Our tree's still up and we're still celebrating because everyone else here is. And who doesn't like a nice little party. Who doesn't like a nice big party.
Today is Christmas for Orthodox Christians, so a Merry Orthodox Christmas to all.
Saturday, January 07, 2006
Friday, January 06, 2006
Successful?
Here’s some analysis like we get here from time to time. I will take the points one at a time:
No, the deal I am talking about that they could have gotten at any time was the $95 deal not the $230 deal. That was true at any time prior to them shutting off the flow. They know this and so does everyone else—that is, at least, most everyone else.
I don’t know that anybody knows Ukraine overdrew anything. The way things have been done in the past has been very murky and always worked out in the shadows. Most of it has been by barter and barter always lends itself to misunderstandings, if you’re being generous about what went on, or to manipulation, if you aren’t. You say they overdrew. Ukraine would say that they simply collected for transit fees owed. The Kremlin denies this.
If it’s the reserve you’re talking about, the reserve Ukraine used, there has been a lot of back and forth on that. The Ukrainian government says it was Ukraine’s; the Russians say it was Russia’s. With things happening in the shadows like they have, it’s hard to tell. But Ukraine has had at least a colorable claim to it. The Kremlin of course denies this.
Raising the rent on the pipelines to market rates? Isn’t that the position of the Russian government in all of this? If Russia wanted to move to market rates, then why couldn’t Ukraine? They had a contract? (Pause for laughter.) Of course what Russia means by market rate is the same rate paid by Europe. (With gas though it’s hard to tell what the market rate is; it’s not readily tradable. That’s why it is probably better to refer to it as “the European rate.”) So by the same token, Russia should pay the European rate for gas transport, right? The Kremlin of course denies that Ukraine has the right to do this.
Raising the rates on the Black Sea Fleet is another one of those issues that needs to be aired here fully and hasn’t been. There is evidence that the Russian military is subleasing some of the land in these areas for commercial purposes. In other words, they are working a pretty good deal for themselves on what is supposed to be land leased for the military. So if the Russian military wants to make a go of it commercially on that property, why can’t it be charged the market rate? (Unlike for gas, there is a discernable rate for leased commercial property.) Because they have a signed lease agreement with the government of Ukraine for a certain amount? You mean a contract is a contract?
Could Ukraine pay the market rate? Of course it could but that would create a lot of economic problems for the country if it had to right now. So what is the argument here? Ukraine is poor and can’t afford it and it depends on the largesse of the Kremlin to keep it set up? Or what?
The problem is that the Kremlin had no real bargaining position. They just can’t take their gas and sell it to the Chinese like they could petroleum. Natural gas is not fungible like other commodities are. It cannot be just loaded up and shipped anywhere to any customer. (At least not unliquified, something Russia can’t do extensively in commercial quantities right now--if it can do it at all.) Natural gas depends on pipelines to get to the customer. There lies the rub and the reason for this whole row: those pipelines run right through Ukraine at this moment. Russia wants to bypass Ukraine going north but they still won’t be able to pump the gas to Europe that needs to be pumped even with the new pipeline. This means that Russia will still be dependent on Ukraine for some time to come to get it gas to Europe. So Russia may want to sell its gas to China, India or anywhere else besides Ukraine. The problem is the pipelines are facing in the wrong direction.
That is where they have miscalculated this time and this is one of the reasons why a number of us think that there had to be a political dimension to this whole thing. Take any year before this one. At years end, Russia has cajoled, blustered, talked loud and even threatened either to get Ukraine to pay or to get some kind of contract. But it has been in a lower key. It was not uncommon to hear about the problem from the Russian side and then to hear about negotiations and a solution reached down to the wire--all under the radar and settled out of sight. This has happened time and time again at the end of the year. This time, however, there were early statements by the Foreign Ministry and then Putin became involved. And the Defense Ministry weighed in on it when Ukraine mentioned the Black Sea Fleet base. In other words, the weight of the whole Russian government was brought to bear on this issue. And in the end, the threat to turn things off turned out not to be the idle threat it had been in the past. They actually did. For the first time, they actually did it.
But they overplayed their hand. One analyst says that because of the way markets are, it is not possible to use natural resources as a stick. Every government that has tried it has found this out. OPEC did at first and it taught the Saudis a lesson they learned from. Russia looks it will find this out to, if it hasn’t already.
So I stick by what I said. They could have gotten the deal they ended up with at anytime but they ended up with much less. And they have all of Europe talking about alternatives including what for some of them had been out of bounds--nuclear power. Sounds like a very successful round of negotiations.
Got that deal anytime? Like when Ukraine "overdrew" or borrowed some gaz and never paid it back?
No, the deal I am talking about that they could have gotten at any time was the $95 deal not the $230 deal. That was true at any time prior to them shutting off the flow. They know this and so does everyone else—that is, at least, most everyone else.
I don’t know that anybody knows Ukraine overdrew anything. The way things have been done in the past has been very murky and always worked out in the shadows. Most of it has been by barter and barter always lends itself to misunderstandings, if you’re being generous about what went on, or to manipulation, if you aren’t. You say they overdrew. Ukraine would say that they simply collected for transit fees owed. The Kremlin denies this.
If it’s the reserve you’re talking about, the reserve Ukraine used, there has been a lot of back and forth on that. The Ukrainian government says it was Ukraine’s; the Russians say it was Russia’s. With things happening in the shadows like they have, it’s hard to tell. But Ukraine has had at least a colorable claim to it. The Kremlin of course denies this.
Like when Ukraine said that not only will they raise the rent on the pipes but also on Black Sea fleet bases?
Raising the rent on the pipelines to market rates? Isn’t that the position of the Russian government in all of this? If Russia wanted to move to market rates, then why couldn’t Ukraine? They had a contract? (Pause for laughter.) Of course what Russia means by market rate is the same rate paid by Europe. (With gas though it’s hard to tell what the market rate is; it’s not readily tradable. That’s why it is probably better to refer to it as “the European rate.”) So by the same token, Russia should pay the European rate for gas transport, right? The Kremlin of course denies that Ukraine has the right to do this.
Raising the rates on the Black Sea Fleet is another one of those issues that needs to be aired here fully and hasn’t been. There is evidence that the Russian military is subleasing some of the land in these areas for commercial purposes. In other words, they are working a pretty good deal for themselves on what is supposed to be land leased for the military. So if the Russian military wants to make a go of it commercially on that property, why can’t it be charged the market rate? (Unlike for gas, there is a discernable rate for leased commercial property.) Because they have a signed lease agreement with the government of Ukraine for a certain amount? You mean a contract is a contract?
What did you smoke for breakfast? How in the world would Ukraine pay the gaz market price? Out of Bill & Melinda Gates charitable trust?
Could Ukraine pay the market rate? Of course it could but that would create a lot of economic problems for the country if it had to right now. So what is the argument here? Ukraine is poor and can’t afford it and it depends on the largesse of the Kremlin to keep it set up? Or what?
The problem is that the Kremlin had no real bargaining position. They just can’t take their gas and sell it to the Chinese like they could petroleum. Natural gas is not fungible like other commodities are. It cannot be just loaded up and shipped anywhere to any customer. (At least not unliquified, something Russia can’t do extensively in commercial quantities right now--if it can do it at all.) Natural gas depends on pipelines to get to the customer. There lies the rub and the reason for this whole row: those pipelines run right through Ukraine at this moment. Russia wants to bypass Ukraine going north but they still won’t be able to pump the gas to Europe that needs to be pumped even with the new pipeline. This means that Russia will still be dependent on Ukraine for some time to come to get it gas to Europe. So Russia may want to sell its gas to China, India or anywhere else besides Ukraine. The problem is the pipelines are facing in the wrong direction.
That is where they have miscalculated this time and this is one of the reasons why a number of us think that there had to be a political dimension to this whole thing. Take any year before this one. At years end, Russia has cajoled, blustered, talked loud and even threatened either to get Ukraine to pay or to get some kind of contract. But it has been in a lower key. It was not uncommon to hear about the problem from the Russian side and then to hear about negotiations and a solution reached down to the wire--all under the radar and settled out of sight. This has happened time and time again at the end of the year. This time, however, there were early statements by the Foreign Ministry and then Putin became involved. And the Defense Ministry weighed in on it when Ukraine mentioned the Black Sea Fleet base. In other words, the weight of the whole Russian government was brought to bear on this issue. And in the end, the threat to turn things off turned out not to be the idle threat it had been in the past. They actually did. For the first time, they actually did it.
