Kremlin Pressure Tactics regarding Coal and Gas Deliveries to Ukraine

On December 9, Russia reportedly resumed gas supplies to Ukraine six months after they were cut off following a dispute over unpaid debt and pricing.  The circumstances of these deliveries, however, appear to be the result of coordinated pressure applied to Kiev by Russia and the rebels in eastern Ukraine, who have each simultaