[EAI Ukraine Issue Briefing] ③ Lessons from the Russia-Ukraine War and Prospects for the Development of Korea-Russia Relations

The Russia-Ukraine war is heading towards a ceasefire. The war appears to be ending with a compromise that leaves both countries with immense damage. It remains to be seen whether Russia will achieve its stated objectives for the "special military operation," such as Ukraine's non-accession to the North Atlantic Treaty Organization (NATO) and its neutralization, and Russia's territorial claims over Crimea and the Donbas region. It is deeply regrettable that Ukraine and Russia could not find a way to avoid war, leading to a catastrophic armed conflict between Slavic nations. Even after the war ends, the conflict between the two countries is unlikely to subside easily. Once the war concludes, European nations will face a choice: will the process of globalization, which has flowed across all countries worldwide like an unstoppable tide since the end of the Cold War, be restored, or will they live under the shadow of a new Cold War, harsher than the previous one?

First, let us examine why Ukraine pursued Westernization, specifically its aspiration to join the European Union (EU) and NATO, and how its conflict with Russia has unfolded. The Soviet Union collapsed at the end of 1991, giving birth to 15 new nations, including Russia and Ukraine. Like most Eastern European countries, the Ukrainian people harbored hopes of pursuing the institutions and values of the United States and Western Europe. Their desire to join the EU and NATO grew stronger. Although still bound by socialist systems and planned economies, they attempted a swift transition to democracy and a market economy. However, Ukrainian presidents and politicians failed to reform society and unify the nation. The direction of foreign policy swung dramatically depending on whether pro-Russian or pro-Western factions were in power. Nevertheless, the majority of the Ukrainian people favored Westernization.

The 2013 Euromaidan anti-government protests resulted in numerous casualties. President Yanukovych, who abandoned the agreement to join the EU and attempted to pivot to a pro-Russian policy, was ousted and fled to Russia. This event significantly reduced the political space for those advocating for maintaining friendly relations with Russia within Ukraine. It marked a turning point that drastically diminished the prospects for friendly relations between Ukraine and Russia and for economic cooperation, including gas supplies.

Meanwhile, Russia, as the "eldest son" of the Soviet Union, was a newly formed nation. After the economic collapse in the early 1990s, the Soviet Union relied on economic aid, including food supplies, from the United States and European countries to sustain its national economy. In this situation, it was undergoing an involuntary transition to democracy and a market economy. Gorbachev, holding responsibility for the collapse of the Soviet Union, was rejected by the people. His successor, President Yeltsin, clearly aimed for democratization and a market economy. However, due to health reasons and excessive alcohol consumption, he plunged the nation into confusion. In 1998, Russia had to receive bailout assistance from the International Monetary Fund (IMF), leading to a severe blow to its national prestige and making it an object of international criticism.

Amidst this turmoil, President Putin emerged as a leader. After being elected president in 2000, he dedicated himself to restoring Russia's tarnished international standing. The coincident rise in international oil prices provided a significant boost. Since taking office, President Putin has consistently criticized and warned that NATO's eastward expansion, breaking its promises, threatens Russia's security. He expressed skepticism about the intentions behind NATO's relentless expansion, which, while ostensibly aiding Russia's democratization and transition to a market economy, has consistently positioned Russia as a hypothetical adversary.

Russian gas was supplied to Western Europe through Ukraine even during the Cold War. Ukraine benefited from transit fees and received gas at preferential prices. After the collapse of the Soviet Union, Russia proposed supplying gas to Ukraine at international prices instead of preferential rates and demanded payment for outstanding gas debts. However, gas trade between the two countries was fraught with numerous conflicts. Bilateral trade gradually declined, and normalization of relations proved elusive. Ukraine, once a constituent republic of the Soviet Union alongside Russia, became a nation constantly in conflict not only over energy and trade but also over accession to the EU and NATO.

The strong support for President Putin among Russians stems from their belief that he is a leader rebuilding a strong Russia. The Ukraine war originated from the divergence in perceptions and psychological states between Russia and Ukraine that formed after the end of the Cold War. It is regrettable that despite a mutually complementary economic structure in areas such as energy and food supply, opportunities for diverse contact and consultation to overcome differences in national governance and objectives were not pursued.

Russia's primary failure was its inability to effectively control NATO's continuous expansion. Although invited to join NATO's "Partnership for Peace," Russia failed to build consensus for European security. Russia neglected multifaceted diplomatic efforts to alleviate security concerns, while the United States and NATO member states neglected efforts to address Russia's accumulated grievances. This resulted in the annexation of Crimea and the conflict in the Donbas region in 2014. For the subsequent eight years, diplomatic efforts from both sides were not earnest, leading to the outbreak of the Ukraine war.