But they overplayed their hand. One analyst says that because of the way markets are, it is not possible to use natural resources as a stick. Every government that has tried it has found this out. OPEC did at first and it taught the Saudis a lesson they learned from. Russia looks it will find this out to, if it hasn’t already.
So I stick by what I said. They could have gotten the deal they ended up with at anytime but they ended up with much less. And they have all of Europe talking about alternatives including what for some of them had been out of bounds--nuclear power. Sounds like a very successful round of negotiations.
Thursday, January 05, 2006
Winners and losers in the Russia-Ukraine gas crisis
In purely financial terms, probably Russia is the winner. When all the figures are computed in the complex arrangement, some analysts say that Ukraine will be paying Russia about $160 per Mcm for the gas it receives from that country, which is what they wanted in the first place, before Gazprom/Kremlin put its black mask and knuckledusters on.
For RosUkrEnergo and its 'unidentified ultimate owners' - a terrific off-the-books earner for the next few years, so a good result for them.
Ukrainians in general, I guess will feel pleased with themselves for standing up to 'older brother'. The tirades of anti-Ukrainian comment on Russian TV were counterproductive, so 'zero points' for the Kremlin's spin-doctors [again].
Yushchenko emerges with credit, statesman-like, shaking off his reputation as a cautious ditherer, his political opponents in Ukraine somewhat disorientated, so for him, a good result. It will be interesting to see the effects on the next lot of Parliamentary Election opinion polls.
For Turkmenistan, which provides about 1/2 of Ukraine's total gas needs, and which could significantly increase production without too much capital investment, any chance of dealing direct with European customers has now disappeared; Turkmenistan’s gas from now on, is completely and formally controlled by Gazprom, so, a looser.
The biggest looser - Putin, for it is he who was undoubtedly responsible for the thuggish tactics of this week when he tried to 'bounce' Ukraine into a cripplingly expensive deal. The order to turn off the taps on 1st January must have come from the very top - the volte-face when the taps were turned on again within 24 hours - a humiliation, almost a fiasco. He achieved nothing apart from negative press and huge tremors of anxiety in Europe and beyond. His boys in Gazprom have not done a bad deal for him, but he must be hurting bad inside…
For RosUkrEnergo and its 'unidentified ultimate owners' - a terrific off-the-books earner for the next few years, so a good result for them.
Ukrainians in general, I guess will feel pleased with themselves for standing up to 'older brother'. The tirades of anti-Ukrainian comment on Russian TV were counterproductive, so 'zero points' for the Kremlin's spin-doctors [again].
Yushchenko emerges with credit, statesman-like, shaking off his reputation as a cautious ditherer, his political opponents in Ukraine somewhat disorientated, so for him, a good result. It will be interesting to see the effects on the next lot of Parliamentary Election opinion polls.
For Turkmenistan, which provides about 1/2 of Ukraine's total gas needs, and which could significantly increase production without too much capital investment, any chance of dealing direct with European customers has now disappeared; Turkmenistan’s gas from now on, is completely and formally controlled by Gazprom, so, a looser.
The biggest looser - Putin, for it is he who was undoubtedly responsible for the thuggish tactics of this week when he tried to 'bounce' Ukraine into a cripplingly expensive deal. The order to turn off the taps on 1st January must have come from the very top - the volte-face when the taps were turned on again within 24 hours - a humiliation, almost a fiasco. He achieved nothing apart from negative press and huge tremors of anxiety in Europe and beyond. His boys in Gazprom have not done a bad deal for him, but he must be hurting bad inside…
Wednesday, January 04, 2006
So soon?
So it looks like they signed a deal--Russia, Ukraine Settle Gas Dispute, to Raise Prices.
I wonder if they drank a toast and clapped each other on the back. Russia could have gotten this deal at any time without riling Europe. So they don't get anywhere near their $230 and they don't get any control over the pipelines in Ukraine and they've got Europe considering nuclear power. Sounds like a very successful round of negotiations, doesn't it?
Ukraine agreed to almost double the price it pays Russia for gas, settling a dispute that cut shipments to Europe and damaged Russian President Vladimir Putin's reputation as a reliable energy supplier.
The former Soviet republic will pay an average $95 per 1,000 cubic meters for the fuel for five years, up from $50 under a previous arrangement, OAO Gazprom, Russia's state-owned natural-gas monopoly, said in Moscow today.
I wonder if they drank a toast and clapped each other on the back. Russia could have gotten this deal at any time without riling Europe. So they don't get anywhere near their $230 and they don't get any control over the pipelines in Ukraine and they've got Europe considering nuclear power. Sounds like a very successful round of negotiations, doesn't it?
Turkmen gas, and the Russia – Ukraine gas crisis
Although acres of newsprint have been devoted to the Russia-Ukraine gas crisis in the world press lately, not much mention has been made of Turkmenistan, which presently supplies about one half of Ukraine’s gas needs.
Ukrainian and Turkmen agencies report that Naftogaz Ukrainy chairman Oleksiy Ivchenko today met Turmen President Saparmurat Niyazov, and that Presidents Yushchenko and Niyazov, in a telephone conversation, agreed to stick to the previous agreements whereby Turmenistan is to supply 40 Bcm of natural gas to Ukraine at a price of $50/Mcm in 2006. They also discussed the termination of Russian gas supplies to Ukraine.
How this will work out is a mystery, and a big problem for Ukraine, because Gazprom, according to its Chairman Alexei Miller, has purchased 30Bcm of Turkmen gas for delivery in 2006 [even though Russia has the largest gas reserves in the world], yet pipelines westward, which are wholly owned by Gazprom, are only capable of transporting 35-40 Bcm of gas per annum.
Turkmenistan could easily increase gas production with modest investments and export the same quantities of gas as Russia, or even more. At the moment about half of Russia’s total gas production is for domestic purposes. In March 2004 President Yushchenko proposed creating an international consortium to build, own, and operate a new large-capacity gas pipeline from Turkmenistan via Kazakhstan and Russia to Ukraine and on to Western Europe, but this would have challenged Putin's plan of a Eurasian producers' cartel which would enable Russia to monopolize supply and dictate the price of gas delivered to European customers.
It is clear what’s going on here. Russia is attempting to limit Ukraine’s, and Europe’s, gas supplies from Turkmenistan. Gazprom admitted that when they closed off Ukraine’s share of gas deliveries to Europe yesterday they also terminated delivery of Turkmen gas to Ukraine. Ukraine ‘assumed’ that the Turkmen gas was still on stream – as a result pressure fell dramatically at the European end of the pipelines. Today Gazprom confirmed that they are no longer delivering Turkmen gas to Ukraine.
The whole matter of delivery of gas from Turmenistan to Ukraine is very murky indeed. It is controlled by a Swiss-based ‘kick-back’ company RosUkrEnergo created in summer 2004 after talks between Putin and former Ukrainian President Kuchma. It acts as an intermediary between Gazprom and Naftohaz Ukrainy to transit Turkmen gas through Russia into Ukraine. For its services it receives a whopping 13Bcm of Turkmen gas destined for Ukraine per annum, which it then sells on in European markets to provide huge off-the-books slush funds for its highly placed secret Russian and Ukrainian directors. Recently sacked Ukrainian Prime Minister Yulia Tymoshenko said that plugging this scam would go a long way towards solving Ukraine’s gas problems.
There is an urgent need for the EU to show some leadership and formulate an integrated policy for gas deliveries. It's time for some serious bargaining to take place between Russia, the EU countries, Ukraine, and possibly Turkmenistan, to solve this crisis and ensure that it does not occur again.
