Aspects of the Russian-Ukrainian energy dispute

Posted in Energy Security , Other | 30-Jan-09 | Author: Constantinos Filis

People walk near the Russian gas compressor station in Sudzha near the Russian-Ukrainian border.

It is clear that there are facets of the Moscow-Kyiv energy dispute that impact and are impacted by the inability to settle on a sale price for Russian gas.

Geopolitically, since at least as far back as 2005, Russia has not trusted Ukraine as a transit country that will not, from time to time, hinder the flow of energy to Europe, and thus it is seeking safer alternatives. In fact, the Russian leadership hopes to see Europe perceive Ukraine's unreliability as a transit country, coming to terms with - if not discreetly supporting - Russian-backed projects (Nord Stream, South Stream) that circumvent a recalcitrant Kyiv. But at the same time, Russia runs the risk of further tarnishing is image as a European supplier, boosting the credibility of circles in the EU and Washington that are pushing for the search for alternative suppliers and forms of energy. So the Putin-Medvedev double-act will have to show greater responsibility in turning Russia's unquestionable energy power to account while shoring up their country's credibility as an energy partner.

Strategically, we have to bear in mind that since 2004, Kyiv has shown a clear pro-NATO orientation that runs counter to Moscow's interests. As a result, the Kremlin has no reason to continue offering subsidized prices or even to be particularly flexible in negotiations.

The energy issue's political ramifications are multifaceted and extend into areas that are less than obvious. Using Gazprom as a vehicle for its foreign policy, the Kremlin is proceeding along two axes: By exerting pressure on an already fragile Yushchenko-Tymoshenko alliance, it is trying to widen the chasm between them and thus, eventually, bring about the demise of the coalition government. With the Ukrainian president's popularity bottoming out, acceleration of political developments will likely bring to power a leadership that is more well disposed to Russian interests and more sensitive to the Kremlin's concerns. It is in this framework that Moscow is trying to show Ukraine's citizens that the present, pro-American government cannot secure low natural gas prices, much less a warm winter, making Russia look like the safest choice and a future beyond Moscow's embrace look bleak for Kyiv. It is very likely that through this crisis the Kremlin wants to make clear to all quarters its sway over the post-Soviet space, while also counting its friends in the Ukrainian political elite. With Ukraine presidential elections slated for 2010, the Kremlin might be sanctioning Tymoshenko as the politician who - while lacking Yanukovych's pro-Russian inclination - can work things out with Moscow and achieve the compromises necessary for smoothing Kyiv's course.

Meanwhile, Kyiv - aware that the current dispute is undermining the Kremlin's credibility as a basic supplier for Europe - is in no hurry to compromise, which is making Moscow look intransigent. The broad aim of this tactic is twofold: To erode pro-Moscow sentiment among the Russian-speaking/pro-Russian population, who cannot understand why they are being punished by their Russian brothers, and to strengthen arguments for ending dependence on Russia; arguments already being bolstered by EU mediation.

Ukraine is well aware of its disadvantageous negotiating position on a bilateral level - all the more so given the fact of its withholding amounts of Russian natural gas; its inability to pay off its debts (the two sides disagree on the amount owed). Moreover, increased prices for Russian natural gas - from nowadays $179.8 per TCM - will have serious repercussions for a Ukrainian economy already highly susceptible to systemic pressures.

To sum up, neither of the two sides will emerge from the crisis unscathed. Russia in particular - even if it succeeds in precipitating political developments in Ukraine - will have polarized the climate in bilateral relations, and thus in a portion of Ukrainian society. At the same time, it will have further divided the West as to whether Moscow can be seen as a trusted and predictable partner. Irrespective of the extent to which Ukraine is to blame for the crisis, Russia's stance has been antagonistic rather than politic. Russia would best serve its interests by resisting its sense of invulnerability of recent years (a sense already tempered by the financial crisis) and building trust in its relations with the West rather than engaging in counterproductive manoeuvring.