Moscow’s threat to cut off gas supplies to Ukraine unless a $2.1 billion debt is paid within the next four days is not an idle one. The Russian state gas giant Gazprom did it two years ago when the Ukranians were resisting a revision of the favorable gas prices they were enjoying. The suspension of pipeline supplies in 2006 had an immediate impact on Russia’s West European customers who rely on it for 40 percent of their gas. There are considerable concerns that other European customers could face further supply disruption if the flow to the Ukraine is cut off, since effectively Ukrainians draw gas from the same pipeline network that carries gas further westward.
In 2006, energy prices showed every sign of strengthening and Moscow wanted full value from its sales to its troublesome neighbor, which under President Viktor Yushchenko was making little secret of its desire to realign with the West, not least by seeking to join NATO. The gas supply cut-off was, therefore, not only a demand for fair value for Russian gas but a political statement which demonstrated the power Moscow can exert not only over Kiev but also its West European gas customers. Inevitably the Ukraine had to give in and accept the end to subsidized gas prices.
Now the Russian economy is hurting from the steep slide in oil and gas prices and the $2.1 billion the Ukrainians owe matters very much to a budget that is already feeling significant strain. Therefore Gazprom’s cut-off announcement is understandable. Why should the Russian state be subsidizing its neighbor? Unfortunately there remains the question of what will happen to the pipeline deliveries of gas to states to the west of Ukraine if Russia does indeed stop or drastically reduce the amount of gas Ukraine normally takes.
Moscow may perhaps be hoping that its other European customers, who since 2006 have been struggling to diversify away from their reliance on Russian gas deliveries, will offer Kiev a loan to clear its debt to Gazprom. This may hardly seem a propitious economic time for European states to be reaching into their pockets but the calculation could be that the consequences of a serious diminution of Russian gas supplies would be far greater than conjuring up a credit for the Ukrainians.
Russia would get its much-needed money and the European states that lend it to Ukraine will insist that Kiev ensures that it does not again fall behind with its gas payments.
But even if this is the solution for which Moscow is angling, it will redouble the determination of its European customers to find alternative gas sources. And Moscow may have done itself further damage. Last week’s meeting of gas producing countries hosted by Moscow clearly sought to bring some wider framework, if not yet price coordination, to gas suppliers. But how willing will other gas producing countries be to stay in such a framework if it is thought that Russia will be using it as an aggressive foreign policy tool?
