Russia: Natural Gas Cutoff Puts Pressure on Ukraine

An employee at Uzhgorod natural gas metering station near Chaslivci, Ukraine on May 21.(ALEXANDER ZOBIN/AFP/Getty Images)

Analysis

Following weeks of EU-arbitrated negotiations between Russia and Ukraine, Russian energy company Gazprom cut off natural gas supplies to Ukraine on June 16. Five days earlier, Russian Energy Minister Alexander Novak threatened that Moscow would do so if Kiev did not make a $1.95 billion payment on its natural gas debt. On the same day, both Gazprom and Ukraine's Naftogaz filed lawsuits in an arbitration court in Stockholm; Gazprom is trying to collect $4.5 billion in back payments, though Naftogaz claims it had actually overpaid by $6 billion.

Russia is trying to pressure Ukraine and its European backers into compromising on debt repayment and pricing. The wrangling over debt and natural gas prices will continue, but the current cutoff is likely to be temporary and less detrimental to downstream buyers than previous cutoffs.

Click to Enlarge

Recently, there have been signs that Gazprom and Naftogaz were nearing a compromise. However, disputes over debt and pricing, not to mention energy assets in Crimea, including oil and natural gas deposits, as well as energy company Chornomornaftogaz, have obstructed any agreement. Naftogaz offered to pay $326 per thousand cubic meters of natural gas, but Russia countered with $385, a compromise on its original demand of $485 per thousand cubic meters. Ukraine paid Gazprom $786.4 million for natural gas delivered in February and March, but Kiev refused to pay the $1.95 billion, which was due June 16.

The Russian cutoff is a direct response to this refusal. It is also part of Russia's negotiating tactics over the future of Ukraine's energy supplies. Notably, Gazprom has cut off only as much natural gas as Ukraine consumes; what it supplies to Europe will continue to flow through Ukraine unabated, at least for now. Even if Russia were to cut off supplies to Europe, there would be little impact in the short term. The German government has said that Germany has enough reserves and natural gas supplies to temporarily meet its demand. Storage volumes remain high across the continent, and the approaching summer means that countries in Central and Eastern Europe will require less natural gas in the coming months, giving European and Ukrainian leadership time to negotiate with Russia before winter. Although it is possible that Russia will impede and delay compromise for the next several months -- a tactic that would force Ukraine to accept the higher price Gazprom demands -- this cutoff is more likely a short-term bargaining ploy to enhance Russia's negotiating position.

Comments

Why States Still Use Barrel Bombs

Smoke ascends after a Syrian military helicopter allegedly dropped a barrel bomb over the city of Daraya on Jan. 31.(FADI DIRANI/AFP/Getty Images) Summary Barrel bombs are not especially effective weapons. They are often poorly constructed; they fail to detonate more often than other devices constructed for a similar purpose; and their lack of precision means they can have a disproportionate effect on civilian populations. However, combatants continue to use barrel bombs in conflicts, including in recent and ongoing conflicts in Africa and the Middle East, and they are ideally suited to the requirements of resource-poor states. Analysis Barrel bombs are improvised devices that contain explosive filling and shrapnel packed into a container, often in a cylindrical shape such as a barrel. The devices continue to be dropped on towns all over Syria . Indeed, there have been several documented cases of their use in Iraq over the past months, and residents of the city of Mosul, which was re

Russia Looks East for New Oil Markets

Click to Enlarge In the final years of the Soviet Union, Soviet leader Mikhail Gorbachev began orienting his foreign policy toward Asia in response to a rising Japan. Putin has also piloted a much-touted pivot to Asia, coinciding with renewed U.S. interest in the area. A good expression of intent was Russia's hosting of the Asia-Pacific Economic Cooperation summit in 2012 in Vladivostok, near Russia's borders with China and North Korea. Although its efforts in Asia have been limited by more direct interests in Russia's periphery and in Europe, Moscow recently has been able to look more to the east. Part of this renewed interest involves finding new export markets for Russian hydrocarbons. Russia's economy relies on energy exports, particularly crude oil and natural gas exported via pipeline to the West. However, Western Europe is diversifying its energy sources as new supplies come online out of a desire to reduce its dependence on Russian energy supplies . This has

LONDON POLICE INDIRECTLY ENCOURAGE CRIMINALS TO ATTACK RUSSIAN DIPLOMATIC PROPERTY

ILLUSTRATIVE IMAGE A few days ago an unknown perpetrator trespassed on the territory of the Russian Trade Delegation in London, causing damage to the property and the vehicles belonging to the trade delegation , Russian Foreign Ministry Spokeswoman Maria Zakharova said during the September 12 press briefing. The diplomat revealed the response by the London police was discouraging. Police told that the case does not have any prospects and is likely to be closed. This was made despite the fact that the British law enforcement was provided with video surveillance tapes and detailed information shedding light on the incident. By this byehavior, British law inforcements indirectly encourage criminals to continue attacks on Russian diplomatic property in the UK. Zakharova’s statement on “Trespassing on the Russian Trade Mission premises in London” ( source ): During our briefings, we have repeatedly discussed compliance with the Vienna Convention on Diplomatic Relations, specif

ISDEI Instituto de Seguridad, Defensa y Estudios Internacionales

Search This Blog