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

Turkey's Controversial Reform Bill Giving Investors Jitters

Homeland security reform bill will give police new powers in search, seizure, detention and arrests, while restricting the rights of suspects, their attorneys More

Audio Slideshow In Kenyan Prison, Good Grades Are Path to Freedom

Some inmates who get high marks could see their sentences commuted to non-custodial status More

'Rumble in the Jungle' Turns 40

'The Champ' knocked Foreman out to regain crown he had lost 7 years earlier when US government accused him of draft-dodging and boxing officials revoked his license 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.
Victorious Secularists Face Challenge to Form Government in Tunisiai
X
Henry Ridgwell
October 30, 2014 11:39 PM
Official results from Tunisia show the Islamist Ennahda party has failed to win the second free election since the so-called "Arab Spring" uprising in 2011. Ennahda, which handed power to a government of technocrats pending the elections, lost out to the secular party Nidaa Tounes. Henry Ridgwell reports from London that the relatively peaceful poll offers some hope in a volatile region.
Video

Video Victorious Secularists Face Challenge to Form Government in Tunisia

Official results from Tunisia show the Islamist Ennahda party has failed to win the second free election since the so-called "Arab Spring" uprising in 2011. Ennahda, which handed power to a government of technocrats pending the elections, lost out to the secular party Nidaa Tounes. Henry Ridgwell reports from London that the relatively peaceful poll offers some hope in a volatile region.
Video

Video Africa Tells its Story Through Fashion

In Africa, Fashion Week is a riot of colors, shapes, patterns and fabrics - against the backdrop of its ongoing struggle between nature and its fast-growing urban edge. How do these ideas translate into needle and thread? VOA’s Anita Powell visited this year’s Mercedes Benz Fashion Week Africa in Johannesburg to find out.
Video

Video Smugglers Offer Cheap Passage From Turkey to Syria

Smugglers in Turkey offer a relatively cheap passage across the border into Syria. Ankara has stepped up efforts to stem the flow of foreign fighters who want to join Islamic State militants fighting for control of the Syrian border city of Kobani. But porous borders and border guards who can be bribed make illegal border crossings quite easy. Zlatica Hoke has more.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.

All About America

AppleAndroid

World Currencies

EUR
USD
0.7893
JPY
USD
107.68
GBP
USD
0.6238
CAD
USD
1.1214
INR
USD
61.185

Rates may not be current.