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In Russia-Ukraine gas dispute, three issues lacking transparency

By Staff writer / January 14, 2009



While Europe waits shivering for Russian gas to arrive, cyber pipelines are filling up with the latest news: Russia turns the gas on. Ukraine refuses to ship it. Slovakia has a plan to resolve the situation….

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But largely lost amid these developments are some murky questions that, left answered, could perpetuate Russia-Ukraine tensions – even when the spigots are turned on again.

After three years in a row of mid-winter gas disputes, Europe must be ready to get to the bottom of this once and for all. That, says the Monitor’s Moscow correspondent Fred Weir, will require much more transparency on three major issues:

  1. The relationship between Russian state energy giant Gazprom, Ukrainian-run Naftogaz, and the enigmatic middleman company RosUkrEnergo (RUE)
  2. The forces at work in Ukrainian politics
  3. The finances of Gazprom and Russia as a whole

Gazprom, Naftogaz, and who?
Even though it’s been more than 15 years since the fall of the Soviet Union, Ukraine and Russia still don’t have the agreements and structures that have become customary in Western business relationships. Every year, they have to renegotiate the gas supply contracts. And instead of Gazprom paying Naftogaz directly, they go through RUE. The Associated Press took a stab Monday at analyzing opportunities for corruption in such a relationship, but more investigation needs to be done.

Divisions in Ukrainian politics
Ukrainian politics aren’t exactly humming along, frustrating the Russians who say they can’t trust anyone. In last year's gas dispute, for example, the Russians made a deal with Yulia Tymoshenko, the fiery prime minister with peasant braids, and she was to fly to Moscow to sign it.

But then her erstwhile Orange Revolution ally, President Viktor Yuschenko, flew off in the plane she was supposed to use. In addition to such divisions at the top, there’s a larger “orange-blue” fault line that divides the country between those sympathetic to Russia and those leaning Westward.

Financial situation of Gazprom, Russia
Lastly, it’s no secret that Gazprom and Russia’s futures are closely tied, with the company’s former CEO Dmitri Medvedev now serving as president. Under Medvedev, Gazprom’s star rose rapidly. In 2006, its profits leapt 80 percent, skyrocketing it past Shell and BP to become the world’s second-largest energy company.

But this year, both the energy giant and the Kremlin have lost a lot of money because of the global financial crisis and the falling price of oil, with a barrel now going for well under half what it sold for last year. How badly they need money from Ukraine is unclear, but what they may gain financially, they may lose in political capital.

Some interesting links for further reading:
Q&A on the gas disputeBBC

The Russian Gas Trap” – Stratfor

Russia’s gas disinformation game” – Analyst Roman Kupchinsky of the Jamestown Foundation

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