The Russia-Georgia crisis spooked energy markets, helping to send oil above $120 again. The next target on Russia's list will likely be Ukraine. A move on Ukraine would have a far more profound impact on energy prices.
Why would Russia target Ukraine? Since the rule of Peter the Great, Russian foreign policy has been predicated on two fundamental aims: capturing warm-water ports, and securing Russia's "Near Abroad" as a buffer zone against Western European powers. Consolidating its hold on Ukraine satisfies both of these goals.
The Russian Black Sea Fleet is based at a port in Sevastopol, which Russia leases from the Ukrainian government. Ukraine's capital Kiev is under 500 miles from Moscow, which would be too close for comfort for the Kremlin if a radically pro-Western regime were to take root.
Ukraine is important to Moscow for another reason. 85% of Europe's gas supply is transported via pipeline through Ukraine. Maintaining some control over this distribution network provides Moscow with leverage over Europe. Thus, Russia is unwilling to accept a Ukraine under control of the West.
But Russia's influence in Ukraine has waned in recent years, since the Orange Revolution and the victory of Ukrainian President Viktor Yushchenko. Having survived an attempted poisoning (which many attribute to Russia's security services), Yushchenko has put Ukraine on as pro-western a path as his slender majority and Russian hostility have allowed. Following Russia's invasion of Georgia, moreover, Yushchenko reached out to NATO and the United States, offering Ukrainian cooperation on the American missile shield.
Such an arrangement would be unthinkable in Moscow, and the Kremlin's reaction would likely be severe. While an outright invasion is unlikely (but not impossible), the Russians would probably use their intelligence services to sabotage the Yushchenko government. Russia could also just turn off the gas: Ukraine imports about 75% of its natural gas through pipelines under Moscow's control.
Why does this matter? Energy markets are nervous about Georgia because it is home to the Baku-Tbilisi pipeline, which transports about a million barrels of oil a day. A million barrels is a tiny percentage of global demand, but the crisis still spooked the markets (with reason). Pipelines in the Ukraine, in contrast, are responsible for delivering 85% of Europe's gas supply.
