Ukraine: Current Issues and U.S. Policy
Steven Woehrel
Specialist in European Affairs
September 10, 2012
Congressional Research Service
7-5700
www.crs.gov
RL33460
CRS Report for Congress
Pr
epared for Members and Committees of Congress

---

Ukraine: Current Issues and U.S. Policy

Summary
Since Viktor Yanukovych defeated Prime Minister Yuliya Tymoshenko to win Ukraine’s
presidency in 2010, many observers have expressed concern about Ukraine’s democratic
development, including the government’s use of the courts to neutralize opposition leaders,
including Tymoshenko, who was sentenced to a seven-year prison term in 2011. These actions
have led to serious doubts about whether parliamentary elections scheduled for October 28, 2012,
will meet international standards.
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. Ukraine has so far fended off Russian pressure to sell it control
of its gas pipeline system and join Russia-led political and economic integration structures.
Yanukovych has said that EU integration is a key priority for Ukraine, but EU criticism of what it
views as the politically motivated conviction and imprisonment of Tymoshenko and others 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. Yanukovych has made clear that his country
is not seeking NATO membership, but will 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 Chernobyl 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 and
selective prosecution of the government’s political opponents.
Several pieces of legislation have been introduced in the 112th Congress calling for Tymoshenko
and other victims of politically motivated prosecutions to be released from prison. Two of them,
S.Res. 466 and H.Res. 730, call for sanctions against Ukrainian leaders responsible for selective
prosecutions.
Congressional Research Service

---

Ukraine: Current Issues and U.S. Policy

Contents
Background...................................................................................................................................... 1
Current Political Situation ............................................................................................................... 3
Current Economic Situation............................................................................................................. 4
Ukraine’s Foreign Policy ................................................................................................................. 5
NATO ........................................................................................................................................ 6
European Union......................................................................................................................... 7
Russia ........................................................................................................................................ 7
Energy Issues....................................................................................................................... 8
U.S. Policy....................................................................................................................................... 9
Congressional Response.......................................................................................................... 11
U.S. Aid to Ukraine........................................................................................................... 11
Other Legislation............................................................................................................... 11

Contacts
Author Contact Information........................................................................................................... 12

Congressional Research Service

---

Ukraine: Current Issues and U.S. Policy

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 part of building a Europe whole, free, and at peace.
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 marred by electoral fraud, which triggered 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 did so 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 2004 presidential election opponent Viktor
Yanukovych as prime minister, after Yanukovych’s Party of Regions won the most seats in
parliamentary elections that year. Political conflict between Yushchenko and Yanukovych soon
ensued, leading to early parliamentary elections in September 2007. The Party of Regions
remained the largest party in the new legislature, but 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.
Over the next two years, Ukraine’s government again 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
Congressional Research Service
1

---

Ukraine: Current Issues and U.S. Policy

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 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. 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%. 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, 2010, 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 centrist and opportunistic 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. President
Yanukovych’s formal powers were further boosted in October 2010, when the Constitutional
Court invalidated constitutional amendments adopted during the Orange Revolution that had
ceded some of the president’s power over the government to the parliament.


1 The reports of the International Election Observation Mission can be found at http://www.osce.org/odihr/.
Congressional Research Service
2

