Nord Stream pipeline gives Russia edge in European gas wars

Ukrainian President Viktor Yanukovych has vowed to renegotiate the contract, but Kremlin leaders insist they will not do so unless Ukraine offers major economic concessions, such as joining a Russian-led customs union or selling the state-owned Naftogaz gas company to Russia's Gazprom.

"Passions are running very high in Ukrainian-Russian gas relations, and now that Nord Stream has started up it looks like a big advantage for Gazprom and Russia," says Andrei Polishchuk, an analyst with the Moscow-based financial brokerage Broker Credit Service. "In the first stage, Ukraine could lose a quarter of the gas it pumps to Europe via its pipelines, which means a considerable loss of transit fees."

But, he adds, Russia's conditions for price relief will probably be unacceptable in Kiev. "If Gazprom is granted access to Ukraine's pipeline system, there is a fear that Russian political and economic leverage over Ukraine will grow. If Ukraine joins the Russian customs union, it will rule out integration with the EU, which is Ukraine's strategic goal. So, if there's no compromise with Russia, Ukraine will likely launch legal procedures in international courts."

In an interview with Kiev's Kommersant-Ukraine daily Monday, Mr. Yanukovych complained that Russian gas prices threaten to bankrupt his country. "We would like to understand what we are being punished for," Yanukovych said. "We are overpaying about $5 billion to $6 billion annually. About 20 percent of our national budget is spent on Russian gas. We think that's not fair, and our economy can't sustain that price for long."

But Gazprom chief Alexei Miller dismissed Yanukovych's argument in an interview with Russian state TV the next day. "We have the impression that our Ukrainian partners got on a train called 'Cheap Russian Gas' and don't know what station to get off at, they don't know that they might be heading for a dead end," Mr. Miller said. "All that is in the contract has to be fulfilled right until it expires at the end of 2019."

Political panic in Kiev

The startup of Nord Stream has introduced a hint of political panic in Kiev. On Wednesday, Ukrainian Prime Minister Mykola Azarov warned that every Ukrainian household would have to participate in a crash energy-saving program to wean the country from the "curse" of Russian gas.

"We are asking our citizens to do their best to save energy," Mr. Azarov said. "Because in conditions this enslaving contract [with Russia], closed windows, draft-proof doors and the economical use of gas stoves have become a matter of patriotism and survival."

Some Ukrainian experts say the crisis could spell political doom for Yanukovych, who came to power pledging to repair relations with Russia after a long period of acrimonious ties under pro-Western former President Viktor Yushchenko.

"I know it's not very patriotic of me to say so, but Nord Stream is a great success for Putin. Russia's hands have been untied" in its dealings with Ukraine, says Oleksiy Kolomiyets, president of the independent Center for European and Transatlantic Studies in Kiev.

"Now there is near hysteria in Kiev, Yanukovych and his circle are in a very gloomy mood," he says. "All their levers of influence [with Russia] are disappearing. Yanukovych is increasingly isolated, and the political ground is shaking under his feet."

Previous

1 | 2