Ukrainian and Turkmen agencies report that Naftogaz Ukrainy chairman Oleksiy Ivchenko today met Turmen President Saparmurat Niyazov, and that Presidents Yushchenko and Niyazov, in a telephone conversation, agreed to stick to the previous agreements whereby Turmenistan is to supply 40 Bcm of natural gas to Ukraine at a price of $50/Mcm in 2006. They also discussed the termination of Russian gas supplies to Ukraine.
How this will work out is a mystery, and a big problem for Ukraine, because Gazprom, according to its Chairman Alexei Miller, has purchased 30Bcm of Turkmen gas for delivery in 2006 [even though Russia has the largest gas reserves in the world], yet pipelines westward, which are wholly owned by Gazprom, are only capable of transporting 35-40 Bcm of gas per annum.
Turkmenistan could easily increase gas production with modest investments and export the same quantities of gas as Russia, or even more. At the moment about half of Russia’s total gas production is for domestic purposes. In March 2004 President Yushchenko proposed creating an international consortium to build, own, and operate a new large-capacity gas pipeline from Turkmenistan via Kazakhstan and Russia to Ukraine and on to Western Europe, but this would have challenged Putin's plan of a Eurasian producers' cartel which would enable Russia to monopolize supply and dictate the price of gas delivered to European customers.
It is clear what’s going on here. Russia is attempting to limit Ukraine’s, and Europe’s, gas supplies from Turkmenistan. Gazprom admitted that when they closed off Ukraine’s share of gas deliveries to Europe yesterday they also terminated delivery of Turkmen gas to Ukraine. Ukraine ‘assumed’ that the Turkmen gas was still on stream – as a result pressure fell dramatically at the European end of the pipelines. Today Gazprom confirmed that they are no longer delivering Turkmen gas to Ukraine.
The whole matter of delivery of gas from Turmenistan to Ukraine is very murky indeed. It is controlled by a Swiss-based ‘kick-back’ company RosUkrEnergo created in summer 2004 after talks between Putin and former Ukrainian President Kuchma. It acts as an intermediary between Gazprom and Naftohaz Ukrainy to transit Turkmen gas through Russia into Ukraine. For its services it receives a whopping 13Bcm of Turkmen gas destined for Ukraine per annum, which it then sells on in European markets to provide huge off-the-books slush funds for its highly placed secret Russian and Ukrainian directors. Recently sacked Ukrainian Prime Minister Yulia Tymoshenko said that plugging this scam would go a long way towards solving Ukraine’s gas problems.
There is an urgent need for the EU to show some leadership and formulate an integrated policy for gas deliveries. It's time for some serious bargaining to take place between Russia, the EU countries, Ukraine, and possibly Turkmenistan, to solve this crisis and ensure that it does not occur again.
Tuesday, January 03, 2006
On again?
The gas is still on and Russia has promised to pump in more supplies to make up for the gas they say has been stolen by Ukraine over the past couple of days. Bloomberg quotes Medvedev, Putin’s crony head of Gasprom, as saying
Ukraine denies this of course but in this area of the world, both of these positions may be the truth. Gas may be siphoned off and the government not know anything about it—or at least the head of the government. There are other interests here with other power that might be doing this.
But Medvedev continues the stupid statements. By saying it can’t continue suggests that Russia will do what to stop it? Turn off the flow again? Or something “fatal?” If it is European concerns that caused them to turn it on, which it was, is making this kind of noise speaking to European concerns? The answer is a flat no. But it is not commerce that is the issue here, it is Russian prerogatives—that is, Kremlin prerogatives-- in what it considers its own backyard. They are narrowly focused on these and on nothing else—at least until a big European customer puts in a call and reads them the riot act. But even then, after that, they quickly slip back into character and talk stupid. So will they turn it off again? I wouldn’t put it past them.
For those who think it is simply a commercial spat, think again. The Christian Science Monitor:
It is about Russia and Russian interests as defined by the Kremlin, that is, short-term and very narrow.
One other thing. Putin said the other day that turning off the gas was not the thing to do or was not going to happen or something like that. (That’s a weak quote I know. I don’t have the exact quote but that is the gist of it.) Now he’s on board and talking tough. This reminds me of Yukos, first a no by Putin then a yes and it suggests to me once again that Putin is not as in charge of things as most people tend to think he is. This is just more evidence that there are competing power centers in the Kremlin that Putin has to broker.
Meanwhile, on the home front, we woke up to a noticeably cooler apartment this morning. I checked the radiator and it was still on and hot but I could hold onto it without getting burned. Last week, I would have been burned. So it is hot but not as hot.
We’ll bundle up a bit.
"By tomorrow evening gas supplies to Europe will be restored in full, in accordance to their contract,'' Gazprom Deputy Chief Executive Alexander Medvedev said at the press conference. "However, the situation in which Ukraine continues to steal gas and we continue to supply European customers can't continue indefinitely.''
Ukraine denies this of course but in this area of the world, both of these positions may be the truth. Gas may be siphoned off and the government not know anything about it—or at least the head of the government. There are other interests here with other power that might be doing this.
But Medvedev continues the stupid statements. By saying it can’t continue suggests that Russia will do what to stop it? Turn off the flow again? Or something “fatal?” If it is European concerns that caused them to turn it on, which it was, is making this kind of noise speaking to European concerns? The answer is a flat no. But it is not commerce that is the issue here, it is Russian prerogatives—that is, Kremlin prerogatives-- in what it considers its own backyard. They are narrowly focused on these and on nothing else—at least until a big European customer puts in a call and reads them the riot act. But even then, after that, they quickly slip back into character and talk stupid. So will they turn it off again? I wouldn’t put it past them.
For those who think it is simply a commercial spat, think again. The Christian Science Monitor:
And"We have vast resources and they give us political influence," says Vladimir Zharikhin, deputy director of the state-funded Institute of Commonwealth of Independent States Studies in Moscow. "If we give a lower price to somebody, we have the right to demand political concessions. So, we will give economic aid only to the countries that are loyal to us. This may not be a great geopolitical policy, but it's better than nothing."
Mr. Markov [an advisor close to the Kremlin] says the stakes are high, and the Kremlin is unlikely to back off its harsh stance toward Ukraine. "Failure will undermine Russia's image, but victory will strengthen it," he says. "To be a guarantor of energy security,it's important to be firm. If Moscow were to agree to continue paying for Ukraine's anti-Russian behavior, who would ever take us seriously?"
It is about Russia and Russian interests as defined by the Kremlin, that is, short-term and very narrow.
One other thing. Putin said the other day that turning off the gas was not the thing to do or was not going to happen or something like that. (That’s a weak quote I know. I don’t have the exact quote but that is the gist of it.) Now he’s on board and talking tough. This reminds me of Yukos, first a no by Putin then a yes and it suggests to me once again that Putin is not as in charge of things as most people tend to think he is. This is just more evidence that there are competing power centers in the Kremlin that Putin has to broker.
Meanwhile, on the home front, we woke up to a noticeably cooler apartment this morning. I checked the radiator and it was still on and hot but I could hold onto it without getting burned. Last week, I would have been burned. So it is hot but not as hot.
We’ll bundle up a bit.
Monday, January 02, 2006
Gas crisis unfolding quickly
Events in the Russia–Ukraine gas crisis are unfolding quicker than I anticipated. A major reason why gas pressures in European countries [fed by pipelines passing through Ukraine] dropped so precipitously today is that, apparently, no Turkmen gas was pumped from Turkmenistan to Ukraine by Russia. Gazprom have acknowledged that they ‘delivered short’ today, and hurriedly promised to deliver more gas, probably because of some serious behind-the-scenes arm-twisting by Germany and other European countries.
Approximately 36 Bcm [billion cubic meters] of Ukraine’s annual gas consumption is from Turkmenistan, 20Bcm is from domestic gas fields, and 23Bcm is from Russia, much in lieu of cash transit payment. Ukraine exports about 5Bcm.
Worryingly for Ukrainians, a Gazprom spokesman announced yesterday that that all 15 Bcm of gas to be exported from Turkmenistan in the first quarter of 2006 belong to Gazprom. [Details at http://www.rferl.org/featuresarticle/2006/1/FA73C033-A756-4E69-B9C1-350D35F9A531.html ]
A few days earlier Gazprom said that it purchased a big chunk of the total Turkmen gas production for 2006, increasing its imports fourfold from that country, perhaps to make up a shortfall in its own projected production targets. This, together with limited pipeline capacity from Turkmenistan westward, could spell big trouble for Ukraine and deepen the gas crisis even further.