---

Ukraine: Current Issues and U.S. Policy

Current Political
Key Contenders in Ukraine’s
Situation
Parliamentary Elections
Party of Regions: The main party of the ruling regime.
By far the largest party in outgoing Ukrainian parliament,
President Yanukovych and his supporters have
and likely in the next one as well, it draws its support
portrayed themselves as a team of
from eastern Ukraine, where suspicion of Ukrainian
professionals engaged in the practical work of
nationalism is high and support for close ties with Russia
governing, as opposed to the unproductive
is strong. It defends the economic interests of powerful
oligarchic business groups.
squabbling of the Yushchenko period. The
opposition charges that the government has
Fatherland: The largest opposition party, founded by
not achieved significant results while in office,
imprisoned opposition leader Yuliya Tymoshenko. In
order to boost the opposition’s chances, Fatherland’s
except for engaging in massive corruption and
party list for the parliamentary election includes figures
favoring the business interests of its oligarchic
from other opposition groups. This united opposition
backers. They have noted that the Yanukovych
slate is running on a populist, anti-corruption platform. It
family is rapidly acquiring assets, forming an
will likely draw its support from western and central
oligarchic group of its own. After a brief
Ukraine, where Ukrainian nationalism is strongest.
“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 did).
Russia. The Communists could attract some votes from
those in eastern Ukraine who are disenchanted with the
Ukraine’s government has been strongly
Party of Regions, with which, however, it is allied in the
criticized over its human rights record.
current government.
Ukrainian journalists and international groups
Ukrainian Democratic Alliance for Reform
such as Freedom House and Reporters without
(UDAR): Founded by heavyweight boxing champion
Borders have charged that the government
Vitali Klitchko (the acronym “UDAR” means “punch” in
Ukrainian), UDAR is relying chiefly on the personal
pressures the media to engage in self-
popularity of Klitchko. Its platform, while expressing
censorship. Private media owners have
opposition to regime corruption, has been criticized for
reportedly been threatened with harm to their
lacking in specifics. Its party list is heterogeneous,
businesses if their outlets do not moderate
including former supporters of Yushchenko and
their criticism of the government. Journalists
Tymoshenko, as well as opportunistic figures who have
switched sides in the past when it suited their personal
groups have complained that physical assaults
interests.
on journalists have gone unpunished.
U.S. and EU officials have expressed concern that opposition leaders have been targeted for
selective prosecution. In the most prominent case, in October 2011 Tymoshenko was 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 August 2012, Ukraine’s Supreme Court upheld the
conviction. Tymoshenko is currently awaiting another trial on charges of embezzlement, fraud,
and tax evasion while she headed an energy company in the 1990s. Due to serious back pain she
was suffering, Tymoshenko was transferred first to a prison hospital, and then, after she
complained of mistreatment and inadequate care, to another hospital outside the prison.
In another apparent case of selective prosecution, in February 2012 former Interior Minister Yuri
Lutsenko was convicted on charges of abuse of office, fraud, and embezzlement, and sentenced to
four years in prison. In all, U.S. Ambassador to the OSCE Ian Kelly said after Lutsenko’s
conviction, 13 former senior officials from the Tymoshenko-led government, including 4 cabinet
ministers, 5 deputy ministers, 2 agency heads, 1 governor, and the head of the state gas monopoly,
had been charged with alleged crimes arising from their time in office.
Congressional Research Service
3

---

Ukraine: Current Issues and U.S. Policy

Given this record, the United States and the European Union are concerned about whether
October 28, 2012, parliamentary elections will meet international standards. To its credit, the
Ukrainian government has welcomed an election observation mission from the Organization for
Security and Cooperation in Europe to monitor the vote.
According to Ukraine’s electoral law, half of the seats in the parliament will be determined by
proportional representation by a country-wide party list, with a minimum of 5% of the vote
needed to receive seats. The other half of the seats will be decided by races in individual districts.
In August 2012, the Ukrainian Central Election Commission struck Tymoshenko and Lutsenko
from the united opposition’s party list, due to their criminal convictions.
The opposition’s prospects may be hampered by a lack of complete unity. Fatherland
(Tymoshenko’s party), Front for Change (led by former presidential candidate Arseniy
Yatsenyuk) and a few smaller parties have formed a joint list for the proportional vote, and are
selecting only one opposition candidate to run in the individual districts. They are also
coordinating informally in single member districts in western Ukraine with Freedom, an extreme
Ukrainian nationalist group. However, other parties, such as UDAR (Punch), led by heavyweight
boxing champion Vitaly Klitschko, have not joined Fatherland and its allies, and have submitted
their own candidates, possibly splitting the opposition vote. Moreover, other, unaffiliated figures
could also split the anti-regime vote in individual districts.
If past elections are any guide, the Party of Regions will do very well in its eastern Ukraine base,
as well as the largely Russified south, while the opposition will do well in less populous but
nationalist western Ukraine and in central Ukraine as well. A language law signed by Yanukovych
in August 2012 that gives the Russian language a greater official status may intensify this
regional split. The opposition will be likely to do better in the party list vote than in many of the
individual districts, where the regime can most easily deploy government resources to help its
favored candidates before the vote and pressure even genuinely independent figures to support
the government after the election.
Judging by polling data so far and the actions taken by the Party of Regions to tilt the playing
field in its favor, it will likely be difficult for the opposition to attain its objective of winning a
majority. However, it is possible that the opposition could reduce the regime’s majority, dealing a
blow to its already faltering prestige. Barring massive electoral fraud, it is likely that the
opposition will at least be able to prevent the regime from getting the 300 seats needed in the 450-
seat parliament to reshape this constitution according to its own wishes.
Even if the regime does not engage in electoral fraud during the vote or afterward (perhaps an
optimistic assumption), it is likely that the United States’ and EU’s assessment of the vote will
still be quite critical, above all due to the government’s use of the courts to decapitate the
opposition before the vote. Other issues currently raised by the opposition during the campaign,
such as intimidation of independent media, bias in government-controlled broadcast outlets, and
use of government resources to help pro-regime candidates, will also likely figure in U.S. and EU
assessments.
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
Congressional Research Service
4

