The Gas Weapon

5 January 2009



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Russia Cuts Gas Supplies to EU via Ukraine

Russian Prime Minister Vladimir Putin has cut the natural gas supplies to the EU going by way of Ukraine. The Russian gas monopoly Gazprom has accused Ukraine of siphoning off about 50 million cubic meters a day for itself. That is about 1/6 of what passed through Ukraine to western Europe. To make up for the alleged loss Gazprom has orders to reduce all gas passing though Ukraine by 65.3 million cubic meters daily. This is the Russian gas weapon in action.

The good news for consumers is that stockpiles are high enough that these cuts won't affect prices and supplies. Slovakia, Croatia and Greece are the most recent countries to be hit by sporadic supply from Russia, bringing the total to 9. They have adequate gas on hand, and the Ukraine pipeline isn't the only route to the customers.

The whole trouble stems from the Russians and Ukrainians being unable to agree on a price. Russia wants Ukraine to pay world prices, and there is an agreement in place to get the price there by 2011. It is the transition that is dicey. Russia wanted $250 for 1000 cubic meters of gas. Ukraine has offered $201, since sweetened to $235. Since talks broke down on December 31, Russia has decided it really wants $450.

Ukraine does have some leverage with its pipeline. It currently gets about $3 billion for transit rights, and Gazprom will be hurt if the pipeline isn't used fully. It's just a matter of negotiating a transit deal with a high enough fee to Ukraine to make the price increase less painful. The current deal, says the Ukrainian gas company Naftogaz, was signed by an unauthorized official and is therefore void.

Be that as it may, the Russians have shown that they are more than willing to use their natural resources as weapons in dealing with their neighbors. The dependence of western European nations on Russian natural gas is a matter of national security but few in Berlin, Rome, Paris or Prague seem to care. They would do well to keep an eye on Kiev and its dance with Mr. Putin over this situation. The Kremlin is negotiating from strength.

© Copyright 2009 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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