Here We Go Again: Russia Has Announced That It Is Cutting Off Gas Supplies To Ukraine

December 31, 2008

Here We Go Again: Russia Has Been Threatening To Shut Off Gas Supplies To Ukraine Here we go again: Gazprom, the Russian state-owned gas and oil giant, has announced that it is cutting off gas supplies to Ukraine from 10 o’clock in the morning, Moscow time, on January 1, 2009.

Happy New Year, Ukraine!

Just like in the past, Moscow has been threatening Kiev for the last several weeks, saying that it owed Gazprom a lot of money, this time more than $2 billion for using good old Russian gas in November and December, plus the penalties that had been incurred for late payments. Around half a billion dollars of penalties, by the way.

So determined was Moscow to punish Kiev that it had even announced some time ago that it was setting up a ‘special task force’ within Gazprom to oversee the implemention of sanctions against Ukraine. What exactly this task force was supposed to do, no one really knew, as it usually does not take that much effort to stop the gas flowing: you know, just turn the tap off and grin in a sinister sort of way, imagining all those people in Ukraine freezing.

It was also not very clear how exactly Moscow was planning to prevent the disruption of the gas supplies to Ukraine not affecting any of the Western European countries, considering that the Russian gas flows to Europe though Ukraine. In 2006, for example, when Russia temporarily cut off its gas supplies to Ukraine, as a result of a similar dispute over payments, Western Europe was affected immediately, and in a big way.

Anyway, for a while it seemed that Russian threats were working as Ukraine promised yesterday to transfer the outstanding payments for November and December to Gazprom’s affiliate, RusUkrGas, that handles all the deliveries of gas to Ukraine. It is a mystery, by the way, why a company has been specifically created to provide Ukraine with gas on behalf of Gazprom when the money could have been paid to the Russian state-owned giant directly.

But as Gazprom is headed by Aleksey Miller, a close friend of Russia’s ruler, Prime Minister Vladimir Putin, no one is really keen on resolving the mystery. Especially as Gazprom has always been known for its unorthodox methods of doing business. Most of its revenues, for example, from the sale of gas abroad are kept abroad too. Strange, if you consider that this money is supposed to be part of the Russian federal budget.

There is now confusion as to how the situation would develop, especially as no contract between Moscow and Kiev has been signed yet for providing gas in 2009. The problem is that Russia is insisting that Ukraine forks out world market prices for the gas that would see the latter’s payments rocket from the current $179.5 per 1000 cubic metres of gas to $418. Ukraine is saying that $418 per 1000 cbm is simply too high, but Russia, in turn, is insisting that in a free market prices are set by that very same market, so there could be no arguments about it.

Nevertheless, it is quite remarkable how Moscow seems to be ready to leave millions of people in Ukraine without the heating in the worst possible time of the year – in mid winter. The conflict between Russia and Ukraine concerning gas supplies has been running for several years now and serves as a stark reminder of the gross incompetence of both governments and the scale of corruption and misuse of public funds in Ukraine. You would have expected the government in Kiev to see to it that funds were allocated in advance for purchasing Russian gas, considering that it is crucial to the well- being, if not survival, of millions of its citizens. Yet, the regime of President Viktor Yushenko, who seems to be more keen on joining NATO and the EU than sorting out relations with his eastern neighbour, has done little to see that money is available to pay for Russian gas and is not re-directed to finance some other ‘projects’. By any standards, the government in Kiev is demonstrating extraordinary carelessness and ineptitude. No wonder that in the latest opinion poll, conducted in Ukraine, Yushenko has one of the lowest approval ratings in all the time he has been in office.

That is not to say, of course, that the Russian position as any better. I still wonder how it could have happened that Moscow has managed to spoil relations with one of its most important neighbours, Ukraine, to such an extent. In a sense, you can compare it to a break-down of relations between, say, the United States and Britain, with all the negative consequences originating from it. It just beggars belief that people in the Kremlin have no understanding of Russia’s geo-political priorities. They do their best to have good relations with Italy or Belgium, and yet preside over a total mess in relations with Ukraine, which is worth more to Russia than ten countries like Italy or Belgium, no disrespect intended to these two fine nations.

Relations have all but collapsed between Kiev and Moscow after the election of President Yushenko in 2004, with the Kremlin doing precious little since then to mend the bridges. The presence in Kiev as Russian ambassador of Viktor Chernomyrdin, former Russian Prime Minister and former chairman of Gazprom, has not helped to ease the tensions between the two countries. Chernomyrdyn, whose surname in Russian means Black Gob, is a typical Soviet style bureaucrat, who should have never been appointed to the post of Moscow’s envoy to Kiev in the first place. He is known for his lack of diplomatic skills and probably shares most of the blame for the worsening of relations between Russia and Ukraine.

And yet, he is still there, compliments of the Yeltsin clan that is still calling the shots in Moscow.

No less responsible for the worsening of the relations between the two countries is Russia’s Minister for Foreign Affairs, Sergey Lavrov. How on earth this man has survived for so long as head of the MFA is not just puzzling, it is absolutely inexplicable. It was during his term that Russia’s relations with practically all of its neighbours had deteriorated and it was Lavrov, who had steered Russian diplomacy – disastrously – during the recent war with Georgia. This is a man, who swore at Foreign Secretary, David Milliband, over the phone at the height of the Georgian crisis and generally behaved like a hypocrite and a hoodlum at the time. Lavrov, whose daughter studied at the London School of Economics during the height of the crisis in relations between London and Moscow, caused by the murder of Alexander Litvinenko, should have been removed from his post ages ago. He is a former Soviet diplomat, who has absolutely no understanding of how real diplomacy works. No wonder he always had such good understanding with that other great diplomat, Secretary of State Condoleezza Rice, who is turning out to be one of the worst ever foreign policy chiefs in the history of the US.

The most amazing thing about the current row, surrounding Russian gas supplies to Ukraine, is that this is one the issues that contributes to the worsening of relations between the two countries on the street level, so to speak. Both Moscow and Kiev have been blatantly using the subject of gas supplies to whip up campaigns against each other and antagonise their people even further. Both regimes have been guilty of trying to use ‘outside enemies’ to cover up their incompetence and corruption. The only hope is that the people in both countries would see through these disgraceful antics and not lose sight of the bigger picture.

The latest gas row between Moscow and Kiev is bound to strengthen the determination of Western Europe to look for alternative sources of energy. Whatever is the argument for or against nuclear power, it seems that the West has no other real choice but to go nuclear in the future.