The Corner

Cracking The Whip (2)

So, it seems that the cut in Russian gas supplies is beginning to bite, not only in the Ukraine but also further to the West. In response to my post on this topic yesterday, a number of readers wrote to say that Russia (and more particularly its gas monopoly, Gazprom, a publicly-quoted company) should have the right to sell its gas at whatever price it can get. Fair enough (so long as it respects the terms of contracts that it has already signed), but:

1. It’s important to understand that this is about politics, not about Gazprom’s right to maximize profits. Gazprom is majority-owned by the Russian state, and its reserves are being used as a device to promote Russia’s geopolitical interests. Client states will pay less for Russian gas. The awkward squad will pay more. If the Ukraine wants to assert its independence from Moscow it will have to pay more. It’s that simple.

2. This event is yet another reminder that a disproportionate reliance on any one supplier of energy may come with an uncomfortable political price. It’s certainly true of OPEC, and it’s true of Russia too. It may well be a price worth paying, but we shouldn’t imagine that it doesn’t exist. And are there implications for the US from this, both in terms of energy production and conservation? Oh yes.

3. Paradoxically, this squeeze may help Ukraine’s Viktor Yuschenko. His term in office has had its problems (to put it mildly), and there are already signs that, understandably enough, he may use this crisis as a device to revive the fading spirit of the orange revolution.

4. So what next? Well, other than the obvious short-term issues, it will be interesting to see if the Ukraine can succeed in hoisting the transit fees it charges Russia, with all that that could mean to EU consumers. It will also be interesting to see what former German Chancellor Schroeder has to say about all this: he recently accepted the chairmanship of a proposed Russo-German pipeline that would conveniently bypass Poland and other countries unlikely to be found on the Kremlin’s Christmas card list. Adding to the potential complications surrounding that project, however, this report from the Brussels Journal claims that Finland and Estonia could scupper the whole thing simply by reasserting their rights under the UN Convention on the Law of The Sea…

Keep an eye on this story.

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