Wednesday, October 22, 2014

Russia Calls Europe's Bluff on Ukraine Gas Deal

Geoffrey Smith reports at Fortune:
Russia, Ukraine and the European Union failed late Tuesday to strike a deal that would guarantee Russian gas supplies through the coming winter, after the E.U. refused a request by the Russian side to guarantee full and proper payment by Ukraine.

The deadlock revives the risk that Russia may cut off gas deliveries to parts of Europe this winter, as part of a wider strategy to assert its influence in Ukraine. That would further aggravate the economic slowdown that has hit both countries since the Ukrainian crisis erupted.

It also exposes the reluctance of Europe to back up its political support for the Kyiv government with hard cash.

Ukraine has a record of siphoning Russian gas destined for Europe, and its own finances are in a disastrous state after years of mismanagement by President Viktor Yankovych and the economic collapse in the turmoil that followed his ouster in February. The economy is projected to shrink by some 7% this year...
Russia supplies over a quarter of the E.U.’s gas, and most of those supplies have traditionally gone through Ukraine. Countries such as Bulgaria and Slovakia are completely dependent on Russian gas shipped through the Ukrainian pipeline system, and would face drastic energy shortages this winter if no agreement is struck.

Russia stopped shipping through Ukraine in May, claiming Ukraine owed it over $5 billion for past supplies. Ukraine’s national gas company Naftogaz says it only owes $3.1 billion. The sides are arguing over the difference in a Stockholm arbitration tribunal.

1 comment:

  1. Start a War and Lose an Empire (Russian View)

    There is something else going on that is going to become more significant in the long run: Russia has taken the hint and is turning away from the West and toward the East. It is parlaying its open defiance of American attempts at world domination into trade relationships throughout the world, much of which is sick and tired of paying tribute to Washington. Russia is playing a key role in putting together an international banking system that circumvents the US dollar and the US Federal Reserve. In these efforts, over half the world's territory and population is squarely on Russia's side and cheering loudly. Thus, the effort to isolate Russia has produced the opposite of the intended result: it is isolating the West from the rest of the world instead.

    In other ways, the sanctions are actually being helpful. The import ban on foodstuffs from EU is a positive boon to domestic agriculture while driving home a politically important point: don't take food from the hands of those who bite you. Russia is already one of the world's largest grain exporters, and there is no reason why it can't become entirely self-sufficient in food. The impetus to rearm in the face of NATO encroachment on Russian borders (there are now US troops stationed in Estonia, just a short drive from Russia's second-largest city, St. Petersburg) is providing some needed stimulus for industrial redevelopment. This round of military spending is being planned a bit more intelligently than in the Soviet days, with eventual civilian conversion being part of the plan from the very outset. Thus, along with the world's best jet fighters, Russia is likely to start building civilian aircraft for export and competing with Airbus and Boeing.

    But this is only the beginning. The Russians seem to have finally realized to what extent the playing field has been slanted against them. They have been forced to play by Washington's rules in two key ways: by bending to Washington's will in order to keep their credit ratings high with the three key Western credit rating agencies, in order to secure access to Western credit; and by playing by the Western rule-book when issuing credit of their own, thus keeping domestic interest rates artificially high. The result was that US companies were able to finance their operations more cheaply, artificially making them more competitive.

    To date, the dictat handed down from Washington has been: “We can print money all we like, but you can't, or we will destroy you.” But this threat is ringing increasingly hollow, and Russia will no longer be using its dollar revenues to buy up US debt.