Neighboring countries are likely experiencing profound confusion regarding national security while observing the Ukraine war. To what extent must defense spending and military strength be maintained to prevent foreign invasion? Can membership in a collective security system guarantee one's safety? Will maintaining strong alliances resolve security issues?

Russia's invasion of Ukraine has prompted a re-evaluation of our own security situation. Diplomatic efforts to continue dialogue with North Korea must be maintained. However, robust countermeasures must also be prepared for North Korea's security threats against us. This requires not only military responses but also supply chain assessments. Even without war, the existing conflicts between the US and China, and between the US and Russia, are already creating instability and negatively impacting our economy. The newly inaugurated administration must rectify the disorganized security response posture. Based on our complete response capabilities, we must guide North Korea towards reform and openness.

Let us examine the post-war international order and the urgent tasks facing European nations. This year marks the 30th anniversary of the end of the Cold War. It may also be the first year of a new Cold War. The era of living peacefully without spending money has ended. European nations must now drastically increase their defense budgets. Germany has taken the lead, deciding to increase its defense spending to over 2% of its Gross Domestic Product (GDP). Germany's rearmament has begun, signaling a prelude to conflict on the European continent.

The era of globalization, which has lasted for 30 years, has also ended. The path for transitional economies to shift to market economies appears exceedingly arduous. It is not just Russia and China that are isolating themselves; the United States, European nations, and Asian countries will find it difficult to reintegrate these isolated nations. In this context, can the world achieve carbon neutrality by 2050? Will collective response be possible if another pandemic occurs?

Another issue is reducing dependence on Russian gas and expanding imports of Liquefied Natural Gas (LNG) from the United States. Increased military spending appears to be an inevitable task. While negotiations for restraint in military confrontation with Russia may occur, they are unlikely in the near future. Reducing dependence on Russian gas and oil is also not an easy task. The Dutch Title Transfer Facility (TTF) natural gas futures price surged from around $50 before the Ukraine war to $250, and is currently fluctuating around $115. This is because, although the United States banned imports of Russian oil and gas and coal, supplies to European countries continue normally.[1]

The cost of constructing additional facilities and the time and expense involved in importing LNG from outside the European continent present significant challenges. Using gas that is considerably more expensive than the price from Russia (especially the long-term contract price for Pipeline Natural Gas (PNG)) will place a considerable burden on Europe's economic resilience, which has been weakened by COVID-19. Ultimately, European countries will reduce their use of Russian gas but will not opt for the extreme measure of a complete cutoff. In the case of the United States, the Biden administration, following Democratic Party policies implemented in March 2021, halted construction of the Keystone pipeline, which connects Canada to the Gulf of Mexico.[2]

Bernie Sanders, throughout his primary campaigns, consistently opposed shale production. Even with soaring oil and gas prices, the Biden administration is unlikely to easily ease regulations to drastically increase shale production. With international oil prices exceeding $100, ExxonMobil and Chevron have announced plans to increase production in the Permian Basin by 25% and 10% respectively in 2022.[3]However, within the United States, there is a negative sentiment towards shale production due to concerns about climate change and environmental pollution. After the war ends and a certain period passes, European countries and Russia will likely resume negotiations for stable energy supply plans.

Let us now consider how the newly inaugurated Yoon Suk-yeol administration should manage Korea-Russia relations. Our government has dynamically pursued the development of relations with Russia since the end of the Cold War. Overcoming over 70 years of severed relations, we have expanded the scope of cooperation while sharing economic growth processes. The Northern Policy was pursued starting in 1990, and efforts to enhance cooperation with Russia have continued regardless of changes in government from conservative to progressive. The government has been proactive in establishing infrastructure for Korean companies to operate. In addition to economic cooperation agreements, a visa waiver agreement was also signed. Companies have leveraged the provision of economic cooperation loans to enter the Russian market and have made persistent efforts to enhance brand value. Our Information Technology (IT) products have been recognized as national brands in Russia, establishing themselves as familiar brands in the hearts of the Russian people.

Until a month ago, our companies were preparing to expand cooperation, anticipating a "Russia boom." Hyundai Motor's plant in St. Petersburg was pursuing the expansion of affiliates such as KCC and Hyundai Wia, and the acquisition of General Motors (GM)'s automobile plant. We were also in the process of actively pursuing mobility business with Russia's Yandex. Shipbuilding companies in Geoje, which had suffered severe economic recession due to COVID-19, were anticipating a second shipbuilding boom due to the surge in demand for LNG carriers related to the opening of Russia's Northern Sea Route. With the impending opening of the Northern Sea Route, large-scale orders for LNG carriers are continuing, with most being won and produced by Korea's top three shipbuilding companies. In some cases, blocks are manufactured in Geoje, transported to the Zvezda shipyard in Vladivostok, assembled locally, tested, and delivered. In preparation for the opening of the Northern Sea Route, major hub cities are expected to emerge in Vladivostok and the Kamchatka Peninsula. Daewoo Shipbuilding & Marine Engineering has secured a contract for the construction of LNG transshipment facilities in Kamchatka. In Korea, not only Busan Port but also Donghae Port will emerge as new logistics hubs. A Pan-East Sea economic zone is expected to emerge, with activated trade, manufacturing, fisheries, and tourism industries.

