Irony: Bailing Out Ukraine Might Make Russia Richer

Amid all the turmoil over Ukraine, politicians in the United States are thinking seriously about giving the country some kind of “bailout.” As CNBC explains,

Ukraine has been in a recession since the middle of last year, and its economy has been hit by deflation. The Ukraine government said last month that its budget deficit rose 21.2 percent in 2013 over 2012.

In response to its economic struggles and Russia’s invasion of the Crimea, the European Union on Wednesday said it’s ready to give $15 billion in loans and grants to Ukraine. The Obama administration has called for $1 billion in loan guarantees for the country, and House Majority Leader Eric Cantor, R-Va., has said Congress will consider such a package soon.

But there is a problem. Ukraine needs the money to pay back old loans and to purchase energy for the country.

Guess what other nation is involved in loaning them money and selling them oil?

Alexander Gordin, managing director of Broad Street Capital, who has had extensive business dealings in Russia and Ukraine for two decades, told CNBC that some of the money will likely be used to pay back Russian loans to Ukraine and to buy Russian natural gas. Ukraine buys 60 percent of its natural gas from Russia.

This reminds me of how bailing out AIG back in 2008 effectively meant a bailout of foreign banks that AIG insured. Money doesn’t stop in one nation or company; it flows to many others.

It is possible Gordin is being optimistic that only sixty percent might end up helping Russia.

Stratfor’s Chausovsky said he believes that although the European Union has said that financial assistance given to Ukraine will not be used to pay for Russian natural gas, it could happen anyway.

A prominent Russian business source who spoke to CNBC on the condition of anonymity echoed those sentiments.

“The money that Ukraine gets from the EU will go straight to payments for gas,” he said. “So, that money will 100 percent end up back in Russia,” the source said.

Basically, a Ukraine bailout fund is, at the same time, a Russia national gas industry stimulus program, courtesy of the American taxpayer if our government gets involved. Here we have another example of how complicated it gets to try to intervene between two neighboring nations that are far away from us.