The gas crisis: winners and losers


KIEV — Who are the big winners and losers in the Russia-Ukraine gas dispute? At the moment, the short answer is that everyone has lost — but perhaps Ukraine has lost more than the others.

Russia, Ukraine, the European Union — even the United States — have seen their fortunes dip thanks to the protracted and foul-spirited clash over gas tariffs between the two Slavic neighbors, which has led to the Kremlin cutting off all gas deliveries through Ukraine since Jan. 7 and unleashed an energy crisis in eastern Europe.

(For more on the European gas crisis, see "Europe looks for other options" by Teri Schultz in Brussels and "A Gazprom seat at the UN?" by Miriam Elder in Moscow.)

On Tuesday, after an EU-brokered agreement, Russia was supposed to turn the taps back on, but continued squabbling kept them shut off.

The dispute raised questions in the eyes of Western countries about Moscow and Kiev’s reliability as political and business partners. And for Europeans and Americans, it was further reminder that Europe is beholden to the Kremlin for its energy needs for the foreseeable future.

Adding to the ill-will is the fact that the crisis is convoluted and opaque. Both sides accuse the other of lying. An intermediary company called RosUkrEnergo, which buys the gas from Gazprom and sells it to the Ukraine’s Naftogaz, also is playing an unspecified spoiler role in the talks. Politics, business, personal animosity and possibly high-level corruption all could prove consequent to the negotiations.

Each year, the two countries wrangle over at what price Ukraine will buy Russian gas. Kiev paid $179 per thousand cubic meters (tcm) in 2008, but Moscow is demanding a price more in line with world levels — European countries at the moment are charged more than $400 tcm.

In addition, Gazprom, the Russian energy behemoth and the world’s largest gas producer, supplies one-fifth of Europe’s gas via Ukraine. Russia cut off deliveries for three days during a similar spat in 2006. This year was more serious: When Moscow turned off the taps, after accusing Kiev of siphoning off gas for its own needs, factories and schools in eastern Europe were forced to close temporarily.

“[The two countries] stand toe-to-toe and squabble like a pair of toddlers, each refusing to show the smallest degree of common sense, or concern for the world beyond their little bubble, for fear of it being interpreted as a sign of weakness,” Julian Lee, senior analyst at the Centre for Global Energy Studies in London, wrote in a recent report on the crisis.

The two sides resemble duelers who both manage simultaneously to inflict grievous blows on one another. Ukraine, under President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, endeavors to portray Russia as a bully and an untrustworthy energy provider, wielding gas supplies as a political weapon, and impetuously cutting and restoring supplies.

Russian President Dmitry Medvedev and Prime Minister Vladimir Putin for their part would like to create the impression that the Ukrainian leadership is divided, unstable and inconsistent – and not fit for European Union or NATO membership, to which it strives.

“We are witnessing a political collapse inside Ukraine. I regret to say that it indicates a high level of corruption in Ukrainian government structures,” said Putin, who showed again that he is the leading Kremlin force, demonstrably giving the order on television to cut off the gas flow, and summoning western journalists to explain that Russia was not at fault.

To which the Europeans seem to answer: a pox on both your houses. “This situation is obviously very serious and needs to improve rapidly,” EU spokeswoman Pia Ahrenkilde-Hansen, quoted by news agencies, said when it became clear that the gas was still not flowing on Tuesday.

Moscow strives to develop two pipelines that avoid transiting Ukraine directly — Nord Stream through the Baltic Sea, and South Stream through the Balkans — but it remains to be seen if the Europeans will warm to the projects, simply to avoid another gas row come next New Year's Day.

Once again the gas dispute has revived discussions of diversifying the continent’s energy needs. Europe receives more than one quarter of its gas from Russia. The problem is that in the short or even medium term, no concrete alternative exists. A pipeline transporting Central Asian and possibly Iranian gas through Turkey to Europe — the Nabucco line — is years from completion, and may suffer from lack of supplies.

Europe simply cannot live without Russian gas — though for the moment it must be said that Gazprom, which has seen its market capitalization drop by 76 percent this year, likewise cannot live without Europe.

For this reason, analysts say, Ukraine — reeling from the world financial crisis, and suffering from political rigor mortis — is the big loser.

“Putin demonstrated that he is in charge of, one, Russia, and, two, European energy supplies,” said Eric McGlinchey, an expert on the former Soviet Union at George Mason University in Washington, D.C., who also pointed out that Kiev’s demand to pay close to $200 tcm at the moment is unfeasible, given that Kyrgyzstan and Tajikistan, two equally cash-strapped ex-Soviet states, are paying close to $240 tcm.