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Gassy Geopolitics
Putin Comes Out Swinging Against Sanctions

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.

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  • lukelea

    WRM coverage of the crisis in Ukraine has been surprisingly lacking to date. This piece is pretty good though. Putin seems to be holding all the cards. How we got into this poker game in the first place is beyond me. Amateur hour in the White House it would appear.

    One neglected point that needs emphasizing is how incredibly poor the western half of Ukraine is. I read that it is a basket case comparable to Greece in scope: hundreds of billions of dollars in the hole with a GDP per capita less than half the next poorest country in eastern Europe. Is that really true? If so, the notion of the EU and US bailing out the new government in Kiev looks pretty far-fetched.

    • Pete

      “Say what you will, at least Clinton would never have put us into such an unsustainable position.”

      He would have if he could have.

  • rheddles

    How we got in this mess is the EUropeans decided they wanted to be dependent on Russian hydrocarbons thirty yeas ago.

    Then when the Cold War ended, we didn’t leave NATO.

    No other administration could have done anything. After all, the pipeline agreement was made on Reagan’s watch.

    If the EUropeans want to be serfs, why are we spending good money to stop them?

    • Andrew Allison

      How we got into this mess is that the EU, in it’s mindless expansionism, wooed Ukraine and when Russia signaled that it objected by bribing the government to turn East, encouraged the revolution which swept that government from power with no thought to the consequences, namely the inevitable loss of Crimea and bankrupting of Ukraine via its dependence on Russian gas. The fact that Germany, the de facto leader of the EU, is dependent upon Russia for 35% of its gas and therefore impotent just adds to the stupidity.

      The loss of Crimea might, just possibly, have been prevented had the new government had the wit to grant full autonomy, thereby eliminating the threat to Sevastopol of EU association. Compounding the felonies, our amateurish Administration jumped in with meaningless huffing and puffing about a fait accompli which it has absolutely no power to do anything about. The EU made this bed for themselves and should lie on it alone.

    • S.C. Schwarz

      How we got into this is that the greens are a core democratic interest group and they hate fossil fuels of all kinds. Therefore Obama has been working hard to suppress energy development as much as he can. One result is that only one LNG terminal has been approved in the last five years, although many applications are pending. Into the breach stepped Russia.

      Of course it is also true that the EU could have developed it’s own natural gas resources. However they are just as cowed by the greens as we are.

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