A rumble in the east

Over the weekend, there was an unsettling step in Russia's efforts to use its natural resources to put it in a position to dominate its neighbors.

Russia reduced the flow of gas through Ukraine on Sunday over a dispute about how much Ukraine should pay for its gas. Ukraine has been paying below market rates, as Ukraine allows much Europe's gas to pass through it from Russia via pipelines.

This arrangement was put in place in 2002, and amended in 2004. It is Ukraine's position that the agreement holds till 2009. Gazprom claims it is entitled to a new agreement, and that the 2004 amendment does not hold in this case. (Wikipedia has an informative page on the matter.)

This showdown became a distinct possibility in mid-December when Gazprom said the gas would be cut off if a new arrangement wasn't agreed to. Events in the preceding days indicated such an arrangement would be difficult to reach.

President Vladimir Putin's December 8 televised argument for tripling the price of Russian gas to Ukraine, in cash only, as of 2006 in effect rejected President Viktor Yushchenko's plea by to telephone the previous day for moving slowly to market terms over several years.

On the same day he took Yushchenko's call, December 7, Putin called Turkmen President Saparmurat Niyazov. Presumably, Putin and Niyazov coordinated positions on the gas trade with Ukraine, to which Turkmenistan is the primary supplier. Turkmen gas can only reach Ukraine through Gazprom's pipelines in Russia.

Thus far, Turkmenistan has declined to confirm the implementation of its gas supply agreement with Ukraine for 2006, citing Kyiv's debts for the Turkmen gas delivered in 2005.

Triggering that round of presidential telephone calls was the breakdown of negotiations on Russian gas supply to Ukraine and gas transit via Ukraine to European Union countries. On December 5-6 in Moscow, Naftohaz Ukrainy chairman Oleksiy Ivchenko and Gazprom's management took irreconcilable positions on the supply and transit agreements for 2006.

When a giant throws his weight around, though, things get knocked over. In this case, as the Russian giant shifts its bulk, whole nations may be upset.

This was just a warning shot, a message sent to Ukraine and to Europe to reinforce the fact Russia can squeeze them where it hurts. Effects of the shutdown were felt as far away as France.

Russia never intended to induce a serious crisis at this time. For one thing, Russia needs the revenue it receives from Europe for its gas. Second, Ukraine has been making noises about increasing the rent Russia pays for the use of port facilities for its fleet in the Black Sea.

As the New York Times reports today, Russia has restored most of the gas.

The Russian gas monopoly said tonight that it would restore most of the natural gas that it withheld from a giant pipeline running through Ukraine to Western Europe.

The decision does not resolve the dispute between Russia and Ukraine over price increases for the gas, but is meant to answer European complaints that its fuel supplies were jeopardized.

Officials of the monopoly, Gazprom, said they would pump 95 million of the 125 million cubic meters of natural gas that it withheld from the flow on Sunday. As the Russians described it, this was to make up for gas that was not getting to Europe because Ukraine was siphoning off gas for itself, a charge that Ukraine officials denied.

Many countries of Eastern and Western Europe found their supplies dwindling today, although officials said there was no immediate threat to home heating supplies. Western Europe gets about 25 percent of its natural gas from Russia, much of it through the pipeline in Ukraine.

The Europeans exerted strong pressure on the Russians to work with Ukraine to calm the crisis, which called into question Russia's reliability as a major energy exporter.

Energy ministers from Germany, Italy, France and Austria made a joint appeal to Moscow and Kiev to keep supplies steady, Bloomberg News reported, and an emergency European Union meeting was scheduled for Wednesday.

So, I think the seriousness of this weekend is not in the fact that Russia shut off the gas in the middle of the winter, it's that Russia was willing to do so at all. It is an aggressive move, a confrontational move. In human history, such bullying is often how wars start.

It has been putting the pieces in place for such a move. Russia has locked up control of the gas supply from the Central Asian 'stans. Gas from these nations transits through Russia, so Ukraine and Europe will not find easy salvation by looking there for alternate supplies.

Ukraine has been drawing closer to the West, especially since the Orange Revolution, and it won no tender feeling from Russia. Indeed, there remains the suspicion that Ukrainian President Yushchenko was poisoned by forces linked to Russia. Every day now when Yushchenko looks in the mirror he sees a reminder of Russia's foreboding presence. In a act of great chutzpah, over the weekend Russia offered a loan to Ukraine to pay the higher gas prices. Ukraine declined, not wanting to be tied to Russia any more than it needs to. (And a loan would be a great deal for Russia. It would get the revenue for the higher gas prices plus interest.)

With expanding economies in India and China, oil prices will remain high. Europe is tied to Russian gas for time being, and Russia continues to make its neighbor dependent on Russian gas. (Lost in the hubbub over Ukraine is the fact Russia is trying something similar with Moldova.)

This will be a challenge for the United States and its allies for the foreseeable future. Of such thorny problems are international politics made.

Previous posts

Russia's gas weapon
Georgian-Russian relations continue to deteriorate
Update on the Russian-German pipeline
More on Russia's gas
Gazprom, a Russian giant