The BBC headline tells it all: Russia-Ukraine gas deal secures EU winter supply(via Ukraine). European officials also confirmed the message of the headline. Commission President Manuel Barroso triumphantly declared: “There is now no reason for people in Europe to stay cold this winter,” and European Union energy chief, Guenther Oettinger, announced he was confident that Ukraine would be able to afford to pay for the gas it needed (Says who?). Where are Ukraine’s expressions of gratitude and relief? They are lacking for good reason.
It turns out the month-long negotiations over Ukraine’s gas dispute with Russia were really about securing Europe’s Russian gas. Ukraine was only a side issue. Russia’s incessant propaganda that Europe itself was threatened by Ukraine’s gas cutoff dominated the discussion. Europe pushed Ukraine into a bad deal to protect itself.
What did Ukraine get out of the deal? It received the go-ahead to transfer some one third of the financial assistance it is receiving from the IMF and European Union to pay for the Russian gas, diverting scarce funds from its desperate defense, infrastructure, and reform needs. Ukraine gets to pay Russia one of the highest gas prices in Europe ($378 versus the $304European average), and there appears to be no agreement as to how much of this gas goes to the gas-guzzling heavy industry of the Donbass, occupied by pro-Russian rebels. Kiev, by the way, has been virtually cut off from Donbass coal and has to buy elsewhere.
Europe has agreed that Ukraine should buy natural gas at high prices just at a time when Ukraine was taking significant steps towards developing interconnections with European suppliers and getting serious about cutting back on its high per capita natural gas use.
Even worse, European officials are making noises about rapprochement with Russia. EU’s energy chief characterizes the agreement as a possible “first glimmer” of hope in easing tensions between Russian and Ukraine. (So we should all forgive and forget?) Russia’s energy minister hastened to laud the deal as proof that “Russia has always been a reliable supplier of energy resources to Europe and other consumers.” This assurance came after months of threatening Europe’s gas supplies. I would also like to know whether part of the deal is that the European Commission would drop its investigation of monopoly behavior by Gazprom in the European gas market? Avoiding an anti-trust suit would be worth billions to Gazprom.
Russia gets the bonanza of $5 billion to shore up its meager liquidity resulting from the sanctions against borrowing in Western capital markets. Earlier Russia’s national oil company gave up one tenth of its best Siberian field to China for the grant total of $1 billion. This generous agreement can be regarded as a major sanctions buster.
You would think that Europe, after two close calls (2009 and 2014) with Russia’s use of the natural gas weapon, would have negotiated hard and tough for a better deal for Ukraine, not pushed Ukraine into the narcotic of plentiful gas paid for with scarce credits, and moved full speed ahead with measures to insure independence from Putin’s heavy handed gas weapon.
Not so, it appears.
I’d like to thank my colleague Anders Aslund for his assistance. The views expressed herein are my own.
THE AUTHOR is a member of the International Advisory Board of the Kiev School of Economics. The views expressed in this article are those of the author and not of the school. Click here for information on his documentary film Women of the Gulag.
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