S. relations with Russia’s
neighbors. Vice President Biden warned Ukraine’s leaders that their country’s economic freedom
depended more on its energy freedom than any other factor. Biden said that Ukraine needs to
move to market pricing for domestic energy supplies, improve energy efficiency, and diversify its
energy supplies.
In December 2009, the United States Overseas Private Investment Corporation (OPIC) reopened
its programs to Ukraine. OPIC provides financing and political risk insurance for U.S. investors
in foreign countries. OPIC funding had been suspended after a commercial dispute between U.S.
investors and their Ukrainian partners in 1999 led to OPIC payment of an insurance claim to the
U.S. investor. The resolution of the issue in 2009 led to the resumption of OPIC funding to
Ukraine.
On February 11, 2010, after Yanukovych’s victory, President Obama called Yanukovych to
congratulate him on his victory. Obama praised the Ukrainian people’s conduct of the election
and said the vote marked another step in the consolidation of Ukraine’s democracy. He noted the
“strategic partnership between the United States and Ukraine is based on shared interests and
values. These include expanding democracy and prosperity, protecting security and territorial
integrity, strengthening the rule of law, promoting non-proliferation, and supporting reform in
Ukraine’s economic and energy sectors.”8
Yanukovych’s rejection of NATO membership and his move toward closer ties with Russia (as
shown for example in the 2010 agreement to extend the stay of the Russian Black Sea Fleet in
Crimea) has not provoked public expressions of concern from the Obama Administration. The
Administration has focused on enhancing cooperation in areas of particular U.S. concern.

8 Press release from the White House website at http://www.whitehouse.gov/the-press-office/readout-presidents-call-
with-president-elect-yanukovych-ukraine.
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One such area is nuclear non-proliferation. After a meeting on the eve of the Nuclear Security
Summit in Washington in April 2010, President Obama and President Yanukovych agreed that
Ukraine would rid itself of the entire stock of highly enriched uranium (HEU) from its soil by the
time of the next Nuclear Security Summit in March 2012. The United States agreed to help
Ukraine to develop its nuclear research capabilities and diversify its sources of fuel supply for its
nuclear reactors. The United States also pledged to continue to cooperate with Ukraine on nuclear
safety issues, including the cleanup of the Chornobyl nuclear reactor site. In total, the United
States has contributed almost $240 million to Chornobyl cleanup effort. At an international
pledging conference for Chornobyl in April 2011, the United States pledged another $123
million.9
The two countries are cooperating on other energy issues as well. In February 2011, the United
States and Ukraine signed a memorandum of understanding on a U.S. Geological Survey effort to
help Ukraine explore and develop its reserves of unconventional natural gas. Other U.S. aid
programs are aimed at helping Ukraine improve its energy efficiency.
One area in which the Administration has expressed concern is in Ukraine’s democratic
development. After the October 2010 local elections, the U.S. Embassy in Kyiv released a
statement noting statements by non-partisan election monitors that the local elections did not
meet standards for openness and fairness set by the presidential vote earlier in the year. In March
2011, Vice President Biden telephoned President Yanukovych. In addition to discussing the HEU
issue and the need to avoid laws or actions that would undermine foreign investment, Biden
stressed the importance of avoiding selective prosecutions of political opponents.
In October 2011, the White House press secretary issued a statement saying the United States was
“deeply disappointed” with Tymoshenko’s conviction and sentencing in a “politically motivated
prosecution.” The statement said that the trial and other incidents raised “serious concerns” about
the government’s commitment to democracy and the rule of law. The statement called on Ukraine
to release Tymoshenko and other opposition figures so that they can take part in the October 2012
parliamentary election.
Congressional Response
U.S. Aid to Ukraine
Congress has dealt with the issue of U.S. aid to Ukraine. According to the USAID “Greenbook”
website, the United States has obligated $3.1 billion in aid to Ukraine from FY 1990 to FY 2009.
The FY 2012 Congressional Budget Justification says that Ukraine was allocated $117.932
million in aid in FY 2010. In FY 2011, Ukraine was allocated $120.907 million in U.S.
assistance. The Obama Administration requested $126.378 million for FY 2012. The FY 2012
request includes $79.1 million for political and economic reforms in the Aid for Europe, Eurasia,
and Central Asia account (AEECA); $9 million in Foreign Military Financing; $33.878 million in
the Global Health and Child Survival account; $1.9 million in International Military Education
and Training funds; and $2.5 million in the Nonproliferation, Antiterrorism, Demining, and Other
account.

