JOHN MARONE, KYIV
THE GAS TRAP
Ever since Russia first turned off the tap at the turn of 2006, during the so-called ‘first gas war’, Ukraine has felt its position as the gas line to Europe under pressure.
Before that, the fledgling democracy had bought its gas at a fraction of the market value, with corrupt intermediaries making a windfall on the difference in the prices from exports.
Now, Kyiv is not only struggling to pay the higher gas price imposed on it over the last couple of years, but its role as a gas transit country is under threat.
In 2006, the West seemed to take the side of Kyiv, which accused Russia of using gas exports to punish its former colony for trying to join Europe.
Now, the Europeans are looking increasingly sympathetic to Moscow, which supplies them with 25% of their blue fuel – 80% of which passes through Ukraine.
Add to this situation a far less-assertive Washington, an almost desperately aggressive Moscow, and a global economic situation that puts lofty democratic ideals second to hard economic reality, and Ukraine looks headed for a trap.
Worse yet, the seemingly never-ending political battles between Ukraine’s ruling ‘elites’ leave little hope of the country taking a united stand.
Russian maneuvers
If Europe is indeed involved in a gas war, as many analysts assert, then Russia appears to be making all the right moves.
For starters, the Kremlin is pushing ahead with two international gas pipelines intended to sideline Ukraine as a transit country.
When seen on a map, the Nord Stream and South Stream projects look like they were planned with the kind of military precision that would have made Stalin proud.
Nord Stream is supposed to deliver up to 55bn cubic meters of gas to Western Europe annually.
It will run across the Baltic Sea to Germany, while South Stream is directed towards the Kremlin’s second favorite Western European country – Italy.
And as with every good military plan, the gas pipeline offensives are being accompanied by an unrelenting propaganda campaign.
Russian Prime Minister a la Generalissimo Vladimir Putin has long bluffed that his country could just as easily sell its gas to China, if the West didn’t want to play ball.
More recently, the Kremlin has made more reasonable, if no less forceful arguments.
All of these arguments fall under a single heading: Ukraine is the weak link in Russian gas exports to Europe, and things would go much more smoothly if Ukraine were sidelined.
When it shut off the gas flow in 2006, and then again in 2009, the Kremlin vigorously blamed Kyiv for being a deadbeat and a thief.
Now that a transparent price scheme has been agreed between the two countries, Moscow has switched to predicting its southern neighbor’s imminent bankruptcy.
Earlier this month, Putin urged the EU to do something to prevent Ukrainian insolvency or else risk another shut-off.
"During discussions with our European partners, I have called attention to this problem, and asked them not to leave us [Russia and Ukraine] to handle these issues one-on-one. We are warning in advance that if such a conflict arises, it could lead to a full shutdown in our transit in late June or early July," Vladimir Putin said after talks with his Finnish counterpart Matti Vanhanen in Helsinki.
Despite the scaremongering, Kyiv again paid its gas bill on time, but the Kremlin isn’t likely to let up until it fulfills its own gloomy prophesies.
The fact that it has recently begun urging the EU to help Ukraine doesn’t in any way diminish the “Or Else …” attached to these pleas.
Representatives of Gazprom, the Red Army of the 21st century, are often more candid in their public statements. In an interview to the BBC, Gazprom deputy chairman Alexander Medvedev warned that Europe had to decide its priorities: "Only three countries can be suppliers of pipeline gas in the long-term - Russia, Iran and Qatar. So there is no other choice than to deal with these suppliers," he said.
Gazprom, which controls the world's largest reserves of natural gas, estimates that by 2020, Russia's share of the European gas market will increase from 26% to 33% due to increasing demand and decreasing local production.
Gazprom is also well positioned to fend off any possible counter attacks from rivals for Eurasian energy supremacy. For example, in response to those who favor the Nabucco pipeline project, which would bring gas from Central Asia and the Middle East to Europe, bypassing Russia completely, Gazprom already has the pipelines and agreements in place to purchase gas from the major Central Asian suppliers, and is currently in discussions with Azerbaijan.
Nabucco is also very complicated, promising to deliver 30bn cubic meters of gas via a 3000 km overland route through Turkey, Bulgaria, Romania, Hungary and Austria.
For North Stream, Gazprom has enlisted the support of former German Chancellor Gerhard Schroeder, the well-paid friend of Mr. Putin.
Although Nabucco is considered the darling of US policy, that hasn’t stopped former US Secretary of State James Baker from consulting for Gazprom and Rosneft.
Additionally, Gazprom has been investing in energy companies and facilities in many countries across Europe, to include strategic gas storage facilities vital for Europe's energy security in a time of crisis.
In the eyes and words of the Kremlin, to threaten Gazprom’s Eurasian energy monopoly would be tantamount to a declaration of war.
However, the Kremlin needn’t resort to such drastic measures in order to secure its energy monopoly over Europe. It is enough to subdue Ukraine, which is a goal in itself, and one being achieved with the help of Kyiv.
And Ukraine’s petty politics and endemic corruption are the best friends of Moscow. Ukraine’s Orange Revolution was often seen as a battle between the country’s pro-Russian camp led by Viktor Yanukovych, and the pro-Western team of Yulia Tymoshenko and Viktor Yushchenko. But ever since the heady days of late 2004, the latter two have been at each other’s throats.
Now as prime minister, Tymoshenko has no qualms about openly asking Moscow to lend Ukraine money to pay its gas bill. She and Putin have worked splendidly together in getting rid of shady gas middleman Dmytro Firtash, whose company also strived to create a Eurasian energy monopoly of sorts. Firtash was said to be Yushchenko’s financial hope for a second presidential term.
Always the populist, Ms. Tymoshenko is loath to raise the price the population pays for its heat, while Yushchenko even outdoes the Kremlin in predicting financial chaos for his country on account of Ukrainian energy policy.
Some have placed their hopes on the upcoming presidential elections, but nobody seems to know when or if it will be held. In the mean time, state energy company Naftogaz is teetering on the brink of bankruptcy, while Russia toys with the idea of fining it for violation of energy supply contracts.
Moscow will continue to hit wherever it can find a chink in Ukraine’s armor: modifying the Ukrainian-EU agreement on renovating the Ukrainian main gas trunk pipeline or forcing Kyiv to concede control over the entire pipeline and thus saving rubles from the building of Nord Stream and South Stream. In the short term, expect the Russians to demand pre-payment for gas shipments.
Against such an assault, President Yuchchenko’s threat to suspend Russian transit shipments looks like a dog barking at an elephant. And don’t expect any help from Europe, as Italian Prime Minister Silvio Berlusconi learned when he asked the European Union to help Ukraine.
John Marone, a columnist of Eurasian Home website, Kyiv, Ukraine
June 16, 2009
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