January 10, 2006 by AK
Into the pipeline
Writing about politics gives me indigestion but sometimes the itch overpowers the expected stomach-ache. The Gazprom–Ukraine fuss is not something I’d normally enjoy commenting on but, first, what I’ve read in the European press has high BS content(except Paul Robinson in The Spectator and the delectably reactionary Norman Stone, with whom I can’t quite agree, in The Telegraph), and second, I’m not a perfect stranger to the Russian energy sector.
What happened? Very late in December, it turned out Gazprom had been insisting that Ukraine pay EU prices for the gas it gets from Russia. That would have been a hike, roughly, from $50 to $250 per 1000 cubic meters. Ukraine, naturally, objected. By the end of the year, no conclusion was reached and no new contract signed. On Jan. 1, Russia turned off gas supplies to Ukraine. Russian gas for EU’s consumption continued to flow through Ukraine’s gas pipes. In response, Ukraine stole some of the transit gas for its own use. Europe fell short of 20% or so of the daily gas dose. (It had enough gas stored underground to last for a dozen days.) The next day, Gazprom turned gas back on for Ukraine, and the two sides announced a new contract had been signed.
The contract sets up an export-import structure that’s opaque and corruption-friendly. Yet, for all I know, Gazprom has got better terms than in 2005, although it’s hard to quantify the gains yet. (It might be that the net price to Gazprom will be $160/tcm vs. $50/tcm before — a tripling no less.) Gazprom aside, what did Moscow achieve?
It showed convincingly that Ukraine would commit theft when in dire straits: another argument in favor of the new gas pipeline across the Baltic Sea that would bypass former USSR republics. (Compare Baku–Ceyhan.) It also cut Russia’s energy subsidy to Ukraine’s heavy industry, a competitor to Russia’s. (Lakshmi Mittal has just bought a steel plant there. Eventually, Gazprom will have to sell gas to domestic and foreign customers on the same terms. Eventually.)
What Moscow failed to anticipate is the negative and mostly unfair coverage in the Western media. But what did they expect? This anti-Russian sentiment runs deep; the Soviet Union seems to have gotten better treatment than Russia. Moscow needs its own Anne Applebaums in the newspapers of record. Western journalists once queued to serve uncle Joe — often for free. Russia’s current government — a paragon of decency in comparison — must be a terribly unattractive master.
That said, the standard caveat applies: I’m not yet sure Putin has Russia’s best interests on his mind. In the past, he has at times acted in other countries’ best interests.
P.S. What does Turkmenbashi think about this? He seems to be a loser here.
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