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April 17, 2008

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Reference ID Created Released Classification Origin
08KYIV774 2008-04-17 11:37 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv


DE RUEHKV #0774/01 1081137
P 171137Z APR 08

C O N F I D E N T I A L KYIV 000774 
E.O. 12958: DECL: 04/16/2018 
REF: A. 07 KYIV 2752 
     B. 07 KYIV 1727 
     C. 07 KYIV 764 
Classified By: Deputy Chief of Mission Jim Pettit for 
reasons 1.4(b,d) 
1. (C)  Summary and Comment:  Although recent high-level 
Ukrainian visits to the Middle East seem to suggest a growing 
GOU interest in the region; when viewed in context, however, 
the visits are the most recent in a string of Middle East 
initiatives long on grandiose announcements of increased 
cooperation and friendship but short on actual concrete 
results.  In general, Ukraine's major political players do 
not view aggressively pursuing closer Middle East ties as a 
priority given the limited role Ukraine can play in the 
Middle East.  As President Yushchenko's recent visits to 
Egypt and Libya suggest, Ukraine's interest in the Middle 
East is largely economic.  The recent visits highlight the 
desire of Ukraine's political leadership to keep the positive 
relationship Ukraine has with Middle Eastern countries on an 
even keel, while avoiding closer ties with Iran and, based on 
its economic interests, maintaining balanced bilateral ties 
to Israel, a country visited by President Yushchenko in 
November 2007 and home to many former Ukrainians who have 
invested in Ukraine.  Yushchenko's visit to Libya raised some 
eyebrows, however, as Yushchenko was apparently duped into 
laying a wreath at the Monument to the Victims of the 1986 
U.S. bombing.  Additionally, Yushchenko and Qadhafi agreed to 
restart a long dormant energy project (whose purpose and 
details remain murky) and announced a joint venture to 
service Mi-8 helicopters in Libya.  (Note: MFA Arms Control 
Director Belashov told us April 16 that state-owned arms 
exporter Ukrspetsexport and the Ministry of Industrial Policy 
are very interested in following up on possible business 
deals with Libya.)  End Summary and Comment. 
Yushchenko's State Visits to Libya and Egypt 
2.  (U)  President Yushchenko made an official visit to Libya 
on April 7-8, and Egypt on April 9-10, ostensibly focusing on 
bilateral economic relations.  Yushchenko discussed possible 
extended cooperation with Egypt in satellite control systems 
and launches to coincide with Egypt taking control of its 
first remote-sensing satellite (designed and put into space 
by Ukraine).  Yushchenko apparently discussed further 
economic integration with his Egyptian counterparts but no 
actual formal trade deal was announced.  Likewise, in Libya, 
with Yushchenko and Qadhafi present, the Foreign Ministers of 
Ukraine and Libya signed a bilateral cooperation agreement 
which included provisions for legal assistance in civil and 
criminal cases; guidelines for extradition, visa-free travel 
for certain visa classes; and a memorandum of joint 
invQin agriculture.  The proposal on agriculture 
envisions Libya growing crops on Qctares of land in 
Ukraine, an ambitious and highly unrealistic proposal.  In 
fact, no speciQmplementation were announced, leaving 
most observers to question what exactly this agricultural 
agreement entails.  In addition to the various cooperation 
agreements, Yushchenko announced Ukraine's intention to 
create a joint venture with Libya to service Mi-8 helicopters 
in Libya and to pursue aircraft repair projects in Libya. 
Alexander Bohomolov, head of the Association of Middle East 
Studies (and frequent advisor to the GOU on Middle East 
issues) sees some potential for increased trade with Egypt 
and Libya, but is skeptical that anything concrete was 
achieved in either visit. 
3.  (C)  More importantly, Yushchenko announced the restart 
of a long dormant program (5 years old) for exploration and 
production of oil and gas fields in Libya.  Yushchenko blamed 
"bureaucrats" for the program's lack of any discernible 
progress to date.  Bohomolov's assessment (he actually took 
part in the original oil and gas negotiations) is that 
Ukraine has neither the technology nor the will to profitably 
develop oil fields in Libya.  Bohomolov passed along his 
belief that any money Naftohaz has spent or is spending on 
this project is ending up in numbered accounts abroad. 
Viacheslav Shved, Vice President of the Ukrainian Center for 
Islamic Studies, a think tank closely connected with MFA and 
the Presidential Secretariat, agrees with this assessment. 
(Comment:  In the updated deal, Libya has apparently 
re-granted Ukraine the rights to develop one oil field out of 
the original four oil fields agreed upon five years ago. 