The Ukrainian Ministry of Foreign Affairs has released an uncompromisingly worded statement [which can be read in English at http://www.mfa.gov.ua/mfa/en/publication/content/4977.htm ] putting its side of the disagreement. It accuses Russia of “aiming to exert economic pressure, blackmail, and, ultimately, destabilize the Ukrainian economy and disrupt Russia’s gas supplies to consumers in EU countries”.
The Ukrainian Cabinet has today appointed Ukrainian Parliamentary speaker Volodymyr Lytvyn as a Deputy Chairman of Ukrainian State oil and gas company Naftogaz Ukrainy. Lytvyn was also Parliamentary speaker under former President Kuchma, and the former head of the Kuchma’s Presidential Administration. He is a seasoned ‘fixer’ who is well acquainted with Putin and his Kremlin staff, as well as President Niyazov of Turkmenistan.
For a good insight into the mind of Putin and those pulling the Gazprom strings check out an interview with Andrei Illarionov, the Russian President’s key economic adviser who resigned this week. It's in the current “Time” magazine at http://www.time.com/time/world/printout/0,8816,1145192,00.html He says, “Russia has made it plain it wants Ukraine's gas transporting system. Then, Gazprom says, the prices will go down. This is the same usage of an energy weapon, as OPEC did in November 1973, when they placed the U.S. and Holland under oil embargo for siding with Israel. Prices skyrocketed; Saudi Arabia enjoyed a couple of years of fat profits. Then, the U.S. and other Western countries improved their economies, and adjusted to new prices, while per capita income in Saudi Arabia has sharply dropped since. A country that is prepared to wield energy weapons must know that it is going to lose in the long run. History gives an unequivocal answer to where Russia will slide, should it embark on this road”.
Events in the Russia–Ukraine gas crisis are unfolding quicker than I anticipated. A major reason why gas pressures in European countries [fed by pipelines passing through Ukraine] dropped so precipitously today is that, apparently, no Turkmen gas was pumped from Turkmenistan to Ukraine by Russia. Gazprom have acknowledged that they ‘delivered short’ today, and hurriedly promised to deliver more gas, probably because of some serious behind-the-scenes arm-twisting by Germany and other European countries.
Approximately 36 Bcm [billion cubic meters] of Ukraine’s annual gas consumption is from Turkmenistan, 20Bcm is from domestic gas fields, and 23Bcm is from Russia, much in lieu of cash transit payment. Ukraine exports about 5Bcm.
Worryingly for Ukrainians, a Gazprom spokesman announced yesterday that that all 15 Bcm of gas to be exported from Turkmenistan in the first quarter of 2006 belong to Gazprom. [Details at http://www.rferl.org/featuresarticle/2006/1/FA73C033-A756-4E69-B9C1-350D35F9A531.html ]
A few days earlier Gazprom said that it purchased a big chunk of the total Turkmen gas production for 2006, increasing its imports fourfold from that country, perhaps to make up a shortfall in its own projected production targets. This, together with limited pipeline capacity from Turkmenistan westward, could spell big trouble for Ukraine and deepen the gas crisis even further.
The Ukrainian Ministry of Foreign Affairs has released an uncompromisingly worded statement [which can be read in English at http://www.mfa.gov.ua/mfa/en/publication/content/4977.htm ] putting its side of the disagreement. It accuses Russia of “aiming to exert economic pressure, blackmail, and, ultimately, destabilize the Ukrainian economy and disrupt Russia’s gas supplies to consumers in EU countries”.
The Ukrainian Cabinet has today appointed Ukrainian Parliamentary speaker Volodymyr Lytvyn as a Deputy Chairman of Ukrainian State oil and gas company Naftogaz Ukrainy. Lytvyn was also Parliamentary speaker under former President Kuchma, and the former head of the Kuchma’s Presidential Administration. He is a seasoned ‘fixer’ who is well acquainted with Putin and his Kremlin staff, as well as President Niyazov of Turkmenistan.
For a good insight into the mind of Putin and those pulling the Gazprom strings check out an interview with Andrei Illarionov, the Russian President’s key economic adviser who resigned this week. It's in the current “Time” magazine at http://www.time.com/time/world/printout/0,8816,1145192,00.html He says, “Russia has made it plain it wants Ukraine's gas transporting system. Then, Gazprom says, the prices will go down. This is the same usage of an energy weapon, as OPEC did in November 1973, when they placed the U.S. and Holland under oil embargo for siding with Israel. Prices skyrocketed; Saudi Arabia enjoyed a couple of years of fat profits. Then, the U.S. and other Western countries improved their economies, and adjusted to new prices, while per capita income in Saudi Arabia has sharply dropped since. A country that is prepared to wield energy weapons must know that it is going to lose in the long run. History gives an unequivocal answer to where Russia will slide, should it embark on this road”.
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:
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'.
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'.
No gas...sort of
So the gas has been turned off. We know this because of the pictures of someone turning a valve near the Ukrainian border broadcast on TV yesterday in Russia. Of course, gas still flows through the pipeline, but it has been reported to be at a lower pressure. So gas flows but Ukraine’s portion is being withheld.
Before we knew for certain Russia had “turned off” the gas yesterday, I could have sworn it was colder in the apartment, which to me was a sure sign they had. So we went around checking the radiators to see if they were cold. They weren’t. And they aren’t today. The government says there is enough gas for a while so domestic consumers won’t feel it, at least for the next little while. After that, who knows.
This creates a lot of uncertainty but you have to admit that it makes things more interesting.
One of the things this could do is to spur reforms across the board. The country needs an energy policy quick and the only way to have an effective energy policy is with reform. Maybe this will be a kick in the rear to get reform moving again. Maybe we hope too much.
Yanukovych has been seen on TV recently with the airing of his best wishes for the country in the new year. He speaks Ukrainian and manages a smile that doesn’t come off as a smirk. Must have been practicing for this moment. Maybe he has a Russian language version for the east. If not, you gotta wonder how it all plays there.
He hasn’t been known much for having good advisors. As a matter of, they have been spectacularly abysmal even the Russian versions he had in the last election. But I think he thinks he just has to hang around and stay out of jail to win the PMship in March. And the polls say he is right—for now. That he still is around and still viable says nothing for his strategy and a lot for the fact that the government and the others don’t have one. Yanukovych is still the butt of jokes, but even a fool can win if the opposition is in disarray. And that is what it looks like now—on both counts.
Yuschenko’s speech on New Years Eve was a nice one all told. He walked out of Marinsky Palace, out the gate and across the plaza to a podium flanked by female singers singing the Carol of the Bells. (“Ring Christmas bells, merrily ring, tell all the world, Jesus is king…”) It looked like Bush or Reagan walking down the corridor to the East room for a speech or press conference. It looked pretty impressive. Kuchma was usually sitting at his desk in real party boss style trying to be nice but not quite doing it. This looked more meaningful.
The speech started as a laundry list of accomplishments which I wish he would have chucked. The second half was better. His speech at the Maidan celebration suffered from the same problems. It would have been better in both cases to have given the last half first and then moved on to tout the accomplishments. That might sound weird to an ear attuned to US presidential speeches, which do the same things, but here he’s got to get the people’s ears before he can tell them what he’s done. And he hasn’t gotten their ears yet. He has to speak to them, soul to soul like he did before, in the olden times. That might mean he may have to get rid of some Western trained advisors but that is what he ought to do. Cleverness won’t cut it right now.
Anyway, in light of developments, new fur fashions to wear indoors might be a good business idea.
Courage!
Before we knew for certain Russia had “turned off” the gas yesterday, I could have sworn it was colder in the apartment, which to me was a sure sign they had. So we went around checking the radiators to see if they were cold. They weren’t. And they aren’t today. The government says there is enough gas for a while so domestic consumers won’t feel it, at least for the next little while. After that, who knows.
This creates a lot of uncertainty but you have to admit that it makes things more interesting.
