The Russia-Ukraine affair is indeed well worth watching, as its ramifications go well beyond those borders. As Ukraine supplies most of Europe’s natural gas, there is a domino effect throughout the continent. Environmentalism has a part to play in the crisis as Europe switched to gas as a main source of electricity production at least partly because of worries over the environmental effects of coal. The latest crisis at least has people thinking seriously about nuclear once more.
The US has condemned President Putin’s actions in a surprisingly coherent fashion:
“Such an abrupt step creates insecurity in the energy sector in the region and raises serious questions about the use of energy to exert political pressure,” State Department spokesman Sean McCormack said in a statement.
“As we have told both Russia and Ukraine, we support a move toward market pricing for energy but believe that such a change should be introduced over time rather than suddenly and unilaterally,” he said.
President Putin’s exhortations regarding the free market should be viewed in this light. The sudden shift in policy implies that the subsidy could be restored if Ukraine did as it was told and sends a message to other client states perhaps considering steps towards greater freedom, as Andrew points out below. That is not the free market at work. Mr. Putin’s former economics adviser, the well-known free-marketeer Andrei Illarionov, now his harshest critic, regards the current crisis as a harbinger:
Illarionov likened Russia’s price hike for Ukraine to Nazi and Soviet ultimatums issued to Eastern European nations before their annexation on the eve of the World War II, and urged the Kremlin to step away “from the brink of a precipice that we are approaching so blindly and quickly.”
Worth watching. In the meantime, the whole farrago serves as a useful warning about the dangers of “market socialism” – when people think they can dictate the market to acheive political goals of whatever sort, people tend to suffer as a result.
PS The various Russian energy companies stand to make millions from selling emissions credits to Europe under Kyoto. Environmental groups are lining up to advise those companies on emissions markets. In the UK, this is called, “Jobs for the boys.”