June 23, 2014
Russia has unsheathed its gas weapon again, demanding higher prices this spring from Ukraine and announcing last week a cutoff in sales to its neighbor unless paid for in advance. (As Moscow twists Ukraine’s arm over gas, it has retreated on its gas price to Lithuania, which may offer a valuable lesson, Agnia Grigas writes.) The West can better defend Ukraine and Europe against Russia’s weaponization of gas sales by demanding that Russia’s state-owned Gazprom sell gas to European Union states at a uniform basic price, says Atlantic Council Nonresident Senior Fellow Matthew Bryza.

That step is so significant that the United States and the European Union should include its implementation as the goal of any broad economic sanctions against Russia over the Ukraine crisis, Bryza said in a video interview with the Council today. EU members should not let themselves be divided and conquered in price negotiations that, Bryza says, the Kremlin and Gazprom have manipulated with incredible tactical skill.


Europe would pay less for natural gas if it had a genuine free market, notes Bryza. Ten years ago Russia was selling to Western Europe gas it had bought from Turkmenistan at three to four times its purchase price, simply because, as a monopoly supplier, it could. Of course, the more dependent any given buyer, the more fully Russia can manipulate the price. Ukraine’s historic reliance on Russia for all of its gas has left it one of Moscow’s weakest interlocutors, as the current conflict shows.

Ukraine’s problems with Russian gas are largely of its own making. For years, opaque deals among both Russian and Ukrainian politicians as well as gas traders have let all those participants make huge profits. The country could demand a lower price and most likely get it, if it exercised more control over the amount of gas actually transported from Russia. Even knowing what that amount is would require installation of meters (which do not exist) on pipelines that cross the border from Russia to Ukraine.

Russia is extremely skillful at intimidating political leaders in Europe and frightening them into thinking that in the dead of winter there could be a slowdown of supplies, points out Bryza.  Ukraine’s crisis could be the event that pushes European leaders to unite and pursue collective energy security rather than their own more parochial interests, he says. But those leaders may need the impetus of seeing even more aggressiveness by Moscow toward Kyiv before they act in concert, he adds.

Irena Chalupa covers Ukraine and Eastern Europe for the Atlantic Council.



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