News / Economy

Putin's Energy Threats Come with Cost to Russia

Putin's Energy Threats to Europe Come With Costs for Russiai
X
April 11, 2014 5:12 PM
Russia is again using its role as Europe’s dominant natural gas supplier to pressure Ukraine and the West. Europe gets about 30 percent of its gas from Russia, and half of that passes through Ukraine. But how much leverage does Russia really have in using energy exports to achieve diplomatic or geopolitical objectives in Europe? VOA’s Mary Motta reports from London.
Mary Motta
— Russia is again using its role as Europe’s dominant natural gas supplier to pressure Ukraine and the West. Europe gets about 30 percent of its gas from Russia, and half of that passes through Ukraine.  But how much leverage does Russia really have in using energy exports to achieve diplomatic or geopolitical objectives in Europe?

When former president of Ukraine Viktor Yanukovych met with EU foreign policy chief Catherine Ashton in December 2013 he was expected to sign key trade and political agreements with the European Union.

But to the dismay of many Ukrainians, Yanukovych turned down the deals on the advice of Russian President Vladimir Putin, who tempted the former president with the promise of cheap gas.

Considering the large amounts of Russian gas Ukraine burns through every year, the deal seemed like a good one for Yanukovych.

But since Yanukovych's ouster amid massive protests in February, Russian gas has become more of a punishment than an enticement.

Price hike

Last month, Alexei Miller, the chief executive of Russia’s gas giant, Gazprom, agreed with Russian Prime Minister Dmitry Medvedev to impose a 44 percent increase in the price of gas sold to Ukraine.

With the price boost, Ukraine now owes Gazprom $2.2 billion. If Ukraine continues not to pay its bills - and without outside help, it cannot- Gazprom can cut it off.

This is potentially bad news for Europe, says Antony Froggatt, a senior research fellow with Chatham House. He says Russia will likely continue to use gas as a political tool.

“The Russian economy is heavily dependent on energy,"  he explained. "And, so if it no longer sees potential and economic benefit from supplying Ukraine at lower prices, then it will increase it [the price]. And, it’s always that … changes we’ve seen in Europe over the last couple of months.”

But this time, the threat is not as ominous as it was during price disputes in the winters of 2006 and 2009. European countries have since found other options for meeting their energy needs, and, in any case, will not rely on Russian gas in the summer months. And though most European countries refill their storage facilities at this time, those facilities are likely well stocked after a mild winter.

“The previous sort of Ukraine gas prices in 2006 and 2009, there was a different situation because: A, it was winter; B, the EU as a whole was more dependent on Russian gas; and, C, more of that Russian gas came through the Ukraine and more of it is diversified, so it goes around the Ukraine,” Froggatt said.

Russia must also consider the cost to its own economy of withholding gas exports, which provide its most important source of revenue. Whatever Vladimir Putin's geo-political ambitions, most energy analysts seem to agree he will think twice about jeopardizing that revenue.

EU working on plan to help pay for gas

In Vienna Friday, European Energy Commissioner Guenther Oettinger said he is working on a plan to help Ukraine pay some of its gas bills to Russia.  According to a Reuters report, he told Austria's ORF radio on Friday, there was "no reason to panic'' about Russian gas supplies to Europe.

"We are in close contact with Ukraine and its gas company to ensure that Ukraine remains able to pay and the debts that the gas company has to Gazprom do not rise further,'' Oettinger said, adding he would meet Ukraine's energy and foreign ministers on Monday.

"I am preparing a solution that is part of the aid package that the IMF, the European Union and the World Bank is giving to Ukraine and from which payment for open bills will be possible,'' he said.
     
Oettinger advised against taking Putin's threat at face value, saying Russia wanted to deliver gas and needed the revenue.

"Part of the bills is justified. Another part is unjustified. We will put together a package in the weeks ahead so that paying the justified open bills will be possible, but not according to Mr. Putin's accounting but rather by what is contractually correct,'' he said.   

Some information for this report provided by Reuters. 

You May Like

Video On The Scene: In Gaza, Darkness Brings Dread and Death

Palestinians fear nighttime bombardment, VOA correspondent finds More

African Small Farmers Could Be Key to Ending Food Insecurity

Experts say providing access to microloans, crop insurance, better storage facilities, irrigation, road systems and market information could enable greater production More

University of Michigan Wins Solar Car Race

Squad guided its student-designed solar-powered vehicle to fifth consecutive time victory in eight-day bi-annual American Solar Challenge More

This forum has been closed.
Comment Sorting
Comments
     
by: Anonymous
April 12, 2014 9:29 AM
Dasvadania


by: Anonymous
April 12, 2014 12:42 AM
The hike in gas price seems entirely evil.
Too bad Putin is in power, Russians deserve a leader with ethics.

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Vietnamese Staging Chinese Product Boycott After Oil Rig Spati
X
Reasey Poch
July 28, 2014 7:18 PM
China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video Vietnamese Staging Chinese Product Boycott After Oil Rig Spat

China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video ESA Spacecraft to Land on a Comet

After a long flight through deep space, a European Space Agency probe is finally approaching its target -- a comet millions of kilometers away from earth. Scientists say the mission may lead to some startling discoveries about the origins of the water on earth. VOA’s George Putic has more.
Video

Video Young Africans Arrive in US for Leadership Program

President Barack Obama's Young African Leadership Initiative has brought hundreds of young Africans to the United States for a six-week program aimed at building their knowledge and skills in fields such as public administration and business. Out of the 50,000 young Africans who applied for the program, just one percent was accepted. VOA's Laurel Bowman caught up with some of those who made the cut and has this report.
Video

Video In Honduras, Amnesty Rumors Fuel US Migration Surges

False rumors in Central America are fueling the current surge of undocumented young people being apprehended at the U.S. border. The inaccurate claims suggest the U.S. will give amnesty to young migrants from the region. As VOA's Brian Padden reports from Honduras, these rumors trace back to President Obama's 2012 executive order to halt deportations for some young undocumented immigrants already living in the United States.
Video

Video Students in Business for Themselves

They're only high school students, but they are making accessories for shoes, fabricating backpacks and doing product photography - all through their own businesses. It's the result of a partnership between a non-profit organization that teaches entrepreneurship and their schools. VOA's Mike O'Sullivan and Deyane Moses met the budding entrepreneurs near Los Angeles.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.

AppleAndroid

World Currencies

EUR
USD
0.7305
JPY
USD
101.53
GBP
USD
0.5830
CAD
USD
1.0656
INR
USD
60.075

Rates may not be current.