Leading article: Dependence on Russian energy places Europe at risk

The EU must ensure that no one can hold it to ransom in future

Wednesday 07 January 2009 01:00
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The angry stand-off between Russia and Ukraine over gas is now seriously disrupting supplies to several European Union countries. Romania has lost 75 per cent of its supply; Bulgaria has only a few days' gas left; Slovakia is on the verge of declaring a state of emergency. The European Commission has waded in with indignant condemnation. But what may look like a replay of what happened three years ago, when Russia drew international condemnation for shutting off gas supplies to Ukraine is in many ways very different; 2009 is not 2006.

For a start, the political element is less evident, and not only because Russia and its state-controlled energy conglomerate, Gazprom, have been more adept in their public relations. This is more of a commercial row between energy companies over payments. Gazprom is demanding money it says it is owed by the Ukrainian state energy company, Naftogaz. Ukraine says it has paid. But the actual sum remains in contention, as does the price of future supplies. Gazprom stopped supplying gas to Ukraine on New Year's Day.

Falling world energy prices make for another distinction between 2009 and 2006. Three years ago, Russia was a major beneficiary of high oil and gas prices, which strengthened the rouble and enabled it to build up a massive budget surplus. The global credit crunch has reversed the process. Commercial self-interest dictates that Gazprom is no longer in a position to grant favours to Ukraine, even in the unlikely event that it wanted to. It needs the money. And Ukraine, as an independent country, will eventually have to pay market prices for Russian energy, like most of Gazprom's other customers.

The international mood has also changed. Internal rivalries have weakened successive Ukrainian governments and the goodwill generated by the Orange revolution is fading. Gazprom may be a difficult negotiating partner, but by obstructing the flow of gas through transit pipelines, Ukraine is holding both the Russian company and Gazprom's other customers to ransom.

Maybe it hopes that a panicked EU will somehow ride to its rescue, perhaps by interceding on its behalf with Gazprom. Given that its battered economy desperately needs the pipeline transit fees, however, its further logic is unclear.

If the rights and wrongs of the dispute look more complicated three years on, however, the lessons to be learnt by Europe's energy-importing countries are, depressingly, the same. Much of the European Union is vulnerable in the energy department. Sources of energy must be diversified - and soon.

While most West European countries and Turkey can resort to pipelines that do not cross Ukraine, many former Soviet-bloc countries are trapped. New pipelines – North Stream under the Baltic, and South Stream under the Black Sea – are under construction, but they will still leave much of Europe vulnerable to the capacity, and caprice, of one supplier: Russia. The security of the Nabucco pipeline, that would bypass Russia through Georgia, was called into question by the past summer's war.

Although not directly affected by the present dispute, Britain must also come to terms with becoming an energy importer again, curb demand and increase storage capacity. Most immediately, however, what is needed is a neutral disputes procedure capable of settling the differences between Russia and Ukraine. Without this, the EU could be contemplating the cycle of intimidation and cut-offs all over again.

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