Ukraine's geographic position, linking East and West, while also holding critical warm water ports on the Black Sea, has made the country a trade link of growing importance between the former Soviet Union and Europe for energy and other goods.

Ukraine is one of Europe’s largest energy consumers, and it consumes over twice as much energy per unit of GDP than Germany. In 2005, almost half of Ukraine’s energy consumption came from natural gas, and over 75 percent of this natural gas came from Russia. Since 2004, the price of imported natural gas from Russia has almost doubled. The economic impact of these price increases on the economy will depend on the pace at which Ukraine can implement energy efficiency reforms. For a more in-depth discussion of the recent increases in natural gas prices and energy efficiency reform in Ukraine, please consult a February 2007 IMF Selected Issues Paper.

Although the reorientation of trade towards Europe and Asia has resulted in an improved macroeconomic environment in Ukraine, political uncertainty remains problematic. Following the Orange Revolution in 2004, continued lack of clarity on the division of powers between the Ukrainian Parliament, or Rada, and the President continues to hurt the country’s investment climate. President Viktor Yushchenko issued a decree to dissolve the Rada in April 2007, and new elections are expected in September 2007.