No disrespect to the people of Iceland (pop 302,000), but if Ukraine and its population of 46 million on the borders of Europe goes belly up as a result of financial and political turmoil it would be a most serious matter for all of us. Any instability in Ukraine would have implications for our energy supplies, because Russian gas transits through the former Soviet state on its way to western Europe.
But the most pressing question concerns the intentions of Russia, the giant power on Ukraine's border. Russia has already turned off the gas tap once to Ukraine back in January 2006. The trigger that time around was a pricing dispute, and prices are set to rise steeply again. The risk now is that the Kremlin might be tempted to exploit Ukrainian instability in order to punish President Viktor Yushchenko for supporting Tbilisi during last August's six-day war.
But President Putin said after the conflict that Russia did not have territorial ambitions over Ukraine, where Russia's lease on the Crimean port of Sebastopol for its Black Sea fleet expires in 2017. There had been fears in the West that after recognising the breakaway territories in Georgia after the August war, Moscow would move to protect the ethnic Russian minority in Crimea. Last weekend, though, a Russian deputy prime minister and former defence minister, Sergei Ivanov, told the BBC that the fleet would leave if the lease was not renewed. "It's Ukraine's problem, not Russia's," he said. President Yushchenko has riled Moscow by ruling out an extension of the lease. But "the Russians have been indicating that they are playing within certain limits," said the Russia expert Philip Hanson of the think-tank Chatham House. He said given that the financial crisis was also affecting Russia severely, "the Russians have got a lot of interest in not worsening relations with the West".