Putins Ukrainian Power Play

Russias latest threats to cut off natural gas supplies to Kiev are
part and parcel of its growing push to force the West to back
down in the battle for Ukraine.

BY KEITH JOHNSON-FEBRUARY 24, 2015

Russia is unsheathing its energy weapon once again, threatening to cut off its natural
gas shipments to Ukraine and warning of potentially dire impacts on Europeans reliant
on energy deliveries that come through the war-torn state.
The move marks the second time Russian strongman Vladimir Putin has thumbed his
nose at the West in recent days. On Monday, Feb. 23, Russia offered to sell
advanced air-defense systems to Iran in defiance of pleas from Washington and its
allies to avoid arming Tehran. U.S. Secretary of State John Kerry and other senior
administration officials, meanwhile, have threatened to increase the sanctions on
Russia in response to its continuedsupport for the separatist rebels making major
gains in eastern Ukraine. On Tuesday, Kerry said in congressional testimony that
Russia baldly lied to him about its involvement there.
Putin has basically rejected those demands out of hand. Now, hes reopening an old

front in his pushback against the West by using his countrys natural gas wealth as a
bludgeon to try to get his way on other issues. The latest gambit seems part of a
multipronged campaign to force Washington and its allies to accede to Moscows land
grab. Even as the United States grapples with Russia over the fate of Ukraine, it is
seeking Russian help to pressure Iran into abandoning its nuclear weapons program.
Putin is using the latter to help push back against the former.
Russia is upping the ante for the West. They are basically saying, back off over
Ukraine, or we will raise the stakes in the Iran talks, as we know you need us to broker
a solution, said Sijbren de Jong, an analyst at the Hague Centre for Strategic Studies.
It all fits together. Russia knows like no other how to play one power off against the
other.
The latest chapter in the long-running gas saga between Kiev and Moscow came
Monday, when Ukraines gas companycomplained that contracted shipments from
Russia had been cut in half. On Tuesday, Russian energy giant Gazprom warned it
might have to stop gas shipments to Ukraine due to a dispute over payments.
To top it off, Gazprom boss Alexey Miller warned that a disruption in gas supplies to
Ukraine could also have serious consequences for the rest of Europe, since Europe
gets about 15 percent of its natural gas from Russia via pipelines in Ukraine.
The two sides have quarreled for years over contract terms and outstanding debts for
Russian gas. In 2006 and 2009, Moscow closed the taps entirely, which led to
disruptions in gas supplies in Europe. Last summer, Moscow cutUkraine off for six
months. Russia offered discounts on gas shipments to the old, pro-Russian Ukrainian
government, but quickly rescinded the sweetheart deal when a more hostile
government came to power.
But the nominally commercial dispute ramped up sharply late last week, when Kiev
was forced to temporarily suspend gas deliveries to the rebel-held eastern part of
Ukraine. Separatist fighters had damaged several natural gas pipelines there and
refused to let Ukraines gas company repair them. In response, Russia immediately
began shipping natural gas directly to the rebel-held areas and charging Kiev for the
humanitarian deliveries.
That makes clear Gazprom is not simply wrangling with a delinquent gas customer,
but rather is part of Moscows plan to use energy as a bludgeon to intimidate smaller
neighbors.
We got the impression that they first ruined the gas infrastructure and then decided

to supply gas to [eastern] Ukraine, Andriy Kobolyev, the chairman of the board of
Ukraines Naftogaz, said at a press conference late last week. Naftogaz said it was able
to repair the damaged pipelines and resume normal deliveries, but Russia apparently
continues to ship gas paid for by Kiev to its own proxies.
Energy experts say that Russias diversion of natural gas to eastern Ukraine and
reductions in shipments this week appear to be a violation of the gas dealKiev and
Moscow reached last autumn. Under that accord, Ukraine agreed to pay some debts
and pay for gas upfront to the tune of about $3 billion, and Russia agreed to supply
Ukraine with enough natural gas to last through the winter.
Now, though, it seems that some of the gas that Kiev paid for is being sent instead
directly to areas of Ukraine that are in the hands of pro-Russian separatists (and,
according to Ukrainian leaders, regular Russian armyforces), while Naftogaz is
receiving only about half the gas it requested.
Gazprom claims it has changed the terminals to supply gas to the regions of Donetsk
and Luhansk. But unilateral change of terminals is not allowed, said Mikhail
Korchemkin, head of East European Gas Analysis, a consultancy.
If the two sides cant reach an agreement on gas supplies and Russia does cut off
Ukraine again, it would deal a sharp blow to the already wobbly Ukrainian economy.
Ukrainian officials expect the economy to shrink about 5.5 percent this year; on
Monday, Ukraines currency hit a new low against the dollar.
Foreign currency reserves are rapidly dwindling. Prominent economistswarn that the
country faces an economic meltdown.
Ukraines economy is in shambles. It cannot handle a gas supply interruption right
now, said the Hague Centres de Jong. Ukraines natural gas storage tanks are only 25
percent full the lowest level in Europe which means that it has little cushion to
absorb any sustained disruption in gas imports.
Meanwhile, neighboring countries like Hungary that had helped supply Ukraine with
emergency shipments of gas last year have buckledunder Russian pressure and
curtailed those shipments.
Some in Europe are nervous about their own gas supplies. If Ukraine is cut off, the fear
is that it will filch Russian gas being shipped through the country on its way to other
European customers, as happened in the past. A European Commission
spokesperson said Tuesday that EU gas supplies would likely not be affected.

Despite Gazproms ominous warnings, Europe is better placed to weather a supply

disruption than a few years ago, when Russia turned off the taps in the dead of winter,
Korchemkin said. Spring is coming, which will mean lower levels of gas consumption
in Europe as a whole.
At the same time, Ukraine has cut its requirements for Russian gas, meaning it should
feel less pressure to dip into gas supplies meant for Europe. And even if Hungary has
stopped sending emergency gas to Ukraine, other neighbors such as Slovakia are
preparing to increase their aid.
European customers are safe, Korchemkin said.
Posted by Thavam