Mary Dejevsky: Russia does not hold all the cards in a game both sides could lose

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The Independent Online

Compared with the alarm spreading across Europe as gas supplies falter, the approach of the Russian and Ukrainian companies concerned has seemed positively relaxed. Only today, now that Orthodox Christmas is over, are officials to meet, their first meeting since Russia cut the amount of gas flowing to Ukraine on 1 January.

The Kremlin resented and feared the 2005 Orange Revolution. It sees no reason why Russia should subsidise gas for Ukrainians who have oriented their country towards the West. But this dispute is being treated as one between two commercial companies over payments and price.

Yet even at the purely commercial level there is no meeting of minds. Months of negotiations between Russia's energy colossus, Gazprom, and Ukraine's Naftogaz failed to produce an agreement on this year's prices. And Naftogaz challenges the size of the debt demanded by Russia, which is why it can insist that everything was paid, and Gazprom claims, equally loudly, that it was not.

Two complicating aspects of the gas quarrel have now become more evident. Russia and Gazprom are commonly cast as rich bullies and Ukraine as an impoverished victim. But Russia's economy has suffered in the global downturn and Gazprom is $50bn in debt. Commercially, it makes even less sense than it ever did to discount prices to old Soviet bloc states.

Nor is Ukraine without cards to play. Russia cannot cut off gas to Ukraine without jeopardising supplies down the line. By obstructing the flow across its territory – or, as Gazprom charges, illegally siphoning gas off for its own use – Ukraine and Naftogaz demonstrate Gazprom's vulnerability and make Russia seem an unreliable supplier. The other complication is that "old" Europe's energy importers mostly bought from several sources, but "new" Europe remains almost as dependent on Russia and its pipelines as it was in Soviet times. Bulgaria and Latvia have even become more dependent on Russian energy, after closing nuclear power stations that did not meet EU regulations.

Now, as transit countries for Russian pipelines to "new Europe", Ukraine, and potentially Belarus, can hold the whole EU hostage in pursuit of a bilateral dispute with Russia. This unintended consequence of expansion still waits to be addressed.