Pipeline Politics
Gazprom Accedes to Kyiv’s Gas Discount Demand

The Gazprom supply agreement that kept Ukraine going through this winter (lately one week at a time) expires on Wednesday, and the two sides have been busy negotiating a new deal. Kyiv staked out its position ahead of these talks, pushing hard for a continuation of the price discount it enjoyed this winter along with an end to a take-or-pay clause. Ukraine’s energy minister said last week that if these demands weren’t met, Kyiv “will simply stop buying [Russian gas],” and it now seems that at least one of those demands may be met by Gazprom, with the state-owned firm asking the Russian government to extend the discount for another three months.

Bloomberg reports:

“Gazprom sent a letter to the government today,” Chief Executive Officer Alexey Miller said in comments shown on Russian state television. “We believe a three-month term is optimal” with the summer season coming and high volatility in global gas prices now, he said.

What’s going on here? It’s hard to know for sure. Taking Miller at his word, it could be that with summer demand set to be low anyway, Gazprom is willing to lock in prices and leave it at that. Furthermore, Russia may well be trying to show that it is playing ball so that the fence-straddlers among the Europeans will push the EU as a whole to back away from its maximalist stance on sanctions. After all, as the Italian foreign minster averred, some within Europe are seeking to start easing up on Russia sooner rather than later:

“Could Europe lift sanctions by the end of June as a whole? I don’t think so,” he says. “But if the question is: is some kind of lifting possible if the situation has significantly improved? It could be — even perhaps a symbolic decision. When you deal with persons on the [sanctions] list, you can add or erase persons and we’ve done it several times in the past.”

The important thing is that by giving in a little here, Russia has in no way compromised its energy weapon for future use. When it gets cold again, Russia’s leverage will be maximized, and if Ukraine is still not behaving as Russia would like it to behave, Moscow will be free to turn the thumbscrews yet again.

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