The American Interest
Analysis by Walter Russell Mead & Staff
Update: Russia Bills Ukraine for $7bn in Un-Imported Gas

We wrote yesterday that Ukraine’s plans to harness its vast natural gas resources have incensed Russia, Ukraine’s traditional energy supplier. Just how mad is Russia? The Financial Times reports:

Russia has demanded that Ukraine pay billions of dollars for failing to import an agreed amount of gas, just as Kiev has taken a significant step to break free from its reliance on costly Russian gas imports. . . .

[Earlier this week, a Gazprom] spokesman had told the FT the company was not enforcing potential fines on Ukraine for the gas shortfall because it needed to “set realistically attainable goals” for Ukrainian consumption. Ukraine’s determination to pursue other sources, exemplified by its Shell deal, however, seems to have persuaded the Russian monopoly to send the bill.

Ukraine has been pushing to renegotiate the 10-year gas contract it signed with Gazprom in 2009 (the contract sets a high price on the gas and requires a minimum amount be imported each year), but the talks broke down. Now Russia is trying to collect $7 billion for gas that Ukraine didn’t import—a move that underscores its reliance on dwindling energy exports in the face of serious competition and a very gloomy business forecast.

This kind of strong-arming will hurt Russia in the long run, as it accelerates the movement by European governments to diversify their energy supply and escape the neighborhood bully. Losing customers left and right, and reliant on energy exports for 60 percent of government revenue, Gazprom and the Kremlin are on shaky ground.

Published on January 25, 2013 5:30 pm