Wednesday, December 21, 2005

Is it blackmail?

Some in the Russian press object to calling the demand for price increases blackmail. Technically, they may have a case, but that is not all they are saying. This from ITAR-Tass:

The Ukrainian TV had broadcast statements on "the Kremlin blackmail"throughout last week without caring to explain why the demand to honestly pay for the gas it consumes is regarded as blackmail in Ukraine, which is now a market-economy country.

Ukraine is not being honest because it is not paying for what it gets now? Of course, the price paid for now is the price mutually agreed upon in 2004 I think it was. So it is dishonest to pay an agreed to price? In the Kremlin's world where all is Russian interests narrowly conceived, it looks like it is. And wasn't that agreement to extend to 2009? Seems like it was. So is it dishonest to raise the issue that legally speaking the agreed to price is binding? Or is it only binding as long as it is in Russian interests, as conceived by the Kremlin? What about all that talk from Putin about rule of law? So much lip service being paid to it by the Kremlin. If it is in Russian interests, the rule of law bends to do the Kremlin's bidding. Or is the feeling of the Kremlin and Russian elites that rule of law should only be for Russians? (Or those capable of exercising it, which seems to be the present formulation. It's yours if you have the power to keep it.)

And what about this market economy business they argue? Wasn't Ukraine a market economy back when it signed the agreement? Or are they saying it wasn't back then? If they aren't a market economy then a price differential should be the norm? But if it is a market economy, then pay the international rate? Is it just a coincidence that all non-market economies in the area are in line with the Kremlin? This is just so much opportunism looking around for a justification.

And you can spare me the Russophobe label here. When the interests of the elite are in issue, the term "phobia" is dragged out and put to good use. So when Chernobyl exploded, any statement about the potential effects of radiation were termed "radiatophobia." If they had had the power to do it then, anyone talking about it would have been committed for observation by pliant psychologists. But this is just another case of bending everything to serve Kremlin interests. It's just more of the same.


LEvko said...

The Russian-Ukrainian gas dispute is part of a larger struggle, a new 'Great Game', in which its leaders are attempting to reassert Russia's position as a global power using hydrocarbon fuel as a weapon, in the belief that this will provide her with geopolitical stability, and protection from what she perceives as untrustworthy neighbours.

There is much evidence to show that power, and control of the Russian economy and media, are in the hands of a small group of people, predominantly from a state security background, who are accountable only to themselves, and who are taking command of Russia's hydrocarbon sector.

The nature of the gas business [unlike oil which can be moved around the globe in tankers] is such that it binds suppliers, transit countries, and end users closely together, especially as transit countries may also be gas customers, and supplier countries may also be transit countries for other supplier countries. Mutual long-term trust is important.

There are many participants with differing interests in this dispute. Turkmenistan, a major rival gas supplier to Ukraine, has to export its gas via Russian pipelines, but is lukewarm on the CIS. [Turkmenistan recently gave up permanent membership in the CIS and moved to associate member category]. End user European states realise that they will in the future be ever more dependent on Russian gas transported through fixed pipelines, 80% of which pass at the moment through Ukraine.

Russia needs to show Western Europeans that it is a reliable supplier of gas in order to secure more hard currency earnings, and the foreign investment that its oil and gas industry needs, so control of Ukrainian transit pipelines is a priority. Russia is trying to do this by demanding an exorbitant price for gas from Ukraine, 'But if we go 50-50 on pipeline ownership... then it’s a different matter..'.

However Russia can't lean too hard on the Ukrainian government or reduce gas supplies because inevitably Ukrainian consumers will ensure that the guys further down the pipelines in Western Europe will be the first to feel the pinch.

In the New Year Russia will assume the rotating presidency of the G8, a club to which Russia doesn't really have the necessary [GDP and other] membership credentials, as it is. It would be an embarrassment if Russia were to be drawn into messy disputes with European states over erratic gas supplies, even if the blame were placed at Ukraine's door, so I guess for this winter at least, Ukraine will get its gas.

The Kremlin will have to play it smart - Gazprom chief Miller threatening to turn off the taps to
Ukraine (and therefore possibly Europe), and Deputy Chairman of Gazprom Alexander Medvedev declaring that Gazprom had upped its proposed price from $150 to $220-230/tcm. to Ukraine in one jump last week was synchronized, but dumb, especially as there are long-standing contracts already in existence between Gazprom and its Ukrainian counterpart Naftogaz, that include arbitration procedures. I suspect both sides already have a good idea what the final compromise figures for transit fees and their gas equivalent will be.

Over half of Russia's gas output is consumed by the home market. It is difficult to subsidize their cheap gas, pay for much-needed infrastructure investments, collect revenues for the state budget, and siphon off billions of dollars into shady off-shore accounts, all from the remaining gas output which is exported. Sooner or later Russia's consumers will also end up paying more for their gas too.

Putin has back-pedalled a little, but nevertheless I think the intemperate statements by Gazprom bosses, made perhaps partly for domestic consumption, have startled foreign gas end-users, and brought into sharp relief what the stakes really are in this Great Game. They may well think, "If that's the way they do business with Ukraine in the event of dispute, what happens if we ever have a problem over prices or supply?"

Western countries may even start to re-examine long-term energy strategies and possibly to diversify and look for alternative energy sources - not what the Kremlin have in mind at all.

EuroJO said...

Yes I agree - and western Europe has to support Ukraine in this case - and yes we all have to reduce dependency on russian energy....

Anonymous said...

The agreement was until 2009, but the price is to be negotiated each year. For sure the Russians are using gas to punish the Ukraine for electing Yushenko. And why not? The Ukrainians seem to enjoy abusing the Russians every time they get. Go ahead, join NATO, spend 10% of your meager military budget to suck up to the butchers of Iraq like the Polish, but the Russians have no need to keep subsidizing people who stick it to them every chance they get.