A dispute over Russian gas
supplies happens like clockwork this time of year, and the causes remain the
same. But this year's drama was bigger
January, the season of long
nights, cold days—and the suspension of Russian gas deliveries. In a moment of
high drama, Russian television on 5 January showed Prime Minister Vladimir
Putin telling Gazprom CEO Aleksei Miller, "Yes, cut it today," when
Miller reported that Ukraine
was siphoning off gas meant for Europe.
Journalists covering the
story like to put it into historical context—which usually means going back to
the three-day shutdown that occurred in January 2006. But it's worth
remembering that the problem is much older that that. The temporary shutoffs of
Russian gas to Ukraine and Belarus go back
at least to January 1996, when Boris Yeltsin was still the West's best hope,
and long before the macho Vladimir Putin took the helm.
What is different about
this event from the one in 2006—or 1996? And what has stayed the same?
One difference is that this
is the first time that there has been a serious interruption of supplies
forcing radical cutbacks in consumption. Bulgaria,
Croatia, and Serbia have
been especially hard hit. Previous interruptions were nominal, lasting no more
than a couple of days, and did not cause actual stoppages.
A second difference is the
desperate economic situation. Moscow
is coming off a 10-year growth spurt, and the Kremlin is very worried about the
impact of the global crisis on government revenues and ordinary living
standards. One might think this would make Moscow less willing to risk a disruption of
gas exports. On the contrary, it seems to have made Russian officials ready to
double down for a full confrontation. As for Ukraine, the country ran a $12
billion trade deficit in 2008. A $16.5 billion IMF loan will see it through the
winter, but an estimated $41 billion in debts will come due next year.
Third, this time around Moscow is trying a little
bit harder to win the propaganda war. Gazprom's top executives, Alexei Miller
and Alexander Medvedev, have been dispatched to European capitals. And they
have hired the public relations firm Omnicom and its Brussels subsidiary GPlus to get out the
message. Gazprom even created a website to explain their position.
Another possible difference
from previous years may be the willingness of both sides to internationalize
the dispute. Today, an EU-brokered deal on sending monitors to check the flow
of gas through the pipeline was close to being agreed. That could at least
clear up whether Gazprom or Ukraine
is responsible for interrupting the European supplies.
Otherwise, just about all
the elements of the annual Russo-Ukrainian gas drama are in place. By now, all
the actors in this Kabuki-style performance know their lines, and the correct
postures to strike.
The first unchanging factor
is the basic geo-economic reality. Four gas export pipelines cross Ukraine carrying 300 million cubic meters of
Russian and Turkmen gas a day, of which around 65 million is tapped for Ukraine's
domestic needs. If Ukraine
takes out gas in the absence of a contract, there is nothing Russia can do
short of shutting down the flow entirely (which is what they did on 5 January).
That step obviously harms Gazprom just as much as it hurts Ukraine. In
fact it hurts Gazprom more. Ukraine
can afford to play hardball because its vast storage capacity (inherited from
the Soviet times) is sufficient to cover two to three months of domestic
supply—unlike hapless Bulgaria.
The second constant is the
character of the two protagonists. On one side we have the Kremlin, eager to
flex its geopolitical muscles behind a façade of reasonableness. And in Kyiv we
have the usual political stalemate, bitter personal rivalries, polarized
political parties, and a constitutional deadlock between president and
Moscow argues that the whole crisis has been artificially created by Ukrainian
politicians, keen to shake more aid money from the West and to embarrass each
other in the run-up to the next presidential elections. The Kremlin's critics
suggest that Russia is more
interested in payback for Ukraine's
support of Georgia
in the August war.
Or perhaps Moscow wants to crank up the pressure to
clear away the objections to the construction of the North Stream Baltic Sea
pipeline that will reduce dependency on the Ukrainian route.
A third recurrent factor is
the murkiness of the whole situation. Details about prices offered and actually
paid are shrouded in mystery. Both sides seem to prefer it that way, funneling
the transactions through shadowy third parties, notably the joint venture
RosUkrEnergo. Most analysts see RosUkrEnergo as a vehicle through which Russia can channel some of the profits from the
gas trade to select oligarchs inside Ukraine—who will presumably return
the favor in some manner. Ukrainian politicians go along with this because they
or their associates are being cut in on the deal.
The long-term solution is
clear enough—multi-year contracts with the gas price tied to the global oil
price. The Yamal pipeline across Belarus
could be a model. Although there was a serious disagreement with Belarus in
2006, the Polish section of the pipeline has operated without interruption
since it was built in 1994. A 2006 dispute over a proposed increase in transit
fees was taken to the International
Commercial Arbitration Court, which awarded the
Polish partner $20 million.
One difference, however, is
that in the Polish case the pipeline is owned by a joint venture between
Gazprom and Poland's
PGNiG, who before the pipeline was built agreed to run it on a cost-plus basis,
providing the transit operator a small fixed return on capital invested. But Ukraine has
consistently refused to give up ownership in the pipeline network on its
territory, even when Gazprom suggested a joint venture with a German partner. Joint
ventures of two or three governments are perhaps more likely to minimize abuse.
The whole situation is
reminiscent of the fable about the frog and the scorpion. The scorpion asks the
frog to carry him across the river. The frog agrees, after the scorpion
promises not to harm him. But mid-stream, he stings the frog, and they both
drown. The scorpion explains, "I'm a scorpion. It's in my nature to sting."
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