Ukraine deal: How energy binds Russia, Europe

Diplomats from Russia, Ukraine, Europe, and the US agreed Thursday to steps that aim to deescalate an increasingly delicate situation in eastern Ukraine. Energy interdependency has helped tamp down tensions as the sides take a step toward settling Ukraine's natural gas debt.

Ilya Naymushin/Reuters
Visitors walk past TV sets during Russian President Vladimir Putin's live broadcast nationwide phone-in at the DNS electronic shop in Russia's Siberian city of Krasnoyarsk. On the same day as the West and Russia reached a deal on the Ukraine crisis, Europe and Russia also agreed to meet on European energy security.

On Ukraine, Russia and the West can agree on at least one thing: It's better to talk things out.

Diplomats from Russia, Ukraine, Europe, and the United States agreed Thursday to disarm protesters and return illegally seized buildings to legitimate owners in an effort to defuse a volatile situation in eastern Ukraine's Donetsk region. A long-term stabilization of Ukraine's fragile economy will be crucial to a complete deescalation, the diplomats noted in an agreement signed in Geneva Thursday.

In a separate but key agreement, EU officials also said Thursday they would meet with Russia to settle Ukraine's multibillion-dollar natural gas debt, and to ensure broader Europe gets the gas it needs from Russia to fuel its power plants and heat its homes. 

The deals come after a long week of increasingly militant pro-Russian protests in Ukraine's Donetsk region, and reports of a buildup of Russian troops along Ukraine's eastern border. Earlier this month, Russia nearly doubled the cost of Ukraine's gas and threatened to cut off supplies over its rising debt. On Thursday, Russian President Vladimir Putin again warned of a possible shutoff within a month if Ukraine's bills continue unpaid. 

Many still fear further unrest and violence, and a gas supply cutoff remains a very real possibility. But Thursday's agreements underscore the belief that a further escalation of tension benefits no one. Neither side wants a repeat of past natural gas supply shutoffs, which choked Russia's economy and left Ukrainians out in the cold. Both Brussels and Moscow would rather not disrupt the extensive trade in energy and other sectors that has benefited both sides.  

"As regards energy, relations must be based on reciprocity, transparency, fairness, nondiscrimination, openness to competition, and continued cooperation to ensure a level playing field for the safe and secure supply and transit of energy," reads Thursday's letter to Mr. Putin from European Commission President José Manuel Barroso. "In this context, we recognise that in the case of natural gas supply and transit the need for a structured and comprehensive dialogue is particularly urgent." 

Mr. Barroso's letter is in response to an April 10 letter Putin sent to European leaders directly warning them of a partial or complete cutoff if Ukraine does not settle its debts with Gazprom, Russia's state-owned gas company. That, Mr. Barroso warned would "create doubts about your willingness to be seen as a reliable supplier of gas to Europe." Undeterred, Putin risked undermining the Geneva talks by again talking up his power of the spigot on Thursday.

“We are ready to tolerate a bit more, we’ll put up with it another month," Putin said during a televised Q&A session Thursday, as reported by Russia's state-controlled RIA Novosti, in reference to Ukraine's unpaid gas bills. "If over the next month there are no payments, then we will transfer over to the so-called prepayment plan in accordance with the contract.... This is a very difficult way to pay, it could bring to failures in the delivery of gas to our European consumers." 

Europe gets about 30 percent of its natural gas imports from Russia, and slightly less than half of it flows through pipelines in Ukraine. Moscow turned off Ukraine's gas twice before – in January 2006 and 2009. That constrained flows to other European countries and prompted a concerted effort to diversify Europe's energy mix. The Ukraine crisis has thrown more weight behind that effort, but many believe a highly developed natural gas pipeline effort strongly binds the two together – for now, at least.

"Can they stop purchasing Russian gas? In my view, it’s impossible,” Putin said Thursday. 

The same could be said for Moscow's ability to stop selling it to Europe. Russia's economy is largely dependent on energy trade, with its state-owned oil and gas companies making up half of its federal revenue. 

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