Monday, January 2, 2006

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Talk about frozen in time

When I was living in Ukraine in the early nineties, Russia was trying to exploit Ukraine's dependence on Russian energy to extract economic and political concessions from that country -- minor things like control over key industrial groupings and the Black Sea Fleet. Russia and the government gas provider, Gazprom, would periodically threaten to shut off supplies.

While it sounds like Russia had all the leverage, there was one problem -- Russia exported much of its gas to Southern and Eastern Europe through the gas pipeline that ran through Ukraine -- and Russia could do very little to prevent Ukraine from siphoning off these supplies... except bluster a bit.

A decade later, of course, all of this seems like ancient history. Oh, wait....

Now, back then, all of the involved parties would muddle through -- Ukraine would proffer some token concessions without making its economy more energy-efficient, Gazprom would punt on raising prices in the near abroad, and the crisis would be deferred for a year.

Let's see what develops this year.

UPDATE: Well, that was fast:

A heavily-criticised Russia on Monday promised to restore full gas supplies to Europe after Germany warned that its dispute with Ukraine over deliveries could hurt its long-term credibility as an energy supplier.

With winter demand already high, gas supplies through Ukrainian pipelines to Europe started to fall off dramatically as a result of the Russian blockade, prompting Western fears about insecurity in the energy sector.

Russia, which took over the G8 chairmanship for the first time this month and has sought to promote itself as a reliable energy source, cut its neighbor's gas supplies on Sunday after Ukraine rejected Moscow's demand for a fourfold price rise.

As criticism mounted, the state-controlled gas monopoly Gazprom said it would restore full gas supplies through the pipeline to Europe by Tuesday evening, and that it had piped across an extra 95 million cubic meters of gas.

But it made clear it held Ukraine responsible for the problem.

"With the aim of preventing a possible energy crisis caused by Ukraine illegally taking gas, Gazprom has taken the decision to deliver additional gas into the gas transport system of Ukraine," the company said in a statement.

"We stress that the additional delivery of gas is not designed for Ukrainian consumers but is meant for transit through the territory of Ukraine for delivery to consumers outside the borders of Ukraine."

posted by Dan on 01.02.06 at 10:27 AM


Did this spat get out of hand because all of the experienced foreign ministers were on holiday or did the US and Europe let Russia create an opportunity to be scolded?

If I understand correctly, Ukraine offered to allow the price to increase, but wanted it to be phased in more slowly. One face-saving solution that comes to mind is redirecting some of the US and European foreign aid for Russia to Ukraine in the amount of the price difference. Ukraine pays Gazprom and the same amount of foreign aid effectively is transferred to the Russian State via Ukraine.

posted by: David on 01.02.06 at 10:27 AM [permalink]

With Gazprom's new undersea pipeline to Germany only four years away, I assume this is the opening shot in a series of progressively tougher squeezes on the Ukrainians. With Schroeder out of office in Germany, I wonder if there will be any rethinking of the project (Schroeder negotiated the deal, and then took a job with the pipeline company).

posted by: Dan Ryan on 01.02.06 at 10:27 AM [permalink]

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