Many commentators have expressed the opinion that foreign 
energy development projects such as these serve as nothing 
more than a way for Naftohaz to siphon money from public 
coffers into private accounts.  Naftohaz's apparent technical 
inability to develop this oil field and complete lack of 
progress on this endeavor
 in the last five years lends 
credence to this theory.  From the Libyan side, using 
Naftohaz to develop gas and oil fields makes little or no 
business sense leading both Bohomolov and Shved to wonder 
what the Libyan angle is in reviving this deal. End Comment.) 
4.  (C)  Shved believes Yushchenko advisor Yousef Hares is 
the main player behind the deal. (Note: Hares is President of 
the Haras Group whose dealings involve metal production, real 
estate, and oil production.  Hares is Syrian born and 
apparently has Austrian citizenship.  Hares was named a 
freelance advisor to President Yushchenko on the Middle-East 
in October, 2007. End Note.)  Shved believes that Hares has 
convinced Yushchenko that the long dormant project is 
profitable and could possibly open a new source of energy 
resources to Ukraine.  Shved surmises that Hares is rewarding 
himself handsomely through kickbacks and other dubious 
financial arrangements.  When questioned about the deal 
specifics, Yushchenko sidestepped, telling skeptical 
journalists that "(w)hat counts most is that we have received 
the political go-ahead to revert to the projects that were 
planned five years ago and have not been implemented."  Shved 
says Yushchenko is only tangentially interested and not 
directly involved in the Naftohaz project, noting that 
Yushchenko's first priority for the visit to Libya was to 
receive Qadhafi's support in naming the Holodomor (Stalin 
induced 1932-1933 famine) a genocide. (Comment:  At first 
blush, Holodomor recognition may seem like an odd choice for 
a primary bilateral foreign policy issue.  However, President 
Yushchenko made Holodomor recognition a top issue in his 
official visit to Israel in November, 2007, and in many other 
international fora. End Comment.)  Apart from speculation on 
various intrigues, Shved and Bohomolov on balance view the 
Yushchenko visits as largely fruitless with minimal to no 
concrete results. 
5.  (C)  Yushchenko committed an embarrassing gaffe when he 
inadvertently laid a wreath at the Memorial to the Victims of 
the U.S. 1986 bombing of Tripoli.  Ihor Hrushko, Director for 
the Second Territorial Department at MFA, relayed to the DCM 
that Yushchenko had been duped into laying a wreath at the 
monument.  Hrushko noted that the Libyan side had requested a 
wreath laying at the Memorial, but Ukrainian Presidential 
Protocol had rejected it.  Instead, Yushchenko agreed to lay 
a wreath on the grave of Qadhafi's father.  Apparently, the 
two sites are within a few feet of one another and Qadhafi 
guided Yushchenko to the Memorial to the Victims of the U.S. 
rather than his father's grave.  Hrushko explained the 
inscription was in Arabic, so Yushchenko followed Qadhafi's 
lead.  Yushchenko was then handed a second wreath and guided 
by Qadhafi to lay it on his father's grave.  Only then did 
the Ukrainian side realize what had occurred.  The schedule 
for Yushchenko's official visit to Libya that MFA provided 
the DCM does not include any mention of a wreath laying at 
the Memorial.  (Comment: We find this version of events to be 
credible.  Additionally, Shved and Bohomolov both indicated 
that they felt Yushchenko was almost assuredly duped, with 
Bohomolov adding that the Libyans are "always doing that kind 
of stuff.") 
Turchynov to Saudi Arabia and Yekhanurov to Algeria 
--------------------------------------------- ------ 
6.  (U)  While President Yushchenko was in Egypt, First 
Deputy Prime Minister Oleksandr Turchynov visited Saudi 
Arabia.  On April 9, the two countries signed an agreement on 
mutual protection of investments and have agreed to discuss 
cooperation in the aerospace, banking, and navigation 
industries.  Turchynov gave high marks to his meeting with 
the Saudi King, calling it a good open meeting.  The only 
tangible result of Turchynov's visit was the announcement 
that AvtoKrAZ Holding Company (a heavy vehicle supplier based 
in Kremenchuk, Poltava Region) and the Abdullatif Alissa 
Automotive Company signed a distribution agreement, although 
the specifics of which have yet to be decided.  Completing 
the GOU Middle East blitz, Defense Minister Yuri Yekhanurov 
visited Algeria and signed a bilateral military cooperation 
agreement allowing for the exchange of defense attaches and 
the retooling of Algeria's military equipment, much of which 
is of former Soviet vintage. 
Positive Neutrality - A Rational Approach 
7.  (C)  All commentators agree that the Middle East is not 
an MFA focus.  The GOU is happy for the time being 
maintaining the status quo.  Although increased trade and 
Middle East investment are welcome, the GOU has no 
overarching vision as to how to bring this about.  Bohomolov 
notes that Ukraine's embassies in the Middle East provide 
reporting from the field, but these reports are of marginal 
value and ignored since relations with the Middle East are a 
low MFA priority.  Shved blames the instability of the 
Ukrainian political scene as part of the problem -- when 
Foreign Ministers come and go so quickly, nothing meaningful 
gets accomplished on issues of secondary importance. 