---

Ukraine: Current Issues and U.S. Policy

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. Despite this
growth, Ukraine remains much poorer than other European countries. In 2011, its GDP per capita
in purchasing power parity terms was only 21% of that of the EU and only 43% of Russia’s. 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 soon rebounded, however. Real GDP rose
by 4.2% in 2010, according to the Economist Intelligence Unit, and by 5.2% in 2011. Ukraine’s
recovery has been assisted by a sharp increase in demand for steel, which has spurred exports.
Real GDP growth slowed to 2.5% in the first half of 2012 on a year-on-year basis, due to a
downturn in Europe.
Ukraine’s currency, the hryvnya, was devastated by the crisis, dropping from 5.05 to the US
dollar at the end of 2007 to 7.7 at the end of 2008. In mid-2012, it was still nearly 8 hryvnya to
the dollar. This development has been 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 2011, Ukrtelecom, the state-owned telecommunications firm, was
sold to Epic, an Austrian financial firm reputed to have close ties with Ukrainian officials and
businessmen. 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. Observers believe that the natural gas sector privatization currently
underway will also lead to control of regional gas supply infrastructure by powerful oligarchs
close to the government.
In July 2010, the International Monetary Fund approved a $15.15 billion standby loan for Ukraine
to support its reform efforts. Two tranches of the loan were disbursed, but the IMF has declined to
release additional tranches, due to Ukraine’s refusal to increase energy prices for domestic
consumers, which would be highly unpopular in Ukraine. Heavy government spending in the run-
up to the parliamentary election will also likely be viewed with disapproval by the IMF. Ukraine
has received loans from Russia and China to try to make up for the suspension of the IMF loan.
Ukraine has also raised large additional loans on the Eurobond market.2
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

2 Economist Intelligence Unit Country Report: Ukraine, August 2012.
Congressional Research Service
5

---

Ukraine: Current Issues and U.S. Policy

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.
President Yushchenko tried to break with this pattern, and accelerate Ukraine’s integration into
the global economy and Euro-Atlantic institutions. Ukraine achieved one key foreign policy goal
in 2008, when it joined the World Trade Organization (WTO). However, progress toward eventual
membership in the European Union and NATO was limited and relations with Russia were
troubled.
President Yanukovych’s foreign policy appears to resemble a return to that of the pre-Yushchenko
period, but with a stronger tilt toward Russia. Yanukovych has broken with previous Ukrainian
presidents by clearly rejecting NATO membership for Ukraine. He continues to express support
for EU integration for Ukraine, but the genuineness of his commitment to the reforms needed to
reach this goal is open to question. He has improved ties with Russia, but has so far tactfully
evaded Russia’s most ambitious demands for economic and military integration.
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 communiqué also contained an
unqualified statement that Ukraine (and Georgia) “will become members of NATO,” without
specifying when that might happen.
European NATO countries that have opposed a MAP for Ukraine appear to fear that it would
result in a sharp deterioration in relations with Moscow and perhaps even being embroiled in a
military conflict with Russia in the future. In addition, European critics of Ukraine’s NATO
membership candidacy point out that opinion polls have repeatedly shown that a large majority of
Ukrainians oppose NATO membership. In what appeared to be an attempt to skirt the sensitive
membership candidacy issue, in December 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.
In 2010, President Yanukovych dropped the MAP aspirations of his predecessor, a move that
pleased Russia. He said that Ukraine would 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 the United States and other NATO countries. 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
Congressional Research Service
6

---

Ukraine: Current Issues and U.S. Policy

website of the NATO-led ISAF peacekeeping force, Ukraine had 23 soldiers in Afghanistan in
August 2012. Also as of August 2012, Ukraine deployed 134 troops to KFOR, the NATO-led
peacekeeping force in Kosovo. In September 2012, Ukraine confirmed that it will participate in
NATO-led anti-piracy operations off Somalia.
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
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. In 2009, the EU launched the Eastern
Partnership program within the context of their European Neighborhood policy, which also
includes non-European countries. The EU claims that the regional approach taken by the
Partnership (which includes Belarus, Moldova, Georgia, Armenia, and Azerbaijan) improves EU
cooperation with these countries.
The EU has budgeted €470 million ($682 million) in aid for reforms in Ukraine for 2011-2013.3
The assistance covers such areas as energy cooperation, strengthening border controls, bolstering
the judiciary and the rule of law, and addressing environmental concerns.
The EU and Ukraine have initialed an Association Agreement. The agreement, which does not
contain a perspective of future membership, includes a free trade accord and will allow for deeper
cooperation between the EU and Ukraine in a wide variety of fields. However, EU officials have
made clear that the signing of the agreement, let alone its ratification and entry into force, will not
occur until after the October 28, 2012, Ukrainian parliamentary elections, when the EU will make
an assessment of the state of democracy and the rule of law in Ukraine.
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;