One of the things this could do is to spur reforms across the board. The country needs an energy policy quick and the only way to have an effective energy policy is with reform. Maybe this will be a kick in the rear to get reform moving again. Maybe we hope too much.
Yanukovych has been seen on TV recently with the airing of his best wishes for the country in the new year. He speaks Ukrainian and manages a smile that doesn’t come off as a smirk. Must have been practicing for this moment. Maybe he has a Russian language version for the east. If not, you gotta wonder how it all plays there.
He hasn’t been known much for having good advisors. As a matter of, they have been spectacularly abysmal even the Russian versions he had in the last election. But I think he thinks he just has to hang around and stay out of jail to win the PMship in March. And the polls say he is right—for now. That he still is around and still viable says nothing for his strategy and a lot for the fact that the government and the others don’t have one. Yanukovych is still the butt of jokes, but even a fool can win if the opposition is in disarray. And that is what it looks like now—on both counts.
Yuschenko’s speech on New Years Eve was a nice one all told. He walked out of Marinsky Palace, out the gate and across the plaza to a podium flanked by female singers singing the Carol of the Bells. (“Ring Christmas bells, merrily ring, tell all the world, Jesus is king…”) It looked like Bush or Reagan walking down the corridor to the East room for a speech or press conference. It looked pretty impressive. Kuchma was usually sitting at his desk in real party boss style trying to be nice but not quite doing it. This looked more meaningful.
The speech started as a laundry list of accomplishments which I wish he would have chucked. The second half was better. His speech at the Maidan celebration suffered from the same problems. It would have been better in both cases to have given the last half first and then moved on to tout the accomplishments. That might sound weird to an ear attuned to US presidential speeches, which do the same things, but here he’s got to get the people’s ears before he can tell them what he’s done. And he hasn’t gotten their ears yet. He has to speak to them, soul to soul like he did before, in the olden times. That might mean he may have to get rid of some Western trained advisors but that is what he ought to do. Cleverness won’t cut it right now.
Anyway, in light of developments, new fur fashions to wear indoors might be a good business idea.
Courage!
Saturday, December 31, 2005
More commenter analysis
Here's some more analysis from a commenter who signs himself LEvko. It belongs up here:
LEvko: This is the kind of comment that I would like to see as a blog post. If you have any interest, please contact me and maybe we can get you access to post here.
The Ukraine-Russia gas crisis is part of a trial of strength in the wake of Kremlin's humiliation during and after last year's Orange Revolution - "The Empire Striking Back?"
Putin's Kremlin has rather overplayed its hand so early in this poker game
- Western European countries are already getting anxious about their gas supplies.
A piece in today's 'FT' on the gas crisis states: "The Austrian government
on Wednesday attempted to calm fears of gas shortages across Europe as Ukraine's fuel and energy minister arrived in Moscow for emergency talks aimed at finding
a solution to a row over prices that could see Russia cut exports. Martin Bartenstein, economics minister, said ensuring energy supplies would be a priority of Austria's presidency of the European Union from January 1. "Europe needs more investment and greater diversification of its energy sources," he said.
Suez, the Franco-Belgian energy group, said the dispute was an "alarm bell" for Europe's politicians over the risk of becoming too dependent on Russian gas imports. Gerard Mestrallet, Suez chief executive, said: "Geographical concentration of supply at a time when our dependence is growing does not set the stage for prices to ebb from the high levels they have reached in recent months.
"Echoing these sentiments, the German Embassador in Ukraine, in an interview in today's Ukraininan 'Delo' newspaper is clearly sympathetic to Ukraine's plight, considers Gazprom's attitude unreasonable, its ultimatums unacceptable, and suggests gas price increases should be staged. Worryingly for Russia, he says, "..Russia and Ukraine are our partners, and if they mess us about, we will look for energy sources in other places.
"Putin and his Kremlin associates, for it is they who are pulling the strings, by uncompromisingly threatening to terminate gas supplies to Ukraine and recklessly increasing the price of gas from $160 to $230 per Mcm, have nailed their colours to the mast and left little 'wiggle room' in any further negotiations. Any lower figure when a deal is finally done will look like defeat and more loss of face for Putin when dealing in Ukrainian matters.
Apparently if no deal is reached by 1st January, in a propaganda stunt straight from the Khruschev era, some Russian TV channels will transmit live pictures of the theatrical turning off of valves on pipelines supposedly transporting gas to Ukraine.
As in any dispute where goods or services are provided by long-term suppliers to consumers, 'status quo ante' conditions normally apply until agreement is achieved, and then back-dated financial adjustments and repayments made. I suspect that EU Embassadors are beginning to lean on the Kremlin telling them to bear this in mind, and get things sorted.
European consumers, transit countries, and supplier countries whether they like it or not are mutually interdependent and are bound together is this dispute. In my opinion the Ukrainian authorities are doing OK in trying to get as good a deal for themselves as possible, I hope they don't get too cocky. Yushchenko's comments to the press tend to be bland, and [deliberately?] obfuscating, so maybe they won't.
On the internal politics front in the run-up to the VR elections, statements from Yanukovych have been somewhat contradictory. Although he considers $230 per Mcm unacceptable and " a blow below the belt," he blames the current government for this crisis. How it is affecting voters' preferences I'm not sure. It's all most interesting..
LEvko: This is the kind of comment that I would like to see as a blog post. If you have any interest, please contact me and maybe we can get you access to post here.
Russia prepares to turn off gas to Ukraine?
So is it official? --Russia prepares to turn off gas to Ukraine. Come 10 a.m. tomorrow Russia will shut off the gas supplies to Ukraine? And it will be televised?
It would be hard to know how they can shut it off. I guess they could just refuse to send any gas through the Ukrainian pipeline but that would affect the end-user Europeans. Or they could subtract, I guess, the amount of gas to be supplied to Ukraine from the total. But Ukraine says it has rights to 15% to pay the transit fee. And more could be siphoned off and not all of it would be with the approval of the government. That is how it has happened before.
It just astounds me though how the Kremlin can risk upsetting the Europeans like this. It can't possibly help either with its diplomatic relations or with its commercial relations. Its a damn them all strategy in effect, though they may think that pointing a finger at Ukraine is enough to remove any responsibility. It isn't. Russia has to be a dependable supplier for Europe or they will look at alternatives. And there is already some indication that Europeans are doing just that.
How about this for a resolution? Russia says it turns off the gas and there is an agreement in the next day or two for less than what Russia demands. The Kremlin talks it up as in the best interests of all parties to have a deal and thereby avoids a black eye--in their view. But that would be the view of an isolated Kremlin that sees the world in stark us-vs.-them terms. The damage has already been done.
Who knows though if such a result will take place. The Kremlin--I don't think the term "Russians" describes really the interests behind all of this--has signed a deal for Turkmen gas that will leave very little for Ukraine to be able to purchase. They are closing the noose a bit tighter it looks like.
I think it's clear that when it comes to Ukraine the Kremlin has lost its mind.
Of course, others who support Kremlin interests think differently about this. They argue that Ukraine has stiffed them at every turn in everything that they have done. Of course, they figure this only from the point of the Orange Revolution. What happened before that was just alright with them. But that shows what really sticks in their craw--freedom and independence for Ukraine.
It would be hard to know how they can shut it off. I guess they could just refuse to send any gas through the Ukrainian pipeline but that would affect the end-user Europeans. Or they could subtract, I guess, the amount of gas to be supplied to Ukraine from the total. But Ukraine says it has rights to 15% to pay the transit fee. And more could be siphoned off and not all of it would be with the approval of the government. That is how it has happened before.
It just astounds me though how the Kremlin can risk upsetting the Europeans like this. It can't possibly help either with its diplomatic relations or with its commercial relations. Its a damn them all strategy in effect, though they may think that pointing a finger at Ukraine is enough to remove any responsibility. It isn't. Russia has to be a dependable supplier for Europe or they will look at alternatives. And there is already some indication that Europeans are doing just that.
How about this for a resolution? Russia says it turns off the gas and there is an agreement in the next day or two for less than what Russia demands. The Kremlin talks it up as in the best interests of all parties to have a deal and thereby avoids a black eye--in their view. But that would be the view of an isolated Kremlin that sees the world in stark us-vs.-them terms. The damage has already been done.
