High stakes poker

From Levko:

In a brilliant piece entitled 'Energy question may spell end of the good life for the West' at http://business.timesonline.co.uk/article/0,,9072-1959462,00.html its author David Montagu-Smith speculates:

A key factor in the changing balances of world energy is Russia, and the ambitions of President Putin’s country to reassert its place on the world stage by using its growing muscle as a future energy supplier to the markets of Europe and the US to recover some of the ground and status lost after the demise of the USSR....

...What we believe to have been the definitive triumph of the Western democratic way over the sterile misery of the Soviet system may be turning out not to have been the victorious end of the Cold War after all, but just one battle in an unending struggle for global power and influence.

It is now very clear that this is how today's Kremlin see matters too. Russia has huge borders with often hostile neighbours, a declining population, and lots of 'goodies' buried in their back garden, so this may partly explain their paranoia.

As for the high-stakes poker game between the Kremlin-Gazprom and Ukraine, I believe up until now Putin has overplayed his hand. Yushchenko [for the time being] has called his bluff. New Year Eve’s last minute offer made by Putin on Russian TV - "old price for the first quarter of 2006, but full 'market price' after that, if you sign before midnight," was made ostensibly to show some compassion or flexibility towards a brother nation - but his attitude and true feelings have been clear for many weeks now, so this gesture, probably dreamt up by one of his spin doctors, will ring hollow.

The danger for Putin is that if in the next months, despite valves being shut off, it's 'business as normal' in Ukraine, [in the short term] he will look rather impotent.

In several months Ukraine may well have to start skimming off gas intended for European suppliers, but this, no doubt, will be accompanied by a PR campaign - school children in winter coats and scarves, freezing pensioners in hospitals wards.. this sort of thing. Austrian, German and Italian utility companies will turn to Gazprom for compensation for breach of gas delivery contracts. Of course it will be big industrial consumers, predominantly in the east of Ukraine who first feel the pinch and not domestic and social consumers, as gas pressure falls. If the crisis drifts on, eventually EU countries will have to get involved in any solution, and even if they are even-handed, Putin will be asked to back-off.

There has been little mention in the western media that arrangements for transit of Russian gas through Ukraine are defined by long-term contracts between Gazprom and Naftogaz Ukrainy, valid until 2009. Now that world gas prices are rocketing Gazprom are trying to negate these contracts. Yushchenko should order his press secretaries to put Ukraine's case to the fore, particularly now that western commentators are really sitting up and taking notice of this crisis.

It's maxim that Russians only respect you if you stand up to them. The Ukrainian leadership know their 'older brothers' better that anyone - many of them studied and worked together in old Soviet structures. The Orange leadership must have feelings of bitterness towards Putin for his interference during the Presidential elections [and possibly Yushchenko's poisoning?] - is the gas crisis providing an opportunity for these to be vented?

In the 1960's, well before Siberian fields were commercially developed, Ukraine supplied 70% of the natural gas and oil needs of the former Soviet Union. Because it’s reserves were depleted at that time, it thinks it’s entitled to a favourable deal.

There are rumblings of disquiet in Poland and other new central European EU countries, "If Ukraine is feeling the squeeze now, maybe they'll do the same to us in a year or two's time." Poles feel betrayed and angry on account of the construction of the Baltic gas pipeline bypassing their country, and interpret this as Germany trusting Putin's Russia more than themselves to provide reliable delivery of gas, even though Germany and Poland are now a fellow EU countries. And who will pay the four or fivefold extra cost of laying pipelines and its maintenance in the inhospitable Baltic sea? Why German consumers of course, in their gas bills.

The whole gas crisis is playing very big in European and North American media - the Kremlin is generally speaking, getting, bad press for their bully-boy tactics. Either they didn’t take account of this, or maybe they don’t care. Or maybe Putin gets a kick from this macho posturing before his G8 colleagues, waving his ‘gas weapon’ in the air.

These media stories don’t mention that this particular week is Orthodox Christian Christmas week so many factories, civic buildings etc. are not functioning – it’s next week when folks get back to work.

In Eastern Europe Ukrainians are known for their stubborness. I suspect that Ukrainian authorities are going to 'dig in' and 'sit tight'.