Ukraine holds key to Vladmir Putin's dream of a new union

Ukraine's refusal to sign a trade pact drawing it into Europe's orbit marked a victory for Vladimir Putin, winning him time to lure Kiev into a project for a trade and political bloc stretching from the frontiers of China to the edge of the EU. The Russian president sees his "Eurasian Union", in which Ukraine would play a central role, as a future rival to China, the United States and the European Union.

Some say he sees it as the president's personal political legacy - a strong force emerging from the ashes of the old Soviet Union. "The Eurasian Union is a very important project for Putin. Without Ukraine, he will lose all enthusiasm for it," said Gleb Pavlovsky, a former Kremlin spin doctor who has also worked in Ukraine. "Without Ukraine, Putin's project is impossible."

Putin also hopes to woo several other former Soviet republics that were being courted by EU leaders at a summit in Lithuania on Friday. But none is more important to Putin than Ukraine, a huge market and the cradle of Russian civilisation. The opposition-minded Russian newspaper Novaya Gazeta described the situation as a love triangle in which Ukraine was a cheating husband, the EU an attractive mistress and Russia an angry wife. Who would win out in the end was unclear.

For Putin it may be a question of exercising the kind of 'soft power' that comes to a nation as vast as Russia. Putin is widely thought to have offered Ukraine lower prices for gas supplies and threatened crippling trade sanctions if it signed the planned trade pact with the EU in Lithuania, although he denies this. President Viktor Yanukovich may also have been 'shopping around' for the best finance deal to rescue his country.

Russia has clearly offered him better terms than the 600 million euros the EU has put on the table. He urgently needs money to meet scheduled debt repayments of more than 8 billion dollars next year if he is to secure re-election in 2015.

Yanukovich, for whatever reasons, may have backed away from signing a trade accord at the EU Vilnius summit; but there is no guarantee his country of 46 million will now follow Putin's declared will in joining a Moscow-led customs union with Belarus and Kazakhstan - a precursor of the Eurasian Union which the Russian president envisages. Certainly, at home there have been protests against the turn away from the West.

The Eurasian Union is intended to recoup potential lost when the Soviet empire collapsed 22 years ago and to group like-minded states against any meddling by the West or China. Putin showed his intent by adopting a decree on the first day of his new presidency last year making it a priority to develop ties with the former Soviet republics in the Commonwealth of Independent States (CIS) - the very loose association of states created after the Soviet collapse.

Putin has looked for ways to reunite former Soviet republics since becoming prime minister in 1999 and being elected president the following year. He has capitalised on nostalgia for stable prices, predictable government and open borders within the old Union of Soviet Socialist Republics. He touched a chord among many, mostly elderly Russians in 2005 when he called the Soviet Union's demise "the greatest geopolitical catastrophe of the 20th century".

He said "old ideals" had been destroyed, although he dismisses any idea he is seeking any kind of resurrection of the Soviet Union. Instead, he said, he wants to create a "powerful supra-national union" of sovereign states based on the EU model, connecting Europe and the Asia-Pacific, and on an equal footing with the United States and China.

The aim is to unite economies, legal systems and customs services, as well as military coordination. The customs union with Kazakhstan and Belarus, formed in 2010, was a first step to launching the Eurasian Union in 2015. It has a market of about 165 million and covers about three-quarters of the post-Soviet region - the Soviet Union minus the three Baltic states.

The combined gross domestic product of the three economies is around $2.3 trillion. Both Russia and Kazakhstan are oil producers. Kyrgyzstan and Armenia say they will join but other former Soviet republics such as Azerbaijan, Georgia and Moldova, which are being wooed by the EU, have reservations. So do Uzbekistan, a large market of 30 million, Turkmenistan and Tajikistan.

Despite Putin's pledges, there are concerns in such states that Russia will reassert its control over its "near abroad". Former U.S. Secretary of State Hillary Clinton described the planned Eurasian Union last year as "a move to re-Sovietize the region" and added: "We know what the goal is and we are trying to figure out effective ways to slow down or prevent it."

Some Western states have also noted with concern that Russia is building up its military at the same time as constructing a trading and political bloc. Russia announced last year that its defence budget would rise by about 25 percent, pushing spending above that of France and Britain.

Putin's determination to keep the former Soviet republics out of Brussels' orbit was evident in the sudden decision by Armenian President Serzh Sarksyan - after talks with the Russian president in September - to join the customs union.

Diplomats suggest Putin threatened to withdraw military support for Armenia that it needs in its territorial dispute with Azerbaijan. Yanukovich was also won round after talks with Putin, and the other ex-Soviet states are well aware that Moscow has ways of turning the screws on them as well.

Moldovan wine imports have been suspended by Russia as Chisinau seeks stronger ties with the EU. Georgia and Ukraine have suffered Russian trade restrictions and Tbilisi is wary of Moscow after a five-day war which it lost to Russia in 2008. But there are limits to Moscow's power and its ability to attract others. Tough bargaining is not necessarily the best way to persuade nervous allies to join the Eurasian Union.

The five former Soviet republics in Central Asia have increased trade with China, despite Moscow's attempts to build relations in the region. A World Bank report last year concluded that Russia had gained more from the customs union than Belarus and Kazakhstan because the tie-up had involved these countries accepting higher Russian import tariffs.

There are also questions about public support for teaming up with Russia in other ex-Soviet states. Moscow needs to overcome public doubts about the merits of integration with struggling economies such as that of Belarus when its own is stuttering and could be dragged further down.

"By pushing its plan to build a political Eurasian Union of neighbouring states, the Kremlin is digging itself even deeper into a neo-imperialist hole, presumably to appeal to Russian nationalist sentiments," wrote Anders Aslund of the Peterson Institute for International Economics in a recent Moscow Times opinion piece. "It is an offensive to expand this entity of unwilling allies.

This costs Russia large amounts of money, harms its economy, and alienates the country from the rest of the world." There are also no guarantees that Russians overwhelmingly back Putin's idea. Although many want Russia to be a force on the world stage again, such people resent the flood of migrant workers from Central Asia who do not need visas - a result of the push for integration with other CIS countries.

Putin says he opposes introducing visas for CIS citizens. That is a potentially risky position after a rise in hostility towards migrants and riots last month by ethnic Russians in an area of Moscow heavily populated by immigrants.

(Writing by Timothy Heritage, editing by Jason Bush and Ralph Boulton)