Who knows though if such a result will take place. The Kremlin--I don't think the term "Russians" describes really the interests behind all of this--has signed a deal for Turkmen gas that will leave very little for Ukraine to be able to purchase. They are closing the noose a bit tighter it looks like.
I think it's clear that when it comes to Ukraine the Kremlin has lost its mind.
Of course, others who support Kremlin interests think differently about this. They argue that Ukraine has stiffed them at every turn in everything that they have done. Of course, they figure this only from the point of the Orange Revolution. What happened before that was just alright with them. But that shows what really sticks in their craw--freedom and independence for Ukraine.
Thursday, December 29, 2005
A play for the Crimea?
Review of Ukraine base lease 'fatal'--Russia
Maybe they could take the Crimea back. Maybe the people in Crimea would welcome them back. (The Tartars might not feel all that comfortable doing it, one would think.) I guess that would solve the Tuzla problem once and for all.
But this is just irresponsible on the part of the Kremlin, if they want to take their place in the world. I guess though they want their place to be on their own terms. And those terms sound an awful lot like empire.
Tymoshenko pointed at the Russians as the culprits every time something went wrong. She was wrong on all counts and is one other reason why she is unfit to govern. Ukraine needs good relations with Russia and Russia shouldn't be blamed for everything to stir up the people.
But Russia does deserve blame here. One commenter here says that Russia shouldn't subsidize a country that kicks them at every turn. This is a breathtaking charge. For one thing, it suggests that Russia is not as big a power as it asserts itself to be that it cannot ignore a country that is smaller than it is, poorer than it is, with not much in terms of any military that could challenge it.
But the problem really is that it's got the morality skewed badly. A guy has someone pinned down, beating him, gets a face full of spit for his troubles. "Can I really give a guy like that a break who would spit in my face?" His friends shake their heads. You can hear this talk from inmates quite a bit. "Well, if he hadn't gotten in my way, he'd be alive today." Or, "It was the way he looked at me. If he hadn't looked at me like that he'd be alive today." Or, better, from the rapist: "She had it coming to her." They have their points don't they? In an amoral world, yes.
I can't see that Russia comes out of this better off. Maybe Europe will bury its head in the sand and ignore it as long as the gas keeps coming. But that can't be true for all of Europe. For the newer states, this just confirms what they feel already about Russia. And maybe they would be as bothersome as a couple of ticks on a steers hide for all they could do in Europe. And thsi would not be the case for all Europeans. Some are advocating moving away from Russian dependence right now. Would that be good for Russia?
Ukrainian President Viktor Yushchenko, who is resisting Russia's demand for a nearly five-fold increase in gas prices in 2006, has hinted Ukraine could hit back by reconsidering the terms of leasing the Sevastopol base in the Crimean peninsula.One wonders what the Kremlin means by all this. Does it mean that Russia will make a play for the Crimea? Are they going to invade? When we were there, close down by where the Russian fleet lies at acnhor we came upon a new monument celebrating the "Russian city" Sevastopol's 300th anniversary. And the Russian flag flies not only over the fleet but also over the train station there. (When we asked someone on the train we were with, who said he was Ukrainian through and through even though he lived in the Crimea and spoke Russian predominantly, why the flag flew over the train station, he was perplexed by it. I don't think he had taken note of it before.)
"The agreement on the Black Sea fleet base is one part of a bilateral treaty, the second part of which contains recognition of mutual borders," Sergei Ivanov said in televised comments. "Trying to revise the treaty would be fatal."
The 1997 pact gave new legal status to the historical home base of the Black Sea fleet, which Russia inherited from the Soviet Union, and ruled out Moscow's territorial claims to Ukraine.
Maybe they could take the Crimea back. Maybe the people in Crimea would welcome them back. (The Tartars might not feel all that comfortable doing it, one would think.) I guess that would solve the Tuzla problem once and for all.
But this is just irresponsible on the part of the Kremlin, if they want to take their place in the world. I guess though they want their place to be on their own terms. And those terms sound an awful lot like empire.
Tymoshenko pointed at the Russians as the culprits every time something went wrong. She was wrong on all counts and is one other reason why she is unfit to govern. Ukraine needs good relations with Russia and Russia shouldn't be blamed for everything to stir up the people.
But Russia does deserve blame here. One commenter here says that Russia shouldn't subsidize a country that kicks them at every turn. This is a breathtaking charge. For one thing, it suggests that Russia is not as big a power as it asserts itself to be that it cannot ignore a country that is smaller than it is, poorer than it is, with not much in terms of any military that could challenge it.
But the problem really is that it's got the morality skewed badly. A guy has someone pinned down, beating him, gets a face full of spit for his troubles. "Can I really give a guy like that a break who would spit in my face?" His friends shake their heads. You can hear this talk from inmates quite a bit. "Well, if he hadn't gotten in my way, he'd be alive today." Or, "It was the way he looked at me. If he hadn't looked at me like that he'd be alive today." Or, better, from the rapist: "She had it coming to her." They have their points don't they? In an amoral world, yes.
I can't see that Russia comes out of this better off. Maybe Europe will bury its head in the sand and ignore it as long as the gas keeps coming. But that can't be true for all of Europe. For the newer states, this just confirms what they feel already about Russia. And maybe they would be as bothersome as a couple of ticks on a steers hide for all they could do in Europe. And thsi would not be the case for all Europeans. Some are advocating moving away from Russian dependence right now. Would that be good for Russia?
United Press International - NewsTrack - Ukrainian slaves rescued from Russian ship
This--United Press International - NewsTrack - Ukrainian slaves rescued from Russian ship --reminds me of a joke I posted here before that has made the rounds here in Ukraine.
A Ukrainian and a Russian are both in the desert in need of water. They come upon a bottle filled with it buried partially in the sand. Grabbing it, the Russian turns to the Ukrainian and says, "Let's share this like brothers!" The Ukrainian responds, "I'd prefer fifty-fifty."
A Ukrainian and a Russian are both in the desert in need of water. They come upon a bottle filled with it buried partially in the sand. Grabbing it, the Russian turns to the Ukrainian and says, "Let's share this like brothers!" The Ukrainian responds, "I'd prefer fifty-fifty."
The New Crimean War? More on natural gas
Here's some more on the natural gas crisis here--WSJ.com - The New Crimean War.
As to why, the article states:
If this is what they're thinking, they are playing a game of high risk. Is it necessarily all that clear that the results they think will come about will in fact occur? Point the finger at Ukraine if things go south and expect the world to see Ukraine as the culprit. Not very smart.
One thing about Saudi Arabia they have been smart about is not to push the price of oil too high that it creates incentives to conserve or to seek alternatives. That is smart from a business point of view. But Russian natural resources are being used as political tools by an insular Kremlin that miscalculates chronically.
Here's one for you: Why would the Kremlin support Iran in the face of Iranian support for Chechen terrorists? Seems like the same kind of thinking. What look like short-term gains trump anything that might be had in the long run. But that is the Kremlin.
As to why, the article states:
First, Russia seeks to influence Ukraine's March 2006 parliamentary elections by suggesting to Ukrainian voters that the current government in Kiev is economically incompetent and its pro-Western tilt harmful to consumers.
Second, the Kremlin seeks to discredit Ukraine's "Orange" government among Russian citizens in order to inoculate its population from the contagion of democratic revolution.
Third, Russia seeks to drive a wedge between Europe and Ukraine by painting the Kiev government as reckless and unreliable.
If this is what they're thinking, they are playing a game of high risk. Is it necessarily all that clear that the results they think will come about will in fact occur? Point the finger at Ukraine if things go south and expect the world to see Ukraine as the culprit. Not very smart.
One thing about Saudi Arabia they have been smart about is not to push the price of oil too high that it creates incentives to conserve or to seek alternatives. That is smart from a business point of view. But Russian natural resources are being used as political tools by an insular Kremlin that miscalculates chronically.
Here's one for you: Why would the Kremlin support Iran in the face of Iranian support for Chechen terrorists? Seems like the same kind of thinking. What look like short-term gains trump anything that might be had in the long run. But that is the Kremlin.
