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New Round of Russia-Ukraine Gas Conflict

Posted By Yevgeny Volk On March 31, 2009 @ 10:50 am In International | Comments Disabled

The past week saw a specter of a gas dispute between Russia and Ukraine rising again, reviving fears of dramatic economic and political consequences for both the two nations and Europe at large. These developments were caused by an agreement between the European Union and Kiev designed to overhaul its gas pipeline network. Under the Brussels accords, Ukraine is set to receive from big Europe over $2.5 billion to upgrade its gas grid. In return, Kiev guarantees gas transit transparency and equal access to the gas pipelines.

This agreement drew the Kremlin’s ire, as it would undercut Gasprom’s monopoly on transiting Russian gas through Ukraine’s territory. The Russian delegation attending the Brussels talks left the forum in protest.

Russia instantly retaliated with sanctions against Ukraine and the EU. Specifically, Moscow is postponing the Russian-Ukrainian inter-governmental consultations on lending Kiev $5-billion. The loan delay could deal a serious blow to Ukraine’s economy and the Timoshenko government.

Also, Russia is planning sanctions against the European Union. Moscow is threatening to review ties with European companies that have been investing in Russia’s power system, should Gasprom be left out of co-managing Ukraine’s gas network modernization. Besides, Moscow could curtail purchases of gas transmission equipment in Europe it is currently slated to procure to the tune of $26 billion. Actually, the Kremlin is also freezing long-term partnership agreement talks with the European Union. The conflict between Russia and the EU is acquiring a serious political dimension.

That is easy to explain. Russia exercises energy levers as the chief tool of its economic and political influence on both its neighbors in the post-Soviet space and the entire Europe. The Kremlin perceives a weakening of its influence as a clear and present danger to the power and image of Russia as a resurgent superpower. In addition, a weaker energy supply and transit monopoly brought about by the European nations’ greater energy independence and diversification is fraught with significant financial losses for Russia. Such a development amid an acute economic downturn would be deadly for the incumbent regime.

Moscow is unhappy with the EU’s recently reiterated allegiance to building the Nabucco pipeline designed to bypass Russia. The Kremlin hoped to use its talks with Turkmenistan President Gurbanguly Berdymukhamedov to solidify its energy leverage over Europe. At his meeting with the Turkmen leader, however, Russian President Dmitry Medvedev failed to achieve the conclusion of a top-priority agreement – to build the East-West gas pipeline linking Turkmenistan’s North-Western oil fields to the Caspian Sea that could help Russia put into effect its plans of constructing the Caspian Gas Pipeline.

Owing to the escalation of the conflict with Ukraine and Europe, Russia is seeking to revive another project in cooperation with Turkey – to expand the Blue Stream offshore gas pipeline running along the bed of the Black Sea to bypass Ukraine. Moscow believes the project could halt Nabucco and consolidate Gasprom’s positions in Central Asia and the Middle East.

To date, the situation is such that the contradictions between Russia and the rest of Europe over energy have crossed a dangerous line.


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