Vladimir Saprykin, an energy analyst at the highly respected 
Razumkov Center think tank, agrees. He says former Foreign 
Minister Tarasyuk was completely uninterested in the Middle 
East.  He has no indication from his wide range of contacts 
that any current high level government officials or policy 
makers are engaged in Middle East issues.  Even Mykola 
Leshchenko, director of MFA's 3rd department (which includes 
Egypt, Libya, Algeria and the Gulf States but not Iran) 
tacitly admitted this, agreeing that the Middle East receives 
very little attention within the MFA.  Leshchenko stated the 
GOU's goal in the Middle East is to maintain a "positive 
neutrality".   All commentators agree that FM Ohryzko will 
not devote and has not devoted any more than minimal time to 
Middle East issues and is focused on EU/NATO integration and 
Russian relations. 
8.  (C)  Domestic politics also factor in to Ukraine's Middle 
East Policy.  Politicians of all stripes are reluctant to be 
seen choosing sides in Middle East conflicts lest they offend 
the large Muslim Tatar community focused in Crimea; a sizable 
Jewish community in Ukraine; or the multitude of Jewish 
pilgrims who visit various Hasidic sites every year. 
Leshchenko admits that Ukraine has no political agenda in the 
Middle East (other than a just peace between Israel and 
Palestine and overall regional stability).  Leshchenko also 
confirmed Bohomolov's view of Ukraine's embassies in the 
Middle East.  He indicated that the main reason for a 
substantial Ukrainian diplomatic presence in the Middle East 
is to handle consular issues, with economic and political 
issues a distant second priority.  Leshchenko says as a 
practical matter a consular focus is correct.  In addition to 
Ukrainian tourists who visit various Middle Eastern 
destinations, Leshchenko estimates 300,000-500,000 former or 
Ukrainian nationals reside in Israel, and thousands 
of Ukrainian citizens are in the West Bank, Gaza, and Lebanon 
who also require consular services. 
9.  (C)  Shved and Bohomolov both indicated that they believe 
Ukraine is in a good position to help the Middle East peace 
process.  They note the historical and social ties with 
Israel and generally positive relations with Arab states. 
Ukraine's lack of an obvious political interest in the Middle 
East lends it a certain credibility according to the experts. 
 Both note, however, that Ukraine's domestic political 
situation severely limits any positive role Ukraine could 
play in the Middle East as major politicians spend the 
overwhelming majority of their time on domestic politics. 
While both are critical of the MFA's general neglect of the 
Middle East, both acknowledge that Ukraine has only a small 
role to play in the Middle East.  Given Ukraine's limited 
resources, they feel Ukraine could do things around the 
margins (cultural exchanges, student exchanges, small 
business initiatives and other such programs) but ultimately 
admit the focusing on the Middle East is, and should be, a 
secondary foreign policy priority. 
Limited Investment and Trade but Booming Travel 
--------------------------------------------- -- 
10.  (C)  Apart from Iran, which has been very aggressive in 
pursuing closer relations, Middle Eastern countries are not 
pursuing stronger bilateral relations with Ukraine.  (Note: 
Various commentators indicated this is a result of Iran being 
viewed as a pariah and trying to initiate relations with any 
country that is cordial rather than Iran having any 
particular interest in Ukraine. End Note.)  Leshchenko noted 
that the MFA is interested in having Saudi Arabia and UAE 
establish missions here to help facilitate investment.  Saudi 
Arabia has indicated no desire to establish a mission in 
Ukraine although the Saudi Monarch apparently expressed 
"sympathy" to the idea on Turchynov's recent visit.  UAE has 
said that, although they are planning on establishing a 
mission in Ukraine, they do not have the "technical capacity" 
to staff an Embassy.  Bohomolov pointed out that Ukraine 
deludes itself into thinking it is attractive to large-scale 
Middle Eastern investment.  Nevertheless, the GOU 
occasionally will go on trade missions to the Middle East 
which are politely received.  Bohomolov, who has served as an 
interpreter for various trade missions, notes that the 
initiatives are always poorly thought out; cannot provide any 
specifics on how or where to invest; and make no feasible 
sales pitch.  Bohomolov said these initiatives would not 
convince anybody with any business sense to invest one dime 
in Ukraine; noting that he often feels somewhat embarrassed 
translating these ham-handed proposals to unimpressed and 
uninterested Middle Eastern businessmen.  Although not 
involved in any of the recent GOU visits to the Middle East, 
Bohomolov indicated that he has seen no evidence that the 
four recent visits were anything different.  Bohomolov says 
he hears sporadic reports of Arab investors in the area, but 
says until Ukraine gets its internal economic house in order, 
no substantial Middle Eastern money will flow into Ukraine. 