Monday, December 26, 2005
A change in the blog
I am thinking about making a change here in the next few weeks. I want to make this a co-blogger affair. There are any number of people out there who have made comments on the site who have some good insights into Ukraine and into this area of the world. It is those kind of insights I think would be something to offer readers on a more consistent basis.
There is a lot going on around here and I don't have all that much time to track it all. This is not only true for Ukraine but also for Central Asia and for Russia. These are all neighbors and for some of them, the effects of the Orange Revolution are still being felt, if not in imminent revolution, then in a certain paranoia that is influencing policy still. And Europe is an issue too since Ukraine is moving in that direction. All of these countries are places of interest for this humble little blog.
If you would prefer anonymity, that is a possibility too. We could work up s pseudonym for you to work under.
So anyway, if you have any interest, let me know. I am looking for from 2 to 4 others. Email me at foreignnotes at hotmail dot com.
There is a lot going on around here and I don't have all that much time to track it all. This is not only true for Ukraine but also for Central Asia and for Russia. These are all neighbors and for some of them, the effects of the Orange Revolution are still being felt, if not in imminent revolution, then in a certain paranoia that is influencing policy still. And Europe is an issue too since Ukraine is moving in that direction. All of these countries are places of interest for this humble little blog.
If you would prefer anonymity, that is a possibility too. We could work up s pseudonym for you to work under.
So anyway, if you have any interest, let me know. I am looking for from 2 to 4 others. Email me at foreignnotes at hotmail dot com.
Sunday, December 25, 2005
Merry Christmas
A very Merry Christmas to everyone.
Even though it was all uncertainty for awhile, though our youngest daughter didn't give up hope in the face of repeated cross examination and skepticism from her father, Santa Clause visited our humble square of air and brought us all presents.
Of course, we have jumped the gun on it all. Christmas here isn't until January 7th. But Ded Moroz. Ukraine's Santa Claus, comes on January 1st. So we are ahead of the Christmas season wave here. The kids don't mind it though--not one bit.
Even though it was all uncertainty for awhile, though our youngest daughter didn't give up hope in the face of repeated cross examination and skepticism from her father, Santa Clause visited our humble square of air and brought us all presents.
Of course, we have jumped the gun on it all. Christmas here isn't until January 7th. But Ded Moroz. Ukraine's Santa Claus, comes on January 1st. So we are ahead of the Christmas season wave here. The kids don't mind it though--not one bit.
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:
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.
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.
Much more gas analysis
Here some more analysis of the gas crisis here--One Gas Mask For All. Yulia MOSTOVAYA. Zerkalo Nedeli On The WEB. And it is a crisis.
This is not to say that economically Ukraine wouldn't be better off to eat the higher prices. It would be much better off, in the long run. But it needs to be in manageable bites. Maybe that is impossible to do--industries and governments are not usually motivated to do what they aren't forced to do. But economic devastation could be a real possibility. And Yuschenko and the gains of the Orange Revolution might not be the only casualties. Democracy could also be a casualty. The great cynical irony is that after the Orange Revolution, Russian analysts sneered that Ukraine would dabble in democracy and that it would then be discredited leaving Ukraine on the more natural path that Russia blazed with Putin. "You'll be with us in the end," was what they said.
It looks like it won't be the result of any kind of Slavic inevitability or historical necessity but because of Russian meddling. (And if you don't think it is meddling, just look at the prices Belarus and others who toe the line pay.) They will give history a big shove and then talk about the inevitability of it all. It seems like that is a result no one should want in Ukraine.
Of course, they could just cede the pipeline to Russia if that is what they are really after. Easy to resolve then. But that only makes sure you get eaten last, to paraphrase Winston Churchill.
So the government has to mobilize. But it looks like nothing is being done. And the opposition is looking to what will amount to a carving up of the cadaver. Criminally irresponsible still.
Does Europe see this all with any degree of concern? If appeasement seems to come to mind readily there might be a reason for it. Hunker down and maybe they'll pass us by. If the argument that Lavrov has made that they will use it for their near neighbors gives them any feeling of relief they are naive. Using resources as a tool of foreign policy has no natural limit. If it is in their interest to use them against Ukraine, when it is in their interests again, they will be used again. Anything else is living in a Disneyland world. All is joyous and wonderful inside and all the problems are left outside--for a hefty price. But those problems still press in and eventually you have to come out and deal with them.
This is not to say that economically Ukraine wouldn't be better off to eat the higher prices. It would be much better off, in the long run. But it needs to be in manageable bites. Maybe that is impossible to do--industries and governments are not usually motivated to do what they aren't forced to do. But economic devastation could be a real possibility. And Yuschenko and the gains of the Orange Revolution might not be the only casualties. Democracy could also be a casualty. The great cynical irony is that after the Orange Revolution, Russian analysts sneered that Ukraine would dabble in democracy and that it would then be discredited leaving Ukraine on the more natural path that Russia blazed with Putin. "You'll be with us in the end," was what they said.
It looks like it won't be the result of any kind of Slavic inevitability or historical necessity but because of Russian meddling. (And if you don't think it is meddling, just look at the prices Belarus and others who toe the line pay.) They will give history a big shove and then talk about the inevitability of it all. It seems like that is a result no one should want in Ukraine.
Of course, they could just cede the pipeline to Russia if that is what they are really after. Easy to resolve then. But that only makes sure you get eaten last, to paraphrase Winston Churchill.
So the government has to mobilize. But it looks like nothing is being done. And the opposition is looking to what will amount to a carving up of the cadaver. Criminally irresponsible still.
Does Europe see this all with any degree of concern? If appeasement seems to come to mind readily there might be a reason for it. Hunker down and maybe they'll pass us by. If the argument that Lavrov has made that they will use it for their near neighbors gives them any feeling of relief they are naive. Using resources as a tool of foreign policy has no natural limit. If it is in their interest to use them against Ukraine, when it is in their interests again, they will be used again. Anything else is living in a Disneyland world. All is joyous and wonderful inside and all the problems are left outside--for a hefty price. But those problems still press in and eventually you have to come out and deal with them.
Monday, December 19, 2005
Some other good gas analysis
Here's some very good analysis of the gas problem here by a commenter to the last blog post of mine. I thought it should be up here on its own.
I might have some more comment on this later. I have been busy this weekend with new bundle of joy matters so I haven't been around here much.Dear Scott - Your comments describing the Ukraine-Russia gas crisis are most interesting and quite sobering. As I see it Ukraine has a [semi] monopoly position as a transit country, and Russia is a [semi] monopoly supplier, so the situation is developing into a high stakes poker game, the prize being the Ukrainian gas transit system. Are we as close to gas supply disruption as your piece suggests? Curtailment of gas supply, even if temporary, to many high volume gas consuming industrial processes, particularly continous processes, can be disastrous.
European consumers have supply contracts with Gazprom, and not with Ukrainian companies, so wouldn't they be legally liable for losses incurred due to non delivery of gas, rather than Ukrainian companies? As you say the vituperative statements emerging from Gazprom and the rest must be unnerving the Europeans too. Nobody likes as bully and a blackmailer.
My guess is that for the moment Russia has too much to loose by reducing gas shipment through Ukrainian pipelines, and Ukraine has too much to loose if it starts
reducing throughput of gas, so this is going to drag on for a while.
Some commentators say that Putin is trying to influence next Spring's VR elections. Would he be so crude as to suggest, 'Vote for Yanuk, and you'll get cheap gas, vote for the others, and you pay 'top whack' for gas'. I don't think so. I think he knows that he has already lost Ukraine. Akhmetov and the rest must be just as worried about steep gas price increases, as everyone else. Their effects would be felt particularly hard in Eastern Ukraine - Yanuk's home turf. I think that the local populus would feel doubly betrayed by Russia if their factories were closed and domestic radiators were cold this winter.
Thursday, December 15, 2005
Hardball on natural gas
Here's some more of the same on Russian gas to Ukraine--KREMLIN HAS UPPER HAND IN GAS NEGOTIATIONS WITH UKRAINE - Eurasia Daily Monitor.
