There is a veiled threat to all of Europe regarding gas. Ukraine has had an agreement with Russia to import gas at prices below those at which it is sold to Europe, but at the same time, Ukraine has charged Russia a very low transit fee for gas sent through Ukrainian pipelines to Europe. Russia wants to raise the amount it charges, and Ukraine has responded by saying, “fine, but we will raise the transit fee we charge”.
Gazprom has argued that as a private firm, it has to be profit orientated. However, although Gazprom is ostensibly a private firm, it is actually entirely owned by the Russian government, and it is used as an arm of Russian foreign policy. The recent involvement of Mr Putin in the dispute strengthens this view.
There are four issues involved with the gas supply stoppage. The first is that Russia is using its energy as a tool of diplomacy, and is punishing Ukraine for leaving – or trying to leave – what Russia considers it political and economic back yard (they call it the near abroad – the former Soviet Republics which became independent in 1991). The Russians are arguing that if Ukraine wants to withdraw from their sphere of influence, they should no longer get gas at “friendly” prices. This is a reflection of the fact that Ukraine elected a pro-Western anti-Russian president in 2004, and continues to have a generally western orientated government. It joined the World Trade Organisation – Russia has not – and has dallied with joining NATO and even the EU.
In addition, Russia hopes that cutting off gas will alter the Ukrainian political landscape in its favour. There is a divide between older industrial and heavily Russianised regions in the eastern part of the country and the more Ukrainian western part, and Russian authorities hope that the threat of factory closures, job losses and economic decline will encourage people to support a more pro-Russian government, and throw the existing one out of power.
A third issue is that Gazprom itself is suffering from financial hardship. The company squandered its profits when gas prices were high, and the collapse of energy prices leaves Gazprom (and the Russian economy) imperilled. Raising the gas price charged to a captive consumer is an easy way to make money.
Fourth, Russia is making a statement to the EU and the West, saying that if they continue to support Ukraine (and Georgia), and advocate their membership in NATO and the EU, Russia can use the same energy club on them. Russia hope to take advantage of a split in the EU over how to deal with Russia – Germany and Italy favour détente, and Britain and the new Central-Eastern European member states favour a more confrontational approach. It is perhaps no accident that it is south-eastern and central Europe which have been most severely impacted.
Russia and Germany are currently building a gas pipeline directly from Russia to Germany, bypassing Ukraine and Belarus, and Russia argues that this would free it from dependence on Ukraine (and save transit fees as well). However, EU member states have also supported the construction of a new pipeline across the Caspian Sea, from Kazakhstan, through Azerbaijan and Georgia and Turkey to Bulgaria. The invasion of Georgia put this pipeline at risk – the new Russian frontier is close to the proposed route.
All this can be viewed as part of a new, more aggressive foreign policy on the part of Russia, and an attempt on the part of Russian authorities to claim (or reclaim) what they view as Russia’s legitimate place in the world. Thus, the gas war should be viewed in tandem with the invasion of Georgia, with the poisoning of Litvinienko, the abrogation of contracts with Shell and BP to exploit Siberian oil and gas fields, and with the debate over US/NATO missile defences in Poland and the Czech Republic. This more aggressive foreign policy is reflected in the fact that Russia has even compelled its closest ally, Belarus, to pay higher rates for Russian oil and gas. Until last year, Belarus imported oil and gas from Russia at prices lower than those charged to Western Europe, and sold manufactured goods and refined products at world market prices, profiting from the difference. However, Russia argued that Belarus has been having a free ride at Russia’s expense.
The Russian government seems to have misunderstood the regional divide in Ukraine, conceiving of it as an ethnic divide, between “Ukrainians” and “Russians”. The divide is equally an economic one: the eastern part of the country relies on labour intensive heavy industry dominated by large employers in need of modernisation and investment, and the western part relies more on smaller, more flexible firms. Starving the Ukrainian economy of energy most threatens those firms in the east, precisely where Russia thinks its support is strongest.
Although in the short-term, Russia may gain its way, in the long term, Russia may lose out. Foreign investors may shun the country, and Russia’s energy industry, already in need of new investment may shrink. As well, Europe may – and probably will – successfully look for other sources of gas, including Algeria and eventually, Kazakhstan and Turkmenistan – both former Soviet Republics.
– Andrew Ryder is an expert in Eastern European and Russian geopolitics and economies at the University of Portsmouth in Britain. Russia using its might to try and control gas supplies to Europe occurs on an almost annual basis, he says, and it is likely that whatever the outcome of the current stand-off with Ukraine the same problems are likely to arise repeatedly in future. Here he gives his assessment of the current gas pipeline situation in Ukraine and Eastern Europe.
