Amid Continuing Crisis, Russia Cuts Off Ukraine’s Natural Gas

A worker operates a valve on a gas storage facility outside Lviv, Ukraine. CREDIT: AP
A worker operates a valve on a gas storage facility outside Lviv, Ukraine. CREDIT: AP

As most of the world’s focused was cast firmly on the crisis in Iraq, Russia cut off all gas supplies to Ukraine on Monday after the eastern European nation failed to meet a deadline set by Russian gas company Gazprom to repay nearly $2 billion in gas debts.

While the cut off comes during summer, when European demand for gas is relatively low, divisions between Ukraine’s pro-E.U. west and separatist east have spiraled into an ongoing armed conflict that threatens to prolong the gas crisis and send shock waves throughout European markets. Though Moscow is allowing gas to continue to flow past Ukraine into the E.U. in this instance, Russia has previously clamped down on gas supplies to win political leverage over Eastern European nations and the European Union, which depends heavily on Russian gas. Given the volatile situation in Ukraine, this bargaining token could acquire increased value and will likely play an important role in negotiating an end to Ukraine’s current crisis.

The ongoing armed conflict claimed 49 more lives on Saturday when rebels shot down a military plane over the eastern province of Luhansk. The same day, NATO confirmed that Russia sent several tanks across the country’s eastern border and rioters in Kiev attacked the Russian embassy.

Russia reduced gas supplies to Ukraine three times in the past, in 2006, 2008, and 2009. The most recent cut off stopped gas flow for two weeks, wreaking havoc in eastern and southeastern European nations that rely heavily on Russian gas to heat homes, power public transit, and keep factories running that form the backbone of national economies. In Bulgaria, which receives 100 percent of its gas supply from Russia, schools were forced to shut down and the Prime Minister reported that millions of Europeans were “truly suffering.”

The 2009 gas shut off caused Gazprom to lose $1.1 billion in profits and cost Ukraine $100 million in transit fees alone: set backs that both already struggling economies could barely afford. Russia supplies a total 30 percent of the European Union’s gas, with half of the gas flowing through Ukraine, meaning cessation of gas shipments to Ukraine could stem flow of natural gas to the rest of the continent, with drastic consequences.

Appearing on German TV on Sunday, Secretary of State Hillary Clinton said Russian President Vladmir Putin “has worked very hard to get Europe dependent on Russian gas,” and that Europeans “have gone too far in letting that dependency stand, instead of looking for alternative sources.”

Putin attempted to sway Ukraine away from signing an association agreement with the E.U. last year when Russia offered former president Viktor Yanukovych cut-rate prices on gas. But Gazprom decided to raise gas prices 44 percent after Yanukovych was deposed in a February coup. While Putin has insisted that Russia doesn’t wield gas price hikes as a weapon, gas prices have the power to play an important role in deciding the terms for negotiating Ukraine’s future.

For now, energy dependency between Russia and Europe is a two-way street. Oil-and-gas shipments make up 70 percent of Russia’s annual exports, and 52 percent of the federal budget. With targeted sanctions from the U.S. and E.U. pushing Russia into a deepening recession, Russia can’t afford to shut off gas to Europe indefinitely in order to gain foreign policy leverage. However, the $400 billion gas deal Russia and China signed last month means Russian dependence on European markets will decrease in the long term as it finds another major source of revenue. Unless Europe becomes more energy independent, this asymmetric relationship could allow Russia to make increasingly bold moves in the international arena, like the annexation of Crimea, without fear of heavy damages to its economy.