Currently, there is no momentum to initiate such discussions. However, it is anticipated that the Ukraine war will conclude in a few months, opening new horizons for economic cooperation. European countries have begun to mention the possibility of lifting sanctions against Russia once the war ends. Financial sanctions against Russia, in which our government participates, and export controls on major export items will also be resolved. For the time being, our government needs to devise support measures for Korean companies operating in Russia that are experiencing difficulties due to production suspension or non-payment.

Our companies did not abandon the Russian market even during crises such as the 1998 economic crisis, the 2008 global financial crisis, and the economic sanctions against Russia caused by the annexation of Crimea in 2014. Korean companies have established a foothold by providing essential products for the daily lives of Russian citizens. Russia is a promising emerging market cultivated through the sweat and tears of our entrepreneurs. Economic cooperation with Russia is not something that can be discarded like an old shoe overnight. The development of Korea-Russia relations, built on government cooperation and robust people-to-people ties, should not be overlooked. The bonds formed between the peoples of both nations through academic and cultural exchanges will overcome the turmoil of war and international politics. Even if cooperation in political, security, and economic fields stagnates for a considerable period after the Ukraine war, people-to-people ties will play a role in reigniting the flame of bilateral relations.

Russia plans to produce hydrogen from the Sakhalin gas field and export it to Northeast Asian countries. South Korea is also pursuing a policy of importing hydrogen produced overseas to achieve carbon neutrality. This is a promising venture as the interests of both countries align. Furthermore, with the advent of the Fourth Industrial Revolution, Korean and Russian companies are pursuing full-scale cooperation in areas such as Artificial Intelligence (AI), drones, mobile phones, and semiconductors. There are aspects that our companies seek to adopt through joint research in scientific and technological fields where Russia has strengths, and there are areas where Russian companies require cooperation with us. Siberia, once a land of permafrost, is transforming into a food supply base due to global warming. Various Korean companies have advanced into Siberia to engage in large-scale mechanized agriculture.

Russia's Eastern Policy has been pursued for the past decade, but it has not received a warm response from Northeast Asian countries. The Russian government and corporations have not made significant investments in the Far East region. The Russian Far East is a region with an unusually low population density due to its harsh climate. After the Ukraine war concludes, Russia may dynamically pursue its Eastern Policy. Russia needs to find an outlet as its exports of crude oil and gas to Europe drastically decline. China will be its largest partner. This will be welcome news for China, which has invested globally in energy resources for decades. South Korea will also be an important partner. Having already imported LNG from Sakhalin-2, South Korea is poised to secure additional Russian gas at reasonable prices. If the Ukraine war concludes in the near future, it could bring unexpected benefits to Korean companies.■

<References>

Park Min-ho. 2021. “North America's Largest Oil Pipeline Project 'Keystone Pipeline' Officially Halted.” <E-Net News>, July 16.

Yoon Eun-sook. 2022. “American Shale Oil Makes a Brilliant Comeback? … Gaining Attention Amidst Oil Prices and Ukraine Conflict.” <Aju Business Daily>, February 21.

Lee Ji-young. 2022. “‘European Natural Gas’ Surges 60% Intra-day Due to Russian Sanctions … Reaching All-Time Highs.” <JoongAng Ilbo>, March 2.

[1]Lee Ji-young. 2022. “‘European Natural Gas’ Surges 60% Intra-day Due to Russian Sanctions … Reaching All-Time Highs.” <JoongAng Ilbo>, March 2.

[2]Park Min-ho. 2021. “North America's Largest Oil Pipeline Project 'Keystone Pipeline' Officially Halted.” <E-Net News>, July 16.

[3]Yoon Eun-sook. 2022. “American Shale Oil Makes a Brilliant Comeback? … Gaining Attention Amidst Oil Prices and Ukraine Conflict.” <Aju Business Daily>, February 21.

■ Author: Baek Ju-hyun_Advisor for Russia at Law Firm Sejong. Served as Ambassador to Kazakhstan and holds a Ph.D. in History from the Diplomatic Academy of Russia.

■ Managed and Edited by: Lee Seung-yeon_EAI Researcher

    Inquiries: 02 2277 1683 (ext. 205) | slee@eai.or.kr