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Pipeline Politics
Gazprom Kills Gas Supply to Ukraine

Russia’s state-owned gas firm Gazprom cut off supplies to Ukraine today, after the two parties failed to come to an agreement over unpaid gas bills. As Ukrainian energy minister Yuri Prodan put it, “gas supplies to Ukraine have been reduced to zero.”

According to Gazprom, Kiev owes upwards of $4 billion in unpaid natural gas, but Ukraine is disputing the price at which Gazprom is selling its gas, which nearly doubled in April. Both sides have been in talks now for weeks, after Russia announced it would put Kiev on a prepaid plan because the latter had accumulated so much debt already. Having failed to come to a deal on Monday morning, Moscow finally went ahead with its threat to turn off westward flows. The two state-affiliated gas companies have filed competing claims against one another in the Stockholm Arbitration Court—Gazprom is seeking $4.5 billion in unpaid gas bills, while Naftogaz argued that it was owed $6 billion for what it deemed were overpayments.

This has big implications for Europe, which relies on Russia for roughly a third of its gas. Some 40 percent of that Russian gas travels through Ukraine on its way West, meaning about 15 percent of Europe’s gas supplies are threatened by this Ukraine-Russia dispute. Gazprom has stopped piping Ukraine’s gas, but is still supplying Europe’s portion through Ukraine. A Gazprom spokesperson claimed that Ukraine is still responsible for ensuring that the gas flow into Europe remains reliable, saying “the gas for European consumers is being delivered at full volume and Naftogaz Ukraine is required to transit it.” So far, it doesn’t look like Ukraine has been skimming off this supply. However, in the past, shutoffs to Ukraine’s gas supply have affected the rest of the continent, and we can reasonably expect that to happen again if the supply disruption continues into winter. If there’s one bright spot in this latest conflict, it’s that it happened over the summer, when gas demand is typically at its lowest.

But this isn’t really about price. This is Putin wielding his energy weapon, a tool he’s been menacing Ukraine and the West with from the beginning of this conflict. Ukrainian Prime Minister Arseniy Yatseniuk made the point explicitly: This is “part of the general plan of Russia to destroy Ukraine. […] Ukrainians will not pull $5bn out of their pockets a year so that Russia can use this money to buy arms, tanks and planes and bomb Ukrainian territory.”

And Putin has been quite busy ratcheting up hostilities. Chechen and now Cossack veterans of Russian wars—supposedly all volunteers but suspiciously well coordinated—make up a good part of the motley array of forces fighting the Ukrainian military. The U.S. State Department said on Friday that the tanks in the hands of the separatist forces were of Russian provenance. And separatists successfully shot down a Ukrainian military plane over the weekend using shoulder-mounted missiles.

All of this is being done with plausible deniability in mind. Moscow is carefully flying below the radar here, not escalating the provocations to the point of formal aggression, but nevertheless having the same effects on Ukrainian stability and viability. Putin is counting on the irresolution of a divided West: as long as the waters are muddy, it’s easier for European countries sitting on the fence to hesitate about taking tougher measures.

With natural gas prices rebounding from a steady decline this spring, Putin is getting more spending money just when he wants it. Put that together with instability in the Middle East—a reminder to Europe that it isn’t easy to free itself from dependence on Russian energy—and it seems that Putin is holding all the good cards these days.

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  • Pete

    The freeloaders bluff was called.

    • ShadrachSmith

      And it is the Greens who have made Europe into energy freeloaders. On a related topic it is NATO that made Europe into defense freeloaders. European politics has freeloading as its fundamental principle. That policy has its own costs, apparently.

  • lukelea

    Maybe we were foolish to encourage the Ukrainian coup and revolution as we have done? Have we encouraged the new Ukrainian government to tone down its military response in the east? There are reports of indiscriminate artillery and bombing? Are they true?

  • Natalie

    Considering how Ukraine has bought gas at below-market prices for ages now (and by below-market, I mean WAY lower than what other European consumers were paying), forgive me if I don’t have too much sympathy about the new Ukrainian regime’s latest whining.

    • LivingRock

      It was in exchange for Russia locating it’s Black Sea Naval Fleet in a Ukrainian base in Crimea per a 2010 agreement. Well, Russia blew that agreement with…you know…the whole invasion thing and taking of the territory. This isn’t about pricing or collection of bills. It’s about wielding power, period.

      • Andrew Allison

        You are overlooking the fact that, as a direct result of the EU’s idiotic attempt to draw Ukraine into its orbit, Crimea voted for annexation with Russia. Also that, in exchange for Ukraine dismantling its nuclear arsenal, the West guaranteed its territorial integrity. Following your logic, the fact that Russia no longer needs to “rent” Sevastopol from the Ukraine is entirely the fault of the EU, which compounded the felony by recommending that Ukraine hold out for the average price it’s paying. It’s unclear which of the two are the more disconnected from reality.

        • LivingRock

          Crimea’s “vote” was under the barrel of an invading Russia gun. The grievances (which really exist or not) of the Crimean people were not handled properly to say the least.

          Russia was also an agreeing party in the 1994 Budapest Memorandum saying they would respect the territorial integrity of Ukraine in exchange for giving up nukes. Oops on that…

          • Andrew Allison

            Crimea was part of Russia until 60 years ago, it’s population is 58.5% Russian, and there was no Russian invasion. While the size of the vote majority was no-doubt influenced by the long-standing Russian presence (there was no invasion), there is very little doubt that the outcome would have been the same absent that influence. The truth is that the annexation of Crimea became inevitable when the pro-Europeans overthrew the Yanukovych government.

  • Andrew Allison

    To argue that, “This is Putin wielding his energy weapon, a tool he’s been menacing Ukraine and the West with from the beginning of this conflict.” is either sophomoric or disingenuous. Ukraine entered into contracts under which it is in default and, regardless of the geopolitical issues, Gazprom is well within its rights. The real problem here is that, thanks to misleading signals from the EU, the new government of Ukraine has consistently overestimated its bargaining power.

  • Jacksonian_Libertarian

    Putin is an Idiot, he is trying to recreate and empire that fell for good reason. Here he is angering the entire West, and turning the Ukraine into deadly enemies. What’s to stop the West from arming the Ukrainians like they did the Mujahideen? Putin could have bought the Ukraine with kindness and economic investment; instead he acts like Stalin and Hitler and just tries to take it in the strong arm method.

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