Russian-Ukrainian Gas Dispute about More than Energy

The energy markets in Europe were rocked as 2006 began by a dispute between Russia and Ukraine over natural gas supplies. Russia wanted to raise the price more than fourfold, and Ukraine refused to accept that. Russia then turned off the gas to Ukraine, while the Ukrainians took gas from the pipeline that crosses their territory that was meant for Western European markets – or so the Russians said. Whatever the truth, this is about a lot more than the price of gas.

Economically, the issue is pretty simple. Russia has more gas than it needs, Western Europe is happy to buy the gas, and the pipeline runs across Ukraine to get the gas from where it is to where it needs to be. Gas flows west, money flows east. Nothing could be simpler. However, the Ukrainians were paying US$50 per 1,000 cubic meters, and the Russians want them to pay the market rate of US$230. The Russians turned off the gas when negotiations got nowhere. Meanwhile, supplies headed for Italy, France and elsewhere dropped by 25% or more.

The Financial Times summed up the current situation, “Russia said it was Ukraine’s fault by refusing to pay the same prices as its European neighbors, rejecting a last-minute compromise offered by Putin and then stealing Europe's gas when Gazprom [Russia’s big gas company], in exasperation, finally turned the taps off. Ukraine was just as vehement. ‘The fact is that Gazprom officials are lying,’ said Naftogaz Ukrainy, Ukraine’s big gas company, spokesman Eduard Zanyuk.”

All of which may be true or not. The underlying fact is that for 300 years and more, Russia ran Ukraine. Even local boy Nikita Khrushchev had to leave Kiev for Moscow to make it big. When the USSR went out of business and Ukraine became its own country, the Russians felt a bit miffed. This got worse when the Ukrainians decided to elect Viktor Yushchenko and forced Moscow’s pretender from the throne a year ago. The Russian Navy, based in Sevastopol on the Black Sea, pays rent because the port is in Ukrainian territory. The Yushchenko government is now threatening to increase that fee.

One of the worst kept secrets in Kiev is the fracturing of national unity after the success of the Orange Revolution that got Mr. Yushchenko his job. Nothing would bring the country together as quickly as a showdown with Russia. As for the Russians, they are taking over the presidency of the G-8, and Comrade President Putin doesn’t need a fight with the other members of the group. At the same time, nothing would make him look better at home (or feel better personally) than taking Mr. Yushchenko down a peg. This isn’t over by any stretch of the imagination, and it isn’t about the price of gas.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent.
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