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Moscow and Kiev Can't Reach a Gas Deal

Brussels tried to make some kind of peace between Russia and Ukraine on Friday, and it roundly failed. The EU brought Moscow and Kiev to the bargaining table to see if the two sides could normalize their strained relationship vis-à-vis natural gas.

Following Ukraine’s move towards the EU last year, Gazprom jacked up the price at which it sold Russian gas to Ukraine. That price dispute, as well as disagreement regarding an unpaid bill of over $5 billion, caused Russia to shut off supplies to Ukraine. During summertime, natural gas demand is relatively low, and Ukraine has so far managed by tapping stored reserves and importing gas from other European countries, but winter is coming. Not only that, but more than a third of the EU’s natural gas transits Ukraine, which puts the entire bloc’s supply in danger. The WSJ reports:

Time is of the essence for all sides. Gazprom is losing valuable income by continuing to withhold gas deliveries to one of its biggest and most lucrative markets—around half of the government’s revenue comes from oil and gas exports.

For Ukraine’s government, the onset of cold winter months could exacerbate an already very fragile outlook, with the economy battered by months of turmoil and civil war continuing in the east of the country. The government said last month that businesses might be forced to reduce energy consumption in the case of gas shortages. In the worst-case scenario, people could be left without heat and power in their homes.

The EU, for its part, is determined to avoid a repeat of 2009 and 2012, when pricing disputes also led to supply disruptions in some EU countries at the height of winter. Ukraine is the main transit route for Russian gas supplies to the 28-member bloc, which relies on Russia for over a third of its gas imports. Six countries, including Bulgaria and Slovakia, are wholly dependent on Gazprom for their gas supplies. However, all the sides say now that the flow of gas won’t be interrupted.

These negotiations are, of course, taking place in the larger context of the armed conflict, but natural gas is a very important variable in this equation. Moscow has assured Brussels that its supplies won’t be affected by Gazprom’s strained relationship with Kiev, but if history is anything to go by, there will be shortages this winter, and not just in Ukraine.

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  • Pete

    The Russian strategy is obvious. Have the EU pay the deadbeat Ukraine’s energy bills so as to insure a reliable gas supply to them.

    Putin has checkmated them all.

    • hooharhar

      I don’t think Putin’s that clever. The real problem is that the EU thinks that they’re clever.

  • hooharhar

    Hmmm, maybe if Putin stripped naked in the middle of Kiev and invited everyone there to flog him, then offered the Crimea and reparation payments for Russian aggression, then maybe that might be a good opening offer.

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