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The Gas Crisis: What can we learn from Russia’s “gas wars” with Ukraine

The Gas Crisis: What can we learn from Russia’s “gas wars” with Ukraine
© EPA-EFE/ROMAN PILIPEY  |   A worker turns a tap at the gas-compressor station in Mryn village, about 130 km of Kiev, Ukraine, 15 October 2015 (reissued 21 December 2019).

Russia has traditionally used gas as a weapon, and Ukraine has been a traditional target of Kremlin’s energy aggression. The events of autumn 2021 in Europe invite us to have a look at the previous so-called “gas-wars” and their impact, in order to be able to better predict Russia’s future actions and understands its tactis and motivations.

The status of relations between Russia and Ukraine in the energy sector has always been a litmus test for their general relationship. Conflicts between the two countries have existed since 1991, but fierce ones have emerged since the Orange Revolution 2004. Ukrainian citizens refused to elect a pro-Russian president, and this choice angered the Kremlin. The events of 2004 in Ukraine became a casus belli for the Kremlin, who moved on to pressure Kiev in the energy field. By suspending gas supplies to Ukraine on January 1, 2006, Gazprom wanted to obtain more favourable terms for the supply of energy resources. Russia’s energy monopoly has acted as a lever of political pressure. And this pressure had its result. The company RosUkrEnergo entered the Ukrainian energy market. The company’s executive director was at the time Konstantin Chuichenko – a person close to Vladimir Putin who is nowadays is a Minister of Justice.

The first Russian-Ukrainian gas war demonstrated the vulnerability of Ukraine and European consumers. The conflict also has shown how effective and promising may the use of energy weapons be in future. I note that the halt in gas supplies to Europe for several days has been accompanied by intense information pressure. The Kremlin has accused Ukraine of stealing gas destined for European consumers, and lots of European media have picked up this thesis. The 2006 gas war also had an actual indirect result - strengthening the Party of Regions’ position ahead of the parliamentary elections and the return of Viktor Yanukovych (whose political career seemed finished after he lost the 2004 presidential election) as a new Prime Minister. RosUkrEnergo’s activities also hurt financialy the Ukrainian economy.

By aggravating relations with Ukraine in the energy sphere, Russia has tried to place itself as an influential geopolitical player to keep Ukraine in its sphere of political influence. Through blackmail and promises to preserve the “special conditions” of gas pricing, the Kremlin sought to leave Ukraine in the sphere of its geopolitical interests. Moscow also tried to block the implementation of the Charter of the Strategic Partnership between Ukraine and the United States on the modernization of Ukraine’s gas transportation system. The main political task of the artificially Kremlin-inspired gas conflicts between Moscow and Kyiv was to demonstrate Ukraine’s transit insolvency and damage the country’s reputation as a reliable transit, geoeconomic and geopolitical partner of the European Union.

The second gas war was closely linked to the presidential campaign in Ukraine. Prime Minister Yulia Tymoshenko did not hide her presidential ambitions. So, she led her own political game with the Kremlin. President Viktor Yushchenko was outraged, but his ability to influence Tymoshenko was negligible. In October 2008, the Prime Ministers of Ukraine and Russia, Yulia Tymoshenko and Vladimir Putin, signed a memorandum on removing intermediaries from the Ukrainian gas market. Let me remind you that the middleman who was reselling the Gazprom gas was at that time the above-mentioned RosUkrEnergo, created with the assistance of the Kremlin.

Taking advantage of the contradictions within the Ukrainian political leadership, on January 1, 2009, Gazprom cut off gas supplies to Ukraine again. This time the gas war lasted for a more extended period, and it caused outrage among European consumers who blamed Ukraine. The confrontation ended with the signing of a 10-year agreement approved by Tymoshenko and Putin. On January 18, 2009, it was signed by Oleh Dubyna and Oleksiy Miller, chairmen of “Naftogaz of Ukraine” and “Gazprom”. The document provided for direct contractual relations between the energy monopolies of Russia and Ukraine, the use of a pricing formula and the use of the “take or pay” principle for gas supplies. For the first year of the agreement - 2009 - which preceded the presidential election in Ukraine, Gazprom provided a 20 per cent discount.

The 2006 and 2009 gas wars had some features in common – they involved information campaigns aimed to discredit Ukraine, using stopping gas supplies as a lever of influence, trying to deprive Ukraine of the trust of Western gas consumers to reduce market value and gain control over the Ukrainian gas transportation system.

