As Ukraine signs up with the EU, Russia is raising gas prices. On Friday, Ukraine cemented a deal with the EU that further integrates the two in both trade and “broad political association.” As a result, the FT reports that Russia is jacking up gas prices for the country to $480 per thousand cubic meters, which would be the highest any country pays to Gazprom. In addition, Russia is threatening to require $16 billion dollars in back payments from Ukraine. Putin’s government claims to have provided that much money to the country in various bailouts and discounts.This move serves three Putin goals. First, it makes Russia look tough. Instead of taking sanctions lying down, the country is still engaging in strong policies of its own. Second, it will contribute to Ukrainian destabilization and hurt the popularity of new government. Third, to the extent that the west is committed to keeping the Ukrainian economy out of the toilet, it will either have to fork over money to Russia on Ukraine’s behalf or find some alternative source for Ukraine’s fuel needs.This tactic is truly a no-brainer for Putin. The question is: does the west have any idea how to respond? We’ll leave you with one complicating factor that makes answering that question even harder. If Russia cuts gas deliveries to Ukraine due to non-payment of bills, supplies to the rest of Europe will likely be affected.
Gassy GeopoliticsPutin Comes Out Swinging Against Sanctions