KIEV — For President-elect Barack Obama, Ukraine — Europe's second largest country and the scene of the pro-Western Orange Revolution — could prove to be an early foreign policy test.
The country's economy has been among the hardest hit by the global financial crisis, and analysts fear there is worse to come. The hryvnia, the embattled currency, has lost more than 60 percent of its value from its 2008 peak. Every sector of the economy is contracting, with metallurgy, the biggest source of revenue, registering gargantuan losses. Companies are laying off workers en masse. Political protests and social unrest threaten to erupt this spring.
Meanwhile, the political elite, riven by infighting, has at times been paralyzed by the shadow of the looming crisis. Members of the "orange coalition" of President Viktor A.  Yushchenko and Prime Minister Yulia V. Tymoshenko now accuse each other of corruption and treason. A presidential election later this year or in early 2010 will only aggravate the wrangling, observers say.
But there is one overarching reason that this East European nation of 46 million could develop into a foreign policy headache, or possibly even a crisis for Obama: Russia.
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Ever since the massive protests in 2004 that delivered Yushchenko and Tymoshenko to power and blocked the ascension of the Kremlin's preferred candidate, Viktor Yanukovych, the United States and Russia have been at loggerheads.
For Moscow, its Slavic neighbor is more than a former colony and ex-Soviet republic that falls in its sphere of interest — or "near abroad." Many Russians in fact consider Ukraine to be an integral part of their country, separated by a whim of history — the breakup of the Soviet Union.
Washington and the European nations for their part see Ukraine as one of the best hopes for an open, democratic society in the former Soviet Union, and a nation too large and strategically placed to be allowed to descend into authoritarianism or chaos.
"Ukraine is important for what we want: a stable, peaceful, democratic Europe," says Steven Pifer, a former US ambassador in Kiev and now a visiting fellow at the Brookings Institution in Washington D.C.
The Ukrainians have played their own part in the standoff. President Yushchenko has charted an unapologetically pro-Western course, warning darkly of the Russian threat. He seems never to miss an opportunity to antagonize the Russian bear.
He has campaigned assiduously for NATO and European Union membership, both of which Moscow opposes, though for the Kremlin NATO is unquestionably the greater evil. And he sided demonstratively with Georgia in its recent war with Russia. Other Ukrainian politicians, most notably Prime Minister Tymoshenko, have recently taken a less confrontational stance, however.
Although European NATO members recently declined to fast track Ukraine's membership — effectively putting the process on hold — the potential for conflict with Russia is still large. Witness the current gas dispute between Kiev and Moscow.
Yushchenko announced last year that he would not renew the lease for the Russian Black Sea fleet's use of Sevastopol, where it has been based since the 18th century. The lease expires in 2017 so there is still time to negotiate, but meanwhile Russian nationalists claim that the Crimean peninsula, where Sevastopol is located and which was transferred to Ukrainian control during the Soviet Union, should be returned to Russia. The large Russian minority, concentrated nearby in the country's east and south, could also serve as political fodder.
"The general factors leading to a more adversarial U.S.-Russian relationship are converging on Ukraine, which is of utmost importance to Russian and European security," Dmitri Trenin, deputy director of the Moscow Carnegie Center, wrote in a recent paper.
Nevertheless, conflict between Russia and Ukraine — which would almost certainly draw in the U.S. and Europe — is not a given. Yet according to Brookings Institution's Pifer, "the relationship won't become any easier this year." Moscow has sufficient domestic political and economic problems of its own. Most importantly, the Obama administration has signaled that it will seek a more nuanced policy towards Moscow.
On the streets of Kiev, hopes remain that if push does come to shove, the US will take a hard line towards the Kremlin and defend Ukrainian interests. Russia is viewed by many as a threat, and Washington as the main force that can counter this. "Whatever President Obama does, I hope he supports us against Russia," said Gennady, a lawyer in Kiev who preferred not to give his last name.

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