All’s Well That Ends Well?

So the long-running Russia-Ukraine gas crisis is finally over. It was only the day before yesterday that it got going wasn’t it? The Ukraine will pay Russia an agreed price of $230 per 1,000 cubic metres. More interesting is what is in the fine print:

after including supplies from Turkmenistan and Kazakhstan, Kiev would actually pay $95 per 1,000 cubic metres at its border.The two sides also agreed that Ukraine would receive increased transit fees for the 80 per cent of Russian gas that is pumped to European consumers via the Kiev pipeline.”

So effectively, and after all the fuss, very little will have changed.

Two more details do however stand out:

on Tuesday there was a growing sense that Russia had overplayed its hand. The International Energy Agency, the consuming nations’ watchdog, said Russia had damaged its reputation as a reliable supplier. “They’ve basically shot themselves in the foot,” said a consultant who asked not to be identified because he has Russian clients. ”


“Delegates from Naftogaz met their counterparts from Gazprom after Javier Solana, the European Union’s foreign policy representative, on Tuesday urged the countries to resume talks.”

So, in the first place, and as we saw during the Orange Revolution Crisis, when Solana moves the Russians go to work (in the positive sense), ie the EU does have a lot of leverage over Russia, it should be used.

Secondly, the big loser here is Russia. This is even more inexplicable since they evidently knew that Ukraine would siphon gas to make up for any shortfall.

So, as I suggested yesterday, now we know who the losers are, mightn’t it be interesting to ask who the winners are. In part, of course, it is the Ukraine. Viktor Yushchenko has played a trump card and won a battle which lasted all of two days. But who else was the winner, and what drove Putin to adopt such a foot-shooting strategy. These are the questions which we should have in the back of our minds as we quietly turn the page of the great war that wasn’t.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

7 thoughts on “All’s Well That Ends Well?

  1. In the long run, the EU is now forced to bypass Ukraine. Little can be done about Russia. But the added risk of Ukraine can be nullified. Whether this is nice to Ukraine or not, no longer matters.

    If you are into conspiracy theories you might notice that the new agreement is scheduled to last for the projected construction time of the baltic pipeline.

  2. “If you are into conspiracy theories”

    I’m not, but I am into a version of intelligent agent theories, and not stupid agent theories.

    “In the long run, the EU is now forced to bypass Ukraine.”

    In the not so long run Ukraine will be in an EU accession process. Since the big issue is coming with Russia, you can’t leave Ukraine as a loose-cannon dangling in the middle, liable to go one way, or the other. There is no security and stability on that path.

    In the long run, maybe Gerhard Schröder will be the big loser. There are now 25 members in the EU, and I doubt you could rally a strong quorum at this point for backing his pet project.

    The gas will of course flow along it, but it won’t have the anticipated importance, we are about to diversify, big time.

  3. If it wasn’t muscle-flexing meant for international consumption, it could have been muscle-flexing meant for domestic consumption: Putin demonstrating to Gazprom’s management that he can successfully stand between them and their customers, even if they are discount customers.

  4. In the not so long run Ukraine will be in an EU accession process.

    That’s what is at stake. Russia is not ready to accept that. Neither can the EU afford to see this as a sure thing.

    I doubt you could rally a strong quorum at this point for backing his pet project.

    He doesn’t have to. Which is the point of that pipeline.
    I am afraid I’ll have to be blunt again. Not everybody in Germany is happy with Poland controlling the alternate gas supply line. Leading me to the point that it is not all that clear that the EU will have an energy policy. The member states all have an energy policy. In all of the big three members, energy is a dangerous topic, which I find them unlikely to yield to Brussels.

    we are about to diversify, big time.

    That I would find highly questionable. If we do nothing in terms of state intervention, gas will take a much larger part in our energy supply. Ageing powerplants in Britain and decomissioned nuclear powerplants in Germany would be replaced with gas plants without massive state interventions. High oil prices push for substitution of oil by gas. The situation with oil isn’t really better than with gas. It’ll take a lot of effort to keep position in terms of energy independance, especially considering that the North Sea is running out of oil and gas on the British side.

  5. The Beeb has more:

    One chilling comment from a Russian reader: “For Ukraine the price of $230 is payment for its ‘democratic choice’. Why should Russia pay for that choice? You want to join the West? You want to join Nato? Go ahead!!!… If you change course, the price will change. That’s normal. That’s how all your Western friends behave. So stop crying and howling… At the end of the day the Ukrainian people always has a choice – the West, where no-one is waiting for you, or with us.”

    Knee-jerk or representative of something broader?

  6. Putin demonstrating to Gazprom’s management that he can successfully stand between them and their customers

    After Yukos was there any trace of doubt left that he could do exactly that? Or generally do pretty much as he pleases?

  7. >In the not so long run Ukraine will be in an EU >accession process.
    >That’s what is at stake. Russia is not ready to >accept that. Neither can the EU afford to see this >as a sure thing.

    I agree. I know I’m repeating myself. But that’s why all parties will work harder on a workable model of “privileged partnerships”. This could be a win-win situation for all parties involved, even Turkey, if they eventually decide that they don’t really want to be a full member. The Senior German MEP Elmar Brok also just mentioned something to that effect.

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