After 2009, relations in the energy sector did not become cloudless. Yulia Tymoshenko failed to win the 2010 presidential election. The new President Viktor Yanukovych signed the Kharkiv agreements on extending the Russian Black Sea Fleet’s stay in Ukraine until 2042 in the first months of the presidency, on April 21, 2010, and Ukraine got a $ 100 discount on gas price. Therefore, during the Yanukovych presidency, Ukraine did not try to change the gas supply conditions and did not oppose the construction of the NordStream pipeline in the Baltic Sea.

Ukraine began the struggle against the unprofitable gas supply contract under the Petro Poroshenko presidency and the Arseniy Yatsenyuk premiership. Russia seized mining rigs in the Black Sea during the Crimea occupation. The lawsuit between Russia and Ukraine lasted until November 2017, when the Stockholm Arbitration Court finally recognized that “Naftogaz of Ukraine” has the rights for them. Gazprom was to pay $ 2.56 billion of losses to Naftogaz. The “take or pay” principle for Russian gas supplies has also been abolished. The decision was preceded by a “gas truce” in late 2014, under which Ukraine, through the mediation of European Energy Commissioner Guenther Oettinger, paid $ 3.1 billion for previously received Russian gas. Let me remind you that Ukraine stopped buying Russian gas directly in November 2015.

In early March 2018, Gazprom once again tried to stop the transit of gas through Ukraine. But “Naftogaz of Ukraine” got assistance from the Polish energy concern PGNiG, which supplied the required amount of gas to maintain the proper pressure in the Ukrainian gas transmission system. The Ukrainian energy monopoly itself appealed to consumers to reduce gas consumption, making it possible to save 14%.

After the presidential election in 2019, the political power in Ukraine has changed, and this changed the format of energy relations between Ukraine and Russia. Now they can be called neutral. On December 30, 2019, shortly after the “Normandy Four” meeting in Paris, Russia and Ukraine signed the 5-year agreement on gas transit through Ukraine. The volume of guaranteed transit amounted to 65 billion cubic meters in 2020 and 40 billion cubic meters in all subsequent years. This amount is enough to keep Ukraine’s gas transportation system working correctly, but not enough for its effective commercial operation. Ukraine dropped $ 12.2 billion in lawsuits against Gazprom but received $ 2.9 billion following the decision of the Stockholm Arbitration Court. It was evident that Gazprom was hoping for a faster launch of the NordStream2 gas pipeline, but this did not happen. Vladimir Putin and Vladimir Zelensky discussed gas issues during a meeting in the Normandy framework, which indicates their political nature.

How can we characterize the current state of relations between Russia and Ukraine in the energy sector?

- On October 1, 2021, Hungary began to receive Russian gas bypassing the territory of Ukraine, and Kyiv officially called it an unfriendly step.

- Russia is trying to reduce gas transit through Ukraine and does not book new transit volumes.

- Vladimir Putin works as a VIP critic of Ukraine again: in 2005, he claimed that “Ukraine steals gas”, today he claims that the Ukrainian GTS can burst if it pumps more fuel.

- Since November 1, 2021, Russia has imposed an embargo on the supply of thermal coal to Ukraine.

- Russian government officials make no secret of their desire to destroy Ukraine’s status as a European gas transit country with the launch of the NordStream2 gas pipeline.

Unfortunately, Ukraine is a living proof that delays in energy reforms and trust in the Kremlin can be costly. Although Ukraine has acceded to the EU Energy Charter, it is too early to say that the energy sector is secured – probably, because Russia continues to view the energy sector as a sphere for aggressive actions.

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  • Russia has traditionally used gas as a weapon, and Ukraine has been a traditional target of Kremlin’s energy aggression. The events of autumn 2021 in Europe invite us to have a look at the previous so-called “gas-wars” and their impact, in order to be able to better predict Russia’s future actions and understands its tactis and motivations.
  • The first Russian-Ukrainian gas war demonstrated the vulnerability of Ukraine and European consumers. The conflict also has shown how effective and promising may the use of energy weapons be in future. I note that the halt in gas supplies to Europe for several days has been accompanied by intense information pressure.
  • The second gas war was closely linked to the presidential campaign in Ukraine. Taking advantage of the contradictions within the Ukrainian political leadership, on January 1, 2009, Gazprom cut off gas supplies to Ukraine again. This time the gas war lasted for a more extended period, and it caused outrage among European consumers who blamed Ukraine.
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