Gazprom/Ukraine dispute is proxy for Putin’s whims

June 16, 2014

By Pierre Briançon 

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Europe has long been used to the perennial drama of “Ukraine versus Gazprom,” but this year’s version is not your run-of-the-mill gas price dispute. Making good on a longstanding threat, Gazprom has said it will deliver gas to Ukraine only if it has been pre-paid. This comes after the Russian energy group failed to settle a dispute with Naftogaz, its Kiev-backed counterpart, over what it claims are more than $4 billion of overdue bills.

As summer nears, the decision will have limited immediate consequences on Europe’s energy supplies. Gazprom says it will continue to provide gas to the rest of the continent and has the means to bypass Ukraine. The two sides may be headed to international arbitration – by far the best way to settle the dispute. Gazprom has some grounds for feeling that it has been too patient with its Ukrainian client.

But Gazprom is now asking Kiev to pay for arrears amassed by the previous, pro-Russian government. Ukraine, on the other hand, is contesting the 80 percent hike that Gazprom slapped on gas deliveries in the heat of tensions between Russia and Western powers over the annexation of Crimea. Of course, Kiev at some point can – and probably will – raise the question of how many billions it is owed by Moscow after the confiscation of part of its territory.

Gazprom’s toughening comes just after renewed military activities by Russian separatists in the east of Ukraine. Hopes for a normalisation of the situation between Kiev and Moscow are premature at best. The fact that the Ukranian and Russian presidents have started talking at last doesn’t mean that the region’s problems are over. And it is still hard to understand the Kremlin’s strategy – if there is one.

The Moscow stock market has been itching to erase all traces of the Ukrainian crisis, with the MICEX index about to inch back to its early January level. The failure of the latest round of gas talks should remind investors that they should not rush to rejoice on the mere absence of bad news from Ukraine. It is good news they should seek – and that is not on the horizon.

Comments

The tone of this article sounds like Gazprom/Russia should be providing gas to Ukraine for free.

Then there is “hard to understand Kremlin’s strategy” nonsense not just because of using the word beloved sovietologists “Kremlin”. Russia’s strategy is crystal clear: talks with the people in the East/South of Ukraine. These people do not want to break their ties with Russia by forcing them into the EU. EU is obviously only a prelude of forcing them into NATO and use their territory as strategic position for breaking Russian Federation which sounds like a horror for them. Thus either Kiev will drop EU/NATO from the agenda or they go their own way.

Posted by wirk | Report as abusive
 

Since when are ties with BOTh the EU and Russia mutually exclusive?

Both Russia and Ukraine require the ability to sell into the EU or a large portion of their energy delivery infrastructure lies idle – and economic depression will cost their living standards for generations to come.

Putin wisely gave up on full military conquest of his neighbor – but now reorts to OPEC-like embargos and intimidation with guerilla forces in hopes of extracting favorable terms of surrender from Ukraine – he will instead gain an enemy where he once had a next door ally.

There are reasons Gazprom trades at a miniscule P/E ratio – and a total lack of confidence in Russian managmenent of energy supply (a weapon rather than a trading instrument) is reason #1.

Posted by DonD1977 | Report as abusive
 

No wonder GOPers love Putin for his ‘strength’.
He has the same petty mean streak most of them do.

Posted by emm305 | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/