3 “See March 2011 EU press release at
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/250&format=HTML&aged=0&language=EN&guiLan
guage=en.
Congressional Research Service
7

---

Ukraine: Current Issues and U.S. Policy

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 often tried to play on these regional and ethnic ties, not always
successfully.
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. In September 2012, Ukraine joined a
Russian-led Commonwealth of Independent States free trade area.
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. Well over two-thirds of Russia’s gas exports have passed through Ukraine in
recent years. Ukraine rivals Germany as Gazprom’s 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 for Ukraine to market
levels provoked a crisis in 2006 that resulted in cutoff of Russian gas to Western Europe for
several days in January 2006. A second gas crisis occurred in January 2009, resulting in a gas
cutoff of nearly three weeks.
Russia has sought control of Ukraine’s natural gas pipelines and storage facilities. Its efforts have
been unsuccessful so far, due to Kyiv’s refusal to cede control of one of its key economic assets.
This fact, as well as the 2006 and 2009 gas cutoffs, has led Russia and some European countries
to plan and build pipelines that would bypass Ukraine. Gazprom is developing gas pipelines
Congressional Research Service
8

---

Ukraine: Current Issues and U.S. Policy

under the Baltic Sea (called Nord Stream) and through the Balkans (called South Stream) to
Western Europe. Nord Stream made its first deliveries of gas in 2011, while South Stream is
planned to start construction in late 2012, with first deliveries projected for 2015. Gazprom is also
planning to increase supplies to Western Europe through the Belarusian pipeline system, over
which it gained full control in 2011. Ukraine’s reduced share of gas transport to Europe could
give Russia more leverage to 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.
Yanukovych, who is supported by oligarchs who control gas imports and 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. Russian banks have provided loans to Ukraine to pay for gas at current prices,
perhaps providing Russia with additional leverage with Kyiv. 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.
Given Russia’s unwillingness to renegotiate the terms of the current gas supply agreement,
Ukraine has sharply reduced its import of gas from Russia in 2012. Under the terms of Ukraine’s
“take-or-pay” contract with Gazprom, Ukraine is obliged to pay for all of the contracted gas,
whether it takes it or not, although Russia has refrained from trying to enforce this provision at
present. Ukraine has intensified efforts to find alternative sources of supply of energy, including
greater use of coal, boosting domestic gas production, and securing supplies of liquefied natural
gas from other countries.
U.S. Policy
In a call to Viktor Yanukovych on February 11, 2010, to congratulate him on his victory in the
Ukrainian presidential election, President Obama touched on the main themes of U.S. policy
toward Ukraine. He noted the “strategic partnership between the United States and Ukraine is
based on shared interests and values. These include expanding democracy and prosperity,
Congressional Research Service
9

---

Ukraine: Current Issues and U.S. Policy

protecting security and territorial integrity, strengthening the rule of law, promoting non-
proliferation, and supporting reform in Ukraine’s economic and energy sectors.”4
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) did not provoke public criticism from the Obama Administration. The Administration
has instead focused on improving cooperation in such fields as nuclear non-proliferation and
energy. However, U.S. officials have expressed increasing concern about backsliding in Ukraine’s
democratic development.
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 Chernobyl nuclear reactor site. In total, the United States has contributed almost $240 million
to Chernobyl cleanup efforts. At an international pledging conference for Chernobyl in April
2011, the United States pledged another $123 million.5
The two countries are cooperating on energy issues as well. U.S. officials have repeatedly
stressed that Ukraine’s security depends on diversifying its energy supplies and increasing energy
efficiency. Yanukovych has placed more emphasis recently on “energy independence” for
Ukraine after repeatedly failing to secure a natural gas price break from Russia. 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. In August
2012, the U.S. Trade and Development Agency agreed to fund a feasibility study on restarting
production at long-idled, low-yield hydrocarbon deposits in Ukraine.
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. In a brief meeting with President Yanukovych at the March 2012 Nuclear
Security Summit, President Obama praised Ukraine for removing all of the highly enriched
uranium from its territory. President Obama stressed that Ukraine should hold free, fair, and
transparent parliamentary elections in October, and expressed concerns about selective
prosecutions of the political opposition.
In August 2012, a State Department spokesman said the United States was “disappointed” by the
Ukrainian Supreme Court’s rejection of Tymoshenko’s appeal of her conviction, and reiterated
concerns about the selective prosecution of government opponents. The Administration also

