Russia-Ukraine: the second front

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of PLC.

Europe should learn from the gas war between Russia and Ukraine, writes Olena Pavlenko,

Olena Pavelenko is the president of DiXi Group, a think tank specialised in Ukraine’s energy issues.

On Monday, June 16, the Ukrainian company Naftogaz and the Russian Gazprom stopped negotiations and sued each other at the Stockholm arbitration court. Gazprom seeks to get from Naftogaz its $4.5 billion USD debt as payment for the gas supplied, and Naftogaz seeks $6 billion USD reimbursement as overpayment for the gas supplied, and demands removal from their contract all clauses which are politically motivated and enable Gazprom to misuse its monopolistic position.

Gazprom’s lawsuit was a response to two or three attempts of the European Commission to continue negotiations between Ukraine and Russia over the weekend. Late Sunday night, Alexey Miller, the CEO of Gazprom, left the premises of the Cabinet of Ministers of Ukraine without comments. The next day, everyone was informed not only of the lawsuit, but also of the fact that advance payments from Ukraine are now required, and that its gas supply has been halted. According to Yuriy Prodan, the Energy Minister of Ukraine, the Russian party actually left the negotiations, having rejected the European Commission proposal to resolve the crisis.

What has become the most problematic in the negotiations? Ukraine did not agree to the gas price being repeatedly “manually controlled” by Russia. A scheme suggested to the Ukrainian government included cancellation of Gazprom’s export duty, thus reducing the price by $100. However, such decisions are made by the Russian government, and they are canceled as easily as they are made. The position of the Ukrainian government is that the new gas price should be fixed either at the international level, or at the level of new bilateral agreements between Naftogaz and Gazprom. Otherwise, there would be still a threat that the Russians will reintroduce the export duty, and increase the gas price not in summer, when there is a lower demand for gas, but just before the heating season.

It is unlikely that Russia will benefit from its current tough position. First, the conflict with Ukraine escalated the conflict with the European Commission, as the European party also finished the negotiations with a defeat. Russian-European relations are becoming worse, which will definitely not improve the status of the South Stream project, as Russia is trying to build it at any cost. Moreover, the decrease of Russian gas imports is already mentioned in EU strategic documents, and is likely to be supported by all the EU member states. The gas war started today will hardly yield greater economic advantages.

That’s why the current gas dispute should be considered more broadly,  and should not be separated from the war which continues on the eastern borders of Ukraine. Gas has always been used by Russia as a weapon to achieve political interests. The current situation is that Russia is seeks part of Ukraine’s territory, and gas blackmail becomes one of the alternative tools to armed conflict. Therefore, we should not expect that the call for further negotiations and constructive solutions will yield results, as the war continues on Ukraine’s eastern borders.

Europe shall perceive the Ukrainian-Russian gas conflict not as a “headache”, but as a lesson. Propagandist policy, ignorance of the international law, and gas supply disruption are tools of influence which are now being tested in Ukraine. There are no guarantees that tomorrow such tools would not be applied against any other European country which became a barrier to Russian interests.