mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
The EU Dodges A Bullet
Ukraine-Russia Gas Deal Kicks the Can Down the Road

The long-haggled-over gas deal between Russia and Ukraine was reached yesterday afternoon, giving up-front cash to Russia, some price relief to Ukraine, and temporary peace of mind to Europe. Thanks to some clever accounting, the EU isn’t putting new money into the Ukrainian treasury to pay off its gas bill; previously committed funds from both the EU and the IMF should cover the debt.

While crisis appears to have been averted for the moment, a year from now, yet another winter will be on the way. The EU will still hate to spend money, Ukraine will still be broke, and Russia will still not want to subsidize energy sales to an independent-minded Ukraine. More money for Ukraine will be a tough sell. European taxpayers and the politicians who want to keep them happy won’t forget that decades of subsidies and corruption have made Ukraine one of the world’s most inefficient energy users. Why spend money to cut down on your energy use when government subsidies make it practically free?

From Putin’s point of view, the deal is mixed. The Russians had to compromise on the gas price, getting about one third less on new gas sales than they originally asked for. There’s no disguising the reality that the cut in the gas price isn’t good news for a Kremlin facing a serious revenue shock from falling hydrocarbon prices. But Russia has also gained. By throwing the political responsibility for Ukraine’s energy bills onto the West, Putin has managed not only to invade a foreign country but to collect the money it owed him. For the future, he’s established the point that if the EU wants a free Ukraine, it is going to have to pay for it. At the same time, thanks to Ukraine’s catastrophic military weakness and the West’s evident desire to avoid a crisis with Russia at any cost, Putin retains the ability to throw Ukraine into a deep political and military crisis whenever he likes. He can and will use that ability for leverage both with the EU countries and a risk-averse Obama Administration.

There is no way this deal can be spun as anything but another retreat by the West; neither the Europeans nor the Americans had clearly thought through their policy toward Russia and its neighbors, and Putin continues to exploit a massive failure in foresight.

For Kiev, the facts could not be more harsh. Ukraine must reduce its dependence on Russian energy by increasing its energy efficiency, diversifying its sources of supply, and by rooting out the rampant corruption in its energy industry. Otherwise, and sooner rather than later, the European Union will stop subsidizing the Ukrainian energy bill and Putin will have his way.

Features Icon
show comments
  • Brett Champion

    The EU doesn’t have much choice at this point but to continue to foot Ukraine’s gas bill. If Russia shuts off the gas to Ukraine, it shuts off the gas to the countries west of Ukraine as well. Until Europe succeeds in diversifying Russian gas down to a manageable percentage of its total consumption, it will continue to be held hostage to Russian-Ukrainian relations, and Russia will continue to use its supply of gas to Europe as a political weapon.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service