Ukraine: Russia holds all the aces

This post provides a perspective on Ukraine’s energy status and economy in 8 charts.

Figure 1 The Ukrainian economy is dependent upon imports of oil and gas from Russia. Ukraine gained independence from The Soviet Union in 1990 and since then energy consumption, production and imports have all fallen steadily (Figures 2 and 3).

Figure 2 Ukraine is not energy rich which underpins poor economic performance and dependency on Russia. Sufficient coal is produced to satisfy domestic demand (Figure 1) and Ukraine has a significant nuclear power industry. There is a small amount of natural gas production with future hopes pinned on shale gas. With no oil production, all oil must be imported together with significant quantities of natural gas (Figure1).

Figure 3 Energy consumption in Ukraine declined sharply post independence as the country lost subsidised energy imports under the communist regime and faced market realities. By the mid-1990s consumption stabilised and although Ukraine must import significant amounts of energy, the country has managed to keep debts under control (Figure 7).

Figure 4 Post independence in 1990 the population of Ukraine has been in steady decline. In Russia, suicide became a major problem. I’m unsure of the cause in Ukraine, I imagine suicide, decline in birth rate and migration. While population growth is a problem in many countries, population decline has its own problems. GDP is linked to population and a declining, ageing population is difficult to support by a dwindling number of younger workers.

Figure 5 Ukraine’s per capita energy consumption is stable at just below 3 tonnes oil equivalent per capita per annum. To put this in context, the UK consumes about 4, Denmark just over 3, the USA about 7.5 and China about 1.5. Ukraine’s energy consumption is aligned with developed economies.

Figure 6 While Ukraine’s energy consumption is aligned with developed economies what it manages to produce with that energy is not. In 2012, per capita GDP was $US3,872 while in Denmark, which consumes a similar amount of energy per capita, the figure was $US56,253. Note these figures are distorted by inflation and changes to the exchange rate.

Figure 7 The decline in GDP post independence was severe but began to recover in the early noughties. Ukraine was hit hard by the 2008 finance crash and GDP has yet to recover to pre-2008 levels. The crash caused borrowing to rise, like it did in many countries, but borrowing is under control at 40% of GDP. One can’t help but feel that the origins of unrest in Ukraine are rooted in lost prosperity and dashed expectations.

Figure 8 The 2008 crash caused a sharp fall in the Ukraine currency (Hryvnia) against the $ but less so against the Rouble. But in both currencies, imports became more expensive.


In the recent past three events are shaping Ukraine’s future.

  1. Independence in 1990 caused a decade of economic decline that began to recover in the early noughties
  2. The 2008 financial crash knocked Ukraine off course and it is struggling to recover
  3. A falling population creates structural economic problems

Ukraine is dependent on Russia for energy imports and cannot succeed in armed conflict. Sevastopol on the Crimean peninsula is the home of the Russian Black Sea fleet and the area is therefore of major strategic importance to Russia. I believe the Russians will simply annexe Crimea and protestations from Ukraine, the EU, the USA and the UN will be ignored.

Ukraine is also of major strategic importance to Europe since several gas pipelines cross the country transporting Russian gas to Europe. Europe is also heavily dependent upon oil and coal imports from Russia. And so, when Americans talk of sanctions on Russia they had better come up with a plan B for European energy supplies at the same time.

Data sources

Energy statistics are drawn from the BP statistical review of world energy 2013. Economic data comes from the United Nations National Accounts Database. Population data comes from the United Nations Population Division.

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7 Responses to Ukraine: Russia holds all the aces

    • Euan Mearns says:

      Roger, Ukraine has mobilised to do what? Russia is to Europe what Canada is to the USA. Ukraine has just endured weeks of civil conflict where many died, protesting against the withdrawal of a right to protest. The lead up to this is complex and I’m unfamiliar with the details.

      But very recent events are Russian troops moving into Crimea without a shot being fired, to protect vital strategic interests, a legacy from the real cold war.

      Russia in a sense is the beating heart of Europe, Ukraine the aorta. Without both Europe dies. So much bluster at present from the UK, USA, NATO, Germany, the EU.

      The Ukraine actually needs the EU for monetary and political stability and it needs Russia for energy and for a minority of its population, a form of security. The way things stand, the EU is not viable without Russia as the beating energy heart.

      The EU would do well to start jailing bankers and then to ask what they can do to help Ukraine out of its post 2008 recession.

      • Roger Andrews says:

        Euan: Mobilization is the normal response when your country is invaded. If a shooting war does break out – which could happen any minute – it’s a good idea to be as well-armed as possible, and the Ukrainians know damn well that if the balloon does go up they aren’t going to get any help from the EU or the USA any more than Georgia did when the Russians invaded in 2008.

        You’re right about everyone needing everyone else, but logic tends to take a back seat to emotion at times like this. .

        Good analysis, incidentally. However, it does seem to be on the point of being overtaken by events.

  1. Hi Euan,

    Great set of graphs. Ukraine fits the typical historical pattern of over-estimated coal reserves. They have an R/P ratio of 380 years and they certainly have an incentive to increase coal production. However, their criteria for reserves are too optimistic. The cutoffs are 60-cm seams and 1,800 meters of depth


  2. Ralph W says:

    I suspect the key to the current situation is geo-political and less immediately energy related. Ukraine is still dependent on Russia for NG and Russia was using this (and the fact that Ukraine was in default on energy payments to Russia ) to wrest control away from EU and back home. This was derailed by the revolution/coup (take your pick) which is supported in the west of the country but terrifies the east of it. Ukraine is still a split and weak country which has not had stable borders for most of the last thousand years, and many of the population have migrated / been deported , either into or out of the country. Bottom line – this is in danger of ending up like Yugoslavia , with a major NG pipeline right through the middle.

    Russia under Putin is resurgent, whatever you think of the man. This is their back yard and they will treat it like such, and they are quite prepared to use their energy exports for political control, of us.
    The US is still a neo-liberal country, with a less overtly neo-liberal incumbent. We could very quickly find ourselves in the cold.

    My reading of the situation is the West will bluster a bit for media consumption, but the Russian military will simply drive over the Ukraine and take full control without a shot fired. The new government will collapse in a week and the ousted president will return and be re-elected unopposed (because the opposition will be in jail, exile or dead). Most of the Ukrainian military back Russia without qualm.

    One important side note. Ukraine is a major wheat exporter – to Egypt. All the world’s flash points are global now.

  3. G. Watkins says:

    Thanks Euan.
    The Russians will argue that they have been invited by a democratically elected president to reestablish law and order In Ukraine. Very tricky for the US EU to respond.
    The big question is will the Russians try to take back Kiev and the response of the ‘Ukrainian gov.’ who cannot possibly win any sort of war, lives will be needlessly lost. Better to lose Crimea with no loss of life.
    Black Sea cruises, one of which we did last year, are going to be hard hit with economic consequences for Ukraine, Romania and Bulgaria.

  4. Luís says:

    There is no plan B, only plan A. Google for “F’ck Europe”.

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