9 U.S. Participation in the Kyiv Summit and the Chornobyl Pledging Conference: Fact Sheet, April 19, 2011, from the
State Department website at http://www.state.gov/r/pa/prs/ps/2011/04/161228.htm.
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From the beginning of FY 2012 until December 23, Congress funded assistance through a series
of continuing resolutions that have fixed spending at FY 2011 levels minus 1.503%. On
December 23rd, the President signed the Consolidated Appropriations Act, 2012 (P.L. 112-74),
which contained foreign operations funding. The conference report directs the Secretary of the
Treasury to keep the appropriations committees informed on the issues of export quotas,
allocation of grain licenses, VAT tax refunds, and repression of fundamental rights in Ukraine,
including due process of law, and freedom of expression and association. The conferees also
expressed support for forest management programs and programs to fight tuberculosis and
HIV/AIDS in Ukraine.
A significant portion of U.S. aid to Ukraine in the AEECA account for FY 2012 is dedicated to
improving the safety of the Chornobyl nuclear facility, including finishing the construction of the
containment structure over the damaged reactor and securing and storing spent nuclear fuel. Other
AEECA programs are aimed at improving border controls, bolstering law enforcement, fighting
cybercrime, and combating trafficking in persons. Global Health and Child Survival funding will
help Ukraine fight its HIV/AIDS crisis, which is the most severe in the region. Security assistance
for Ukraine is aimed at helping Ukraine’s defense reform efforts, improving operability with U.S.
and NATO forces, as well as taking steps to boost Ukraine’s military capabilities. U.S. assistance
has helped Ukraine destroy its stock of SCUD short-range missiles and make progress toward the
elimination of its stock for propellant for SS-24 ICBMs.
Other Legislation
During the 2004-2005 Ukrainian presidential election campaign and during the ensuing electoral
crisis, the 108th Congress approved legislation calling for free and fair elections in Ukraine and
urged the Administration to warn Ukraine of possible negative consequences for Ukraine’s
leaders and for U.S.-Ukraine ties in the case of electoral fraud. The 109th Congress passed
resolutions after President Yushchenko was inaugurated, congratulating him on his victory and
Ukraine on its commitment to democracy.
Congress dealt with a long-standing stumbling block in U.S.-Ukrainian relations by passing
legislation to terminate the application of the Jackson-Vanik amendment to Ukraine, granting the
country permanent Normal Trade Relations Status. On March 8, 2006, the House passed H.R.
1053 by a vote of 417-2. It was approved by the Senate by unanimous consent on March 9, and
was signed by the President on March 23.10
Congress expressed support for Ukraine’s possible membership in NATO. The NATO Freedom
Consolidation Act was passed by the Senate on March 15, 2007, and the House on March 26. The
bill (S. 494) expresses support for further enlargement of NATO and authorizes U.S. aid to
Ukraine to assist it in preparing for possible NATO membership. President Bush signed the bill
into law on April 9 (P.L. 110-17). On February 14, 2008, the Senate passed S.Res. 439, which
expresses the “strong support” of the Senate for a Membership Action Plan for Ukraine and
Georgia. On February 25, 2008, Representative Wexler introduced H.Res. 997, the House version
of S.Res. 439. It was passed by the House on April 1, 2008. After the NATO Bucharest summit,
the Senate passed S.Res. 523 on April 28, 2008. The resolution expressed the “strong support” of
the Senate for the statement of the Allies at the Bucharest summit that Ukraine and Georgia will

10 CRS Report RS22114, Permanent Normal Trade Relations (PNTR) Status for Ukraine and U.S.-Ukrainian
Economic Ties, by William H. Cooper.
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become members of NATO. It also urges NATO to grant a MAP to Ukraine and Moldova at the
NATO foreign ministers’ meeting in December 2008. On May 19, the Senate passed S.Res. 570,
which reiterated the Senate’s strong support for Ukraine and Georgia’s NATO aspirations.
Both the House and Senate passed resolutions calling on Ukraine to hold free and fair elections
during the 2006 and 2007 parliamentary elections. On January 13, 2010, just before the first
round of the Ukrainian presidential election, the House agreed to H.Res. 981 by voice vote. The
resolution, sponsored by Representative Howard Berman, hailed the “strong relationship”
between the United States and Ukraine and urged Ukraine to hold free and fair elections. After the
election, on February 25, the Senate passed S.Res. 422, introduced by Senator Lugar and Senator
Kerry. The resolution recognized the progress that Ukraine had made in establishing democratic
institutions, as demonstrated by the presidential vote.
On January 26, 2011, Representative Kaptur introduced H.Res. 66, which supports the
establishment of a staff exchange program between the House of Representatives and the
Verkhovna Rada, Ukraine’s parliament. On April 14, 2011, Senator Lugar and Senator Kerry
introduced S.Res. 153, which recognizes the 25th anniversary of the Chornobyl nuclear accident.
On September 15, 2011, Representative Sander Levin introduced H.Res. 401, which expresses
support for Ukraine on the 20th anniversary of its independence. The resolution also notes
concerns about the Tymoshenko case and other problems with Ukraine’s democratic
development. On October 13, 2011, Rep. Kaptur introduced H.Res. 435, which condemns the
persecution of Tymoshenko, former Interior Minister Yuri Lutsenko, and other political prisoners.

Author Contact Information

Steven Woehrel

Specialist in European Affairs
swoehrel@crs.loc.gov, 7-2291


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