11.  (C) Bohomolov says business relations with the Middle 
East are alive and well, but strictly commercial. Leshchenko 
put the total value of trade between Ukraine and Middle 
Eastern states (excluding Iran which is around $800 million) 
at around $3.1 billion in the last nine months of 2007.  Of 
that, Ukraine exports make up $2.9 billion, mainly in metals, 
fertilizers, industrial chemicals, and food stuffs. 
Leshchenko puts imports from the Middle East at around $200 
million, which are mostly citrus fruits and similar 
foodstuffs.  Bohomolov agreed with the numbers, but opined 
that there is little foreseeable area for greater economic 
integration.  According to him, Ukrainian businessmen 
(including himself) tried during the Kuchma era to capitalize 
on old Soviet-Arab business relations with virtually all of 
the Gulf States and Iran.  Bohomolov said, except for a few 
niche firms (travel agencies geared to Russian speakers 
visiting the Emirates and Egypt), nobody made a go of it. 
Some larger firms have been successful selling foodstuffs, 
metals, and chemicals; however, the vast majority of small to 
mid-sized businesses failed miserably and have little desire 
to re-enter the Middle Eastern marketplace.  Bohomolov blamed 
the complex way of doing business in Arab countries as 
baffling to fairly unsophisticated Ukrainian firms.  In his 
opinion, basic commerce is currently the only viable way for 
Ukrainian firms to conduct business in the Middle East. 
12.  (C)  For the average Ukrainian, the Middle East has 
proven to be a popular tourist destination.  Bolstered by 
Ukraine's proximity to the Middle East, warm weather, and the 
relative ease of obtaining visas (Egypt is visa free), 
Ukrainians flock to the Middle East during the cold winter 
months.  As salaries rise and more Ukrainians can afford to 
travel, tourism to the Middle East will continue to boom. 
Thousands of Ukrainians visit Sharm-el-Sheikh, other parts of 
Egypt, Israel, and the UAE each year.  Ubiquitous billboards 
in Metro Stations and along city streets advertise Middle 
East packages and charters for all budgets (American Embassy 
employees also frequently take advantage of these offers). 
Iranian Gas - Too Good to be True 
13.  (C)  Obtaining gas via pipeline through Iran is an issue 
that does not go away.  Shved noted that since independence, 
the GOU has flirted with the idea of creating pipelines from 
Iraq (oil) and Iran (gas) linked to Europe through Ukraine. 
An alternative source of energy would free Ukraine from 
Russian political blackmail; it would be profitable to 
Ukraine to collect transport fees; and Ukraine has the 
infrastructure and know-how to transport Middle Eastern oil 
and gas to the EU.  Former President Kuchma made numerous 
visits to the Middle East including Libya and Iran but 
achieved vary little by way of actual results.  Kuchma's push 
for greater relations culminated in former Iranian President 
Khatami's official visit in the fall of 2003.  Shved dryly 
noted that every so often, Ukraine engages in half hearted 
discussions with Middle Eastern countries about energy 
supply.  Shved says the idea of obtaining gas from Iran is 
always floating around in the background but is entirely 
unrealistic. Saprykin agrees with Shved's assessment. 
Saprykin says economic and technical realities make the idea 
of diversifying Ukraine's energy supply by using Middle 
Eastern sources unrealistic. 
14.  (C)  Shved and Saprykin say that Ukrainian politicians 
are initially interested in a gas pipeline to Ukraine from 
Iran but quickly discard the idea when faced with the actual 
realities.  Shved noted that as Prime Minister both 
Yanukovych and Yushchenko had stu
died the issue briefly. 
Yushchenko went as far as sending Petro Poroshenko (a top 
Yushchenko aide and advisor) in early 2005 to visit Iran and 
explore the feasibility of pipeline projects.  The Iranian 
Ambassador to Ukraine, Said Musa Kazemi, lamented in a recent 
newspaper interview the lack of progress in Ukranian-Iranian 
relations in the last few years.  Shved and Saprykin agreed 
saying that since early 2005, Iranian-Ukrainian relations 
have been effectively dead.  Both noted that the Iranians 
have been very aggressive in trying to restart talks but none 
of the major political players in Ukraine are remotely 
interested.  According to Saprykin, all three politicians 
(Yushchenko, Tymoshenko, Yanukovych) are keenly aware of the 
major technical issues to overcome.  Apart from the technical 
problems, Ukraine's political leaders of all stripes see 
engaging Iran as at least detrimental and potentially 
suicidal as far as Ukraine's EU or NATO aspirations. 
15. (U) Visit Embassy Kyiv's classified website: 



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