Russia has become engaged in yet another dispute with its western neighbors, this time over natural gas. Russia has cut off gas supplies to Ukraine in a price and payment dispute. For some time, Russia has supplied Ukraine with gas at a substantial discount. When the price of natural gas was high, Russia locked itself into contracts with several Central Asian Republics in return for exclusive transport and marketing rights. Now that the price of gas has fallen, these contracts don't look so good. Consequently, Russia is trying to increase the price of gas to Ukraine, just as world prices are falling (although Ukraine would still be buying at discount). Ukraine has balked at the Russian price demands, made counter-offers, and claimed that the check is in the mail, so to speak. The complicating factor is that Russian gas travels through Ukraine on its way to Europe. The Russians have never been particularly pleased by this, and are trying to convince Europeans to invest in pipelines that bypass Ukraine.
Now, several European countries are facing gas shortages. The Russians claim that Ukraine is stealing gas destined for Western Europe. The Ukrainians claim that Russia has cut off gas and is blaming Ukraine in an effort to bring down Ukraine's government. Debate over this dispute is being framed as either economic or political: Are the Russians genuinely concerned about the economic aspect, or are they simply trying to bully Ukraine? As always, the answer is both; Gazprom (the Russian energy conglomerate) is in serious trouble because of the collapse in energy commodity prices, and as such has every incentive to play hardball with Ukraine. At the same time, the Kremlin is untroubled by the prospect of anti-government unrest in Ukraine.
On balance (and at risk of being once again denounced as a Kremlin stooge) I'm rather less sympathetic to the Ukrainian case; of course accepting a discount from a Russian national gas concern was going to give Russia influence over Ukraine. That's the price of doing business. I'm singularly uncompelled by the notion that Russia supplying energy to Europe gives the Russians some kind of undue, ominous influence over European affairs, any more than the folks down at Chipotle have ominous influence over me through their control of burrito supplies. Market transactions inevitably create short term dependence, but of course that goes both ways; Russia can interfere with supply only at significant cost to Russia.
--Robert Farley
