Putin is already at least a step ahead of the West. Russia effectively occupied the Crimea over the weekend without firing a shot, while President Obama and the EU are still trying to figure out a response.If they do eventually come up with a response, Putin has yet another weapon in his back pocket: gas. Ukraine is extremely reliant on Russian gas for energy, and Gazprom, Russia’s state-owned energy company, is already signaling that it will be hiking energy prices in August. Gazprom says it is doing so because of Ukraine’s outstanding debts, but you don’t have to be a conspiracy theorist to surmise that the real purpose is to put even more pressure on Kiev, as the FT reports:
For the Ukrainian economy the implications are bleak. “Unless something dramatically changes, Gazprom is going to be raising the price back to Naftogaz [Ukraine’s state energy company] from April 1,” says Andrew Neff, senior analyst at IHS Energy.Yury Prodan, Ukraine’s fuel and energy minister, said Naftogaz was engaged in “active negotiations” with Gazprom over the extension of the gas discount. But he added that if no agreement was reached, the price could rise from $268.50 per thousand cubic metres to about $400 in the second quarter.
A price hike would be bad enough, but if a shooting war breaks out in Ukraine, Gazprom could shut off the gas entirely, as it has done in decidedly less serious situations. The effects of such a move would be felt far beyond Ukraine: Russia supplies 30 percent of the EU’s gas needs, and two-thirds of Europe’s gas passes through Ukraine.But the edge of this weapon cuts both ways. While much of Europe is dependent on Russian gas, these exports make up a significant chunk of the Russian economy as well. Russia can’t afford to shut off the taps for too long without feeling the pinch. On the other hand Putin has made it abundantly clear over the past few months that he is willing to subject Russia to more than a pinch to preserve Russian influence in Ukraine. He may decide that Ukraine is worth a temporary loss of gas revenue.And it may not even come to this: the threat of a cutoff alone may be enough to dampen the prospects of a united and strong Western response. Indeed, Reuters is already reporting that the EU is unlikely to levy the kinds of sanctions against Russia currently being discussed in Washington. There’s one key reason for Brussels’ hesitation, and it rhymes with grass.