Relations with Ukraine aggravate

Risks of a new gas war between Russia and Ukraine have grown over the past few weeks. Kiev continues coining new arguments looking for a pretext to terminate gas contracts signed in January 2009. Promises to appeal to the Stockholm arbitration court were followed by the idea to make use of a probable sentence of Julia Timoshenko, who will be soon declared a real “criminal”. But since the former Orange Revolution princess is defended not only by Russia but also by Brussels and Washington that see a purely domestic political motive in this case, Kiev had to find another way to terminate the contracts – by liquidating Naftogaz.

So far Moscow is acting toughly hoping that Kiev is not really determined to go for broke, i.e. to break the agreements without sanction of international arbitration instances and start siphoning off the fuel. Judging by the two previous gas rows, Russia will call such actions theft and will cut off gas supplies to the Ukrainian gas transportation system. This would damage the reputation of both Russia and Ukraine. Thus, Russia has a reason to hope that Ukrainian state authorities will not resort to a radical variant. However, considering personal accusations of Russian and Ukrainian officials against each other and their mutual unwillingness to look like wimps, one should not rule out a possibility of suspension of the Ukrainian transit before the end of 2011.

An important question is which side the EU will take. Previously Europe preferred to maintain neutrality; currently the European Union is also trying to stay aside from the Russian-Ukrainian conflict simultaneously buying natural gas to fill underground gas storages (the current gas reserves in EU underground facilities are 25% to 30% larger than in the corresponding period in 2010). Yet, the current conflict has one significant difference – the idea to redirect gas deliveries through the Ukrainian system to other pipelines used to be just an idea in the past, but following the launch of the first line of Nord Stream Russia vividly demonstrates that it is able to partially solve the Ukrainian problem although at a high price. South Stream will fully solve this problem. Europe may view this as a reason to support Russia as a player that, in any case, will remain the European Union’s key energy partner. Ukraine, on the contrary, after the new gas war, which will legitimize construction of South Stream, risks falling out of the Russia-EU energy ties for decades.

By Stanislav Mitrakhovich, NESF leading expert