I think the Russians believe they have the upperhand when it comes to the negotiations here. Ukraine can't go to anyone else for its supplies. Russia is it. So they have to deal. And Russia wants to increase the price threefold and have threatened to cut off supplies by January 1st if their price demand is not met. They say they will just send it to the EU.
If Ukraine cuts of all gas transiting to the EU and the EU complains, the Russians will say, "It's not us!" and point to Ukraine. I think they expect the EU to lean on Ukraine because of the potential for a shutoff. (They get 40% of their requirements from Russia.) And the EU just might do this. "It's only business. Nothing personal." To think they might want to risk jeopardizing their gas supplies to help Ukraine in the face of a Russian powerplay might just be too much to expect. Principle is one thing when you are warm and comfy and your industry is not subject to work stoppages. But it is quite another thing when the populace is faced with natural gas shortages and the specter of paying a much higher price or risk freezing in their homes.
But, as uncharacteristic as it may sound, the EU might take Ukraine's side in this. It might think it has more in common with Ukraine than it does with Russia and it might think its interests are more in line with nurturing the growth of democracy here than with aligning itself with Russia in this dispute.
But that might split the EU. Germany has shown itself eager to please Russia. They may stand to lose the most if supplies are cut off. They will probably deal on their own. Could they block any kind of effort on the part of EU institutions to respond in favor of Ukraine? Maybe. That would bother the newer additions like Poland, Czechoslovakia and the Baltic states no end. I think they would see it as treachery. Maybe Germany would see this as so much buzzing of gnats around their national head. "Just do it an let the gnats buzz. It may be a nuisance but nothing more." But would they not lose anything from this? The newer additions don't have all that much power so there might not be all that much they can do about it. But it could constitute a fundamental breach for them and might not bode well for the future of the EU. Can it survive if all countries seek only their own narrow interests at the expense of the other countries?
I think that there is a downside for Russia in this. If the EU gets the idea that Russia is willing to risk the shutting off of supplies to the EU because of some power play with the countries it considers to be in its sphere of influence, I don't think that would go over well. Some in the EU think that it must decrease its dependence on Russian gas supplies right now. They may have a hard time doing it through other suppliers. But they might look to decrease dependency through the use of alternatives. Would that be a good thing for Russia? Or do they think they can just sell it to someone else?
But sitting here, I would be prone to tell Russia to take our last offer and if they don't like it to cut off the supply. I would schedule an address to the nation and tell the people that the Russians are doing it to us again, that we need to hunker down to be able to weather this much as we have other agressions by the usual parties, uh, party.
Then I would retaliate by blocking the supplies to the EU and call it a self defense measure. We would then see what happens. It could be that the Russians might not like the result.
But I am sitting here with nothing riding on what I might think. The possibility that people could freeze in their homes and that industry would be stopped here in Ukraine would be hanging heavily over all of this. Anything to avoid that result would probably be most likely.
This could have much broader implications for the country than the elections in March. We'll see.
Triggering that round of presidential telephone calls was the breakdown of negotiations on Russian gas supply to Ukraine and gas transit via Ukraine to European Union countries. On December 5-6 in Moscow, Naftohaz Ukrainy chairman Oleksiy Ivchenko and Gazprom's management took irreconcilable positions on the supply and transit agreements for 2006. Without a Russia-Ukraine transit agreement taking effect on January 1, 2006, it is not clear how or on what terms Russian gas can reach the European Union.
In a remarkably vituperative press statement, Gazprom charged that the Ukrainian side was being "totally unconstructive, playing a very dangerous game, holding the Ukrainian people hostage [and] endangering the energy security of European consumers of Russian gas" (Interfax, December 6). With the January 1 deadline fast approaching, Moscow expects the EU to lean on Kyiv. Russian Prime Minister Mikhail Fradkov, in Brussels for a joint meeting of the European Commission and the Russian government, complained about Ukraine and warned the EU of "possible delays in Russian gas deliveries to Europe" because of Kyiv's position. He asked the EU to use its "convincing arguments in advising Ukraine to ensure unimpeded transit of gas to Europe" (Interfax, December 7).
Ukraine may face national bankruptcy if the Russian price hikes and cash-only payments take effect overnight, as Moscow now demands. Ukraine's gas bill to Russia would in that case rise from some $1.25 billion to an estimated $4.5 billion annually. Moreover, Ukraine's metallurgical and chemical sectors -- the main industrial consumers of gas -- could be forced out of operation, warns Union of Industrialists and Entrepreneurs chairman Anatoly Kinakh, currently Secretary of Ukraine's National Security and Defense Council. According to Kinakh, the
chemical industry overall would operate at a loss if the price of gas exceeds $95 per 1,000 cubic meters, and the metallurgical sector overall would become loss-making if the gas costs more than $103 per 1,000 cubic meters. These two sectors jointly account for 30% of Ukraine's annual GDP and 45% of the country's export revenue, according to Kinakh's estimates (Interfax-Ukraine, December 9). Moscow at this point demands $160 per 1,000 cubic meters of gas.
However, rather than bankrupting Ukraine, Gazprom may well be aiming for
a deal to acquire part-ownership of Ukraine's transit pipeline system, in return for conceding soft terms on gas supply to Ukraine. The Kremlin could score a major net strategic gain in this event.
I think the Russians believe they have the upperhand when it comes to the negotiations here. Ukraine can't go to anyone else for its supplies. Russia is it. So they have to deal. And Russia wants to increase the price threefold and have threatened to cut off supplies by January 1st if their price demand is not met. They say they will just send it to the EU.
If Ukraine cuts of all gas transiting to the EU and the EU complains, the Russians will say, "It's not us!" and point to Ukraine. I think they expect the EU to lean on Ukraine because of the potential for a shutoff. (They get 40% of their requirements from Russia.) And the EU just might do this. "It's only business. Nothing personal." To think they might want to risk jeopardizing their gas supplies to help Ukraine in the face of a Russian powerplay might just be too much to expect. Principle is one thing when you are warm and comfy and your industry is not subject to work stoppages. But it is quite another thing when the populace is faced with natural gas shortages and the specter of paying a much higher price or risk freezing in their homes.
But, as uncharacteristic as it may sound, the EU might take Ukraine's side in this. It might think it has more in common with Ukraine than it does with Russia and it might think its interests are more in line with nurturing the growth of democracy here than with aligning itself with Russia in this dispute.
But that might split the EU. Germany has shown itself eager to please Russia. They may stand to lose the most if supplies are cut off. They will probably deal on their own. Could they block any kind of effort on the part of EU institutions to respond in favor of Ukraine? Maybe. That would bother the newer additions like Poland, Czechoslovakia and the Baltic states no end. I think they would see it as treachery. Maybe Germany would see this as so much buzzing of gnats around their national head. "Just do it an let the gnats buzz. It may be a nuisance but nothing more." But would they not lose anything from this? The newer additions don't have all that much power so there might not be all that much they can do about it. But it could constitute a fundamental breach for them and might not bode well for the future of the EU. Can it survive if all countries seek only their own narrow interests at the expense of the other countries?
I think that there is a downside for Russia in this. If the EU gets the idea that Russia is willing to risk the shutting off of supplies to the EU because of some power play with the countries it considers to be in its sphere of influence, I don't think that would go over well. Some in the EU think that it must decrease its dependence on Russian gas supplies right now. They may have a hard time doing it through other suppliers. But they might look to decrease dependency through the use of alternatives. Would that be a good thing for Russia? Or do they think they can just sell it to someone else?
But sitting here, I would be prone to tell Russia to take our last offer and if they don't like it to cut off the supply. I would schedule an address to the nation and tell the people that the Russians are doing it to us again, that we need to hunker down to be able to weather this much as we have other agressions by the usual parties, uh, party.
Then I would retaliate by blocking the supplies to the EU and call it a self defense measure. We would then see what happens. It could be that the Russians might not like the result.
But I am sitting here with nothing riding on what I might think. The possibility that people could freeze in their homes and that industry would be stopped here in Ukraine would be hanging heavily over all of this. Anything to avoid that result would probably be most likely.
This could have much broader implications for the country than the elections in March. We'll see.
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