Escalating Tensions in the Russia-Ukraine Energy Relationship Benefits Moscow
On January 19, Gazprom unexpectedly informed Ukraine‘s Naftogaz that it owed $2.55 billion for breaching the now-infamous “take-or-pay” clause in their supply contract. The Russian gas giant claims Ukraine did not take delivery of the minimum required amount of gas between July and September 2015 and, in response, Naftogaz said it would take up the matter in arbitration. This is only the latest in such disputed bills foisted on Kiev by Moscow, bringing Naftogaz’s total alleged debt to some $32 billion. The “take-or-pay” clause was previously frozen under a brokered gas supply agreement facilitated by the European Union. Russia has asserted that the bill would be payable in 10 days.
This move is viewed as merely the latest piece of manufactured leverage created by Moscow to apply economic and financial pressure on Kiev and, in Moscow’s eyes, enhance its position in broader negotiations. In this same window, Ukraine announced plans to raise the price for transit of Russian gas to Europe by 50%, a move likely intended to counter Russia’s latest bill and remind Moscow that Ukraine is not without leverage of its own. Like Gazprom’s latest charges, however, any such move by Ukraine would likely also end up in arbitration.
This escalating dispute is significant for a couple of reasons: 1) rising tension in the economic and financial (E&F) warfighting domain between these two countries has the potential, as it has done in the past, to migrate toward kinetic conflict and potentially undermine existing and future peace accords; and 2) it raises the stakes in the current struggle between Germany and other Western European countries that are leaning in the direction of approving Russia’s Nord Stream 2 pipeline project that would bypass Ukraine and Central and Eastern European countries that view support for this project to be a betrayal of European support in their “dependency” struggles with Russia.
Regardless of how this dispute impacts on the conflict between Russia and Ukraine, for key European actors, this tension only adds to the argument that another route from Russia that circumvents Ukraine is needed — which has been a key strategic objective of Moscow for years. In short, anything Moscow can do to continue this energy dispute — no matter how manufactured it may be — likely advances its efforts to implement key projects like Nord Stream 2, Turk Stream and possibly even a revival of South Stream, particularly if the EU’s political will again falters (e.g., Nord Stream 1).