As promised, Russia’s energy giant Gazprom cut off gas exports to Ukraine on Monday due to the country’s unpaid bills. But the company says gas will still flow to Western Europe through trans-Ukrainian pipelines. This is obviously not just about payments:
The previous disputes in 2006 and 2009 were largely about payments and price levels – and agreements were eventually reached in a more-or-less business-like fashion. The current situation, which has flared in the wake of Russia’s annexation of Crimea and the on-going conflict in Eastern Ukraine makes it clearer than ever the way in which the Kremlin uses energy exports as a geopolitical lever.
In this context, it is difficult to see how a lasting agreement on gas prices can be brokered without a wider agreement between Ukraine, the EU and Russia on Ukraine’s future and its territorial integrity. The gas dispute is a litmus test of the wider geopolitical crisis and, with no resolution in sight, it promises to be a worrying winter for gas consumers in Europe.
Walter Russell Mead sees the gas war as yet another clever coup for Putin:
All of this is being done with plausible deniability in mind. Moscow is carefully flying below the radar here, not escalating the provocations to the point of formal aggression, but nevertheless having the same effects on Ukrainian stability and viability. Putin is counting on the irresolution of a divided West: as long as the waters are muddy, it’s easier for European countries sitting on the fence to hesitate about taking tougher measures.
With natural gas prices rebounding from a steady decline this spring, Putin is getting more spending money just when he wants it. Put that together with instability in the Middle East—a reminder to Europe that it isn’t easy to free itself from dependence on Russian energy—and it seems that Putin is holding all the good cards these days.
But markets, somewhat surprisingly, aren’t freaking out. Jason Karaian offers several reasons why:
Despite the pipeline explosion, a parallel line was able to carry gas to Europe without too much disruption, Ukraine’s gas company said (link in Ukrainian). The current dispute is also taking place in the warmer months, whereas previous cutoffs came during the dead of winter. The 2011 opening of the Nord Stream pipeline, which pumps gas from Russia to Germany, has reduced the EU’s reliance on gas piped via Ukraine. And, across Europe, gas reserves are unusually high following recent mild weather, and unlike in 2006 and 2009, the pipelines that normally ship gas from Ukraine to the west are now able to reverse their flows, if need be. For these and other reasons, the markets see the dispute as more of a skirmish than a full-blown war.
The Dish previously touched on the natural gas dimension of the Ukraine crisis here.