When Russia shut off gas flows to Ukraine earlier this summer, it played one of its best cards and put tremendous pressure on Kiev. But as we’re finding out now, it also put tremendous strain on Russian gas company Gazprom, which reported a 41 percent loss in first quarter net profits, largely as a result of the goings-on in Ukraine. The FT reports:
Gazprom said the hit was largely due to a Rbs71bn rise in operating expenses as a result of a provision for “doubtful trade accounts” receivable from NAK Naftogaz Ukraine, the country’s state-run gas supplier. […]The pricing dispute with Ukraine began when Russia cut the gas price paid by Ukraine by a third for January-March following Kiev’s decision to withdraw from a trade deal with the EU…Gazprom subsequently raised prices for Ukraine by 80 per cent from April after the pro-Moscow president Viktor Yanukovich fled the country amid street protests in Kiev.
Things don’t look like they’ll be getting better anytime soon, which should worry all involved—Ukraine, Russia, and indeed the rest of Europe, which relies on Gazprom for roughly a third of its gas, some 30 percent of which transits Ukraine. The impact on Europe and Ukraine has been well-documented, but today’s news reveals the shut-off to be, at best, a kind of pyrrhic victory for Putin.Consider too that Moscow’s budget relies heavily on the sales of hydrocarbons. In fact, Russia needs a price of oil somewhere near $110 a barrel to balance that budget, and with the current price of Brent crude currently hovering around $98 a barrel—a two year low—Putin must be feeling the pinch.If there’s any winner out of all of this, it may be China, which recently signed a somewhat favorable gas deal with Russia after a decade of wrangling over price. The rallying cry in Europe right now is to diversify away from Russian energy supplies; Moscow may be forced to look east for customers, and Beijing will hope to take advantage of any desperation it sees in Putin.