Russia: playing chicken with Ukraine over natural gas

As an article in my links yesterday suggested, for many in the west, Russia’s behavior of late has lurched toward the unpredictable, volatile and aggressive. After Russia’s moves against Georgia in South Ossetia, wariness in the west has increased, sometimes bordering on hostility.

I have generally taken a more pro-Russian view of events, seeing the reactions by Russia as predictable responses to a Super Power provoked by repeated slights. That is neither here nor there as the latest controversy heats up, this time over natural gas.

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As an article in my links yesterday suggested, for many in the west, Russia’s behavior of late has lurched toward the unpredictable, volatile and aggressive.  After Russia’s moves against Georgia in South Ossetia, wariness in the west has increased, sometimes bordering on hostility.

I have generally taken a more pro-Russian view of events, seeing the reactions by Russia as predictable responses to a Super Power provoked by repeated slights.  That is neither here nor there as the latest controversy heats up, this time over natural gas.

At issue is the alleged lack of dependability by Ukraine as a transit route for gas from Russia to Western Europe.  Originally, this was a dispute over payments — or lack thereof.

Russia cut natural gas deliveries to Ukraine today after negotiations failed to resolve a dispute over unpaid bills and the price for supplies this year.

Gazprom, the Russian state-owned gas provider, lowered pressure at 7am GMT in pipelines to Ukraine which also carry in transit about 80% of Russian gas consumed by other countries in Europe.

Ukraine said yesterday that it had paid $1.5bn (£1bn) in debts for supplies in November and December but Gazprom said it had not received that money from RosUkrEnergo, an intermediary company. It is also demanding a further $600m in fines which Ukraine said it is not yet prepared to pay.

The last time exports were terminated – in January 2006 – there was an immediate impact elsewhere in Europe as Ukraine allegedly siphoned off gas meant for onward transit. But the Gazprom chief executive, Alexei Miller, said it would continue full shipments to the European Union, which gets about a quarter of its gas from the Russian company, most of it through pipelines that cross Ukraine.

The row is politically tinged because Moscow and Kiev have been at daggers drawn since 2004 when popular protests over a rigged election set Ukraine on a course to European integration.

Russia is implacably opposed to its neighbour joining Nato and accused Ukraine of sending military advisers to Georgia last August, when Russia and Georgia went to war over the breakaway republic of South Ossetia.

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Edward here. You should notice a few things in those few paragraphs. Gazprom is controlled by the increasingly centralized Russian federal government. There is confusion as to whether this is a political or commercial dispute. Much of the problem revolves around Russia’s relationship — economic and political — with former parts of the Soviet Union and the larger former Soviet sphere of influence.

The quote below should tell you that this is as much a political dispute as it is economic.

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Russian gas giant Gazprom says it can no longer depend on Ukraine as a transit route to the EU and is looking to develop alternatives.

In a BBC interview, the deputy chairman of Gazprom, Alexander Medvedev, said he hoped EU countries would back the move.

Gazprom cut off Ukraine’s gas supply on Thursday in a row over payment.

The firm has since accused Ukraine of stealing gas, however Ukraine’s state energy firm said Russia was not sending enough gas to ensure the EU supplies.

Ukraine’s state gas company, Naftogaz, denied illegally siphoning Russian gas, saying it was ensuring the export supply.

The crux of the matter is that this dispute pits Russia against an expanded European Union as the natural gas dispute is creating an economic problem in Bulgaria, Romania and Poland, members of the 27-nation European Union and former Eastern Bloc nations. As the EU and NATO have expanded eastward into the former Eastern Bloc, this has been seen negatively in Russia. The line obviously stops at Ukraine and Georgia for the Russians and they are demonstrating quite effectively that they will use all available means to reinforce this point.

How should the EU react? How should the U.S. react? Well, as to the economic hardship I mentioned, an article in the Spanish daily El Mundo brings the point home.

Three states of the European Union, Romania, Bulgaria and Poland, are already seriously affected by the conflict facing the gas to Russia and Ukraine, which have not yet reached an agreement on the price of fuel, which has meant that the Russian Gazprom had cut supplies to the neighboring country.

Brussels has said that “it would not interfere” in the dispute, but Gazprom has asked for mediation through its vice president, Alexander Medvedev, who seeks to punish Ukraine for obstructing the passage of gas to Europe. So far, no member country of the Union had been affected, but for 24 hours, the supply of natural gas to Romania has fallen 30%, Bulgaria by between 10% and 15% and Poland by around one 11%.

These three countries are already experiencing extreme economic dislocations due to the global recession (see links below). Can the European Union and the new Obama administration just stand by and watch this from the sidelines? Probably not.

One way or another, the issue of NATO and EU expansion is going to come to a head.

Sources
Russia and Georgia Clash Over Separatist Region – NY Times
Russia looks to re-route EU gas – BBC News
Russia cuts gas to Ukraine over unpaid bills – Guardian
Rumanía, Bulgaría y Polonia, afectadas por la disputa gasística entre Rusia y Ucrania – El Mundo
Naftogaz y Gazprom se acusan de la desaparición de millones de metros cúbicos de gas – El Mundo
Russian gas theories abound – BBC News
Romanian fear amid economic gloom – BBC News
Worries about Romania and Bulgaria: Stopping the rot – Economist

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