4 Press release from the White House website at http://www.whitehouse.gov/the-press-office/readout-presidents-call-
with-president-elect-yanukovych-ukraine.
5 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.
Congressional Research Service
10

---

Ukraine: Current Issues and U.S. Policy

criticized Lutsenko’s conviction on additional charges in August, and the intimidation of
independent media.
Congressional Response
U.S. Aid to Ukraine
According to the USAID “Greenbook” website, the United States obligated $3.5 billion in aid to
Ukraine from FY1990 to FY2010. According to the FY2012 Congressional Budget Presentation
for Foreign Operations, in FY2011, the United States provided $123.243 million in aid to
Ukraine. In FY2012, Ukraine is slated to receive $113.878 million.
On December 23, 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.
The Administration requested $104.407 million in aid for Ukraine for FY2013. Of this amount,
$53.957 million is allocated to the Economic Support Fund (ESF) account, $27.2 million from the
State Department Global Health Programs account, $7.9 million from the AID Global Health
Program account, $7 million in Foreign Military Financing, $1.9 million in the IMET military
training and education account, $4.1 million in the International Narcotics Control and Law
Enforcement account, and $2.35 million in the Nonproliferation, Antiterrorism, Demining and
Related Programs account.
A significant portion of U.S. aid to Ukraine in the ESF account for FY2013 is dedicated to
improving the safety of the Chernobyl nuclear facility, including finishing the construction of the
containment structure over the damaged reactor and securing and storing spent nuclear fuel. Other
ESF programs are aimed at improving governance and increasing the accountability and
effectiveness of the justice system. Global Health 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, and 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 of propellant
for SS-24 ICBMs.
The committee report (H.Rept. 112-494) to H.R. 5857, FY2013 the State-Foreign Operations
appropriations bill, expresses the committee’s concern about “recent declines in democratic
governance [in Ukraine], particularly the abuse of power to create unfair conditions for political
competition, and encourages close monitoring by the Department of State of upcoming national
elections.”
Other Legislation
Legislation on Ukraine has been introduced in the 112th Congress. On January 26, 2011,
Representative Kaptur introduced H.Res. 66, which supports the establishment of a staff
Congressional Research Service
11

---

Ukraine: Current Issues and U.S. Policy

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. The resolution was adopted by
unanimous consent on May 9, 2011.
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, Representative Kaptur introduced H.Res. 435, which
condemns the persecution of Tymoshenko, former Interior Minister Yuri Lutsenko, and other
political prisoners.
On March 22, 2012, Representative Turner introduced H.R. 4243, the NATO Enhancement Act of
2012. The bill includes reauthorization of programs to facilitate the transition to NATO
membership for eligible countries. However, it makes clear that the fact that Ukraine is no longer
seeking membership “shall not inhibit security cooperation in terms of interoperability, training,
reform, joint exercises, and bilateral exchanges with nations previously designated as eligible to
receive security assistance under this Act.” A Senate companion bill, S. 2177, introduced by
Senator Lugar, contains the same provisions.
In May 2012, Senator Inhofe introduced S.Res. 466. The resolution condemns the imprisonment
of Tymoshenko as politically motivated and calls for her release. Until she is released, S.Res. 466
calls on the Organization for Security and Cooperation in Europe to not allow Ukraine to assume
the chairmanship of the organization in 2013; urges the State Department to withdraw the U.S.
Ambassador to Ukraine and suspend embassy operations and initiate a visa ban against President
Yanukovych and others responsible for Ms. Tymoshenko's imprisonment; and calls on NATO to
suspend all cooperation agreements with Ukraine.
In July 2012, Representative Christopher Smith introduced H.Res. 730, which calls on Ukrainian
authorities to release Tymoshenko and other victims of selective justice, and to hold free and fair
parliamentary elections in October 2012. The resolution calls for the United States to deny visas
to Ukrainian officials “involved in serious human rights abuses, anti-democratic actions, or
corruption that undermines or injures democratic institutions in Ukraine, including officials
responsible for and participating in the selective prosecution and persecution of political
opponents.”

Author Contact Information

Steven Woehrel

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

Congressional Research Service
12

---