After the Ukrainian offshoot of the gas company Naftogaz suffered a string of blackouts on Thursday morning and then later in the day ordered most of its gas imports from Russia to be pumped through its own pipeline system, President Vladimir Putin claimed the disruption was a result of bad weather. This is just the latest episode in an ongoing struggle between the European Union and Russia. On Monday the EU’s most powerful politicians gathered at a summit in Brussels and concluded they had no “plan B” in place to deal with the new “gas wars” between Russia and Ukraine.
In the face of an increasingly assertive Russian state that has backed pro-Russian separatists in eastern Ukraine and sought to annex the Crimean peninsula, the EU has reacted mainly with words. It has imposed visa restrictions on certain Russians and expelled Russian diplomats in the EU for espionage. In the current crisis, the EU has halted the onward flow of gas via Ukraine to the rest of Europe. This could potentially leave the EU in the cold for days at a time, depending on the weather and the price of Russian gas. In Brussels it was predicted that Ukraine could be effectively a prisoner of Russia in this “gas war”.
Some commentators suggest this is all an East-West conflict. But Russia’s energy sector is inextricably linked to the wider foreign policy of the Kremlin, and to the national politics of some of the EU’s easternmost states. Most of the Eg5 group of former Soviet states – Poland, Hungary, the Czech Republic, Slovakia and Slovenia – have warmer relations with Russia than with the EU, and the Eg5 participates in Russian arms development projects. The latter are also the largest customers of Russian gas.
Many senior members of the EU were present in Brussels on Monday, although no common policy has emerged so far. But there is strong support for further sanctions on Russia, and several eastern European countries say they would join sanctions if they were imposed. Poland has said it would never pay to re-gasify its own gas through Ukraine, a statement that echoes many sentiments within the EU. The Eg5 will probably defend Russian gas supplies from direct EU sanctions.
Russian gas is not only a lifeline for many eastern Europeans. The gas price Russia demands from its European customers is triple the price paid by those countries in 2008.
This is true even when economic conditions in the industrialised west are not favourable. But the Russian government wants to end what it calls western hypocrisy over energy prices. The Western focus on Ukraine is seen by the Kremlin as an opportunity to crush a country that has long acted as a conduit for gas to Europe. More in line with Moscow’s objective of setting its own gas market conditions, it is not surprising that Ukraine fears Russia will take a similar action to that in eastern Ukraine. The clash of gas supplies has already affected markets in Poland and Latvia. Poland’s energy minister was careful not to criticise Russia, but he acknowledged that the EU should keep a close eye on Russian behaviour.
The fragility of the existing relationship is demonstrated by the fact that while Naftogaz is technically bankrupt, Naftogaz of Ukraine won a $4.5bn loan from Russia last month. The loan was made when Vladimir Putin agreed to resume gas supplies. Russian gas exporter Gazprom is owned by the energy oligarch Oleg Deripaska, who is also a former business partner of the French tycoon and Kremlin critic Gérard Depardieu.
The Kremlin is investing a huge amount of money into the western construction of Nord Stream 2, a new gas pipeline to Russia that it claims will be second only to the original Nord Stream.
Naftogaz’s catastrophic financial position, and the extent to which Russia and Naftogaz are expanding their budgets to offset it, should be alarming to the EU. But it is not because the EU’s credibility on issues such as energy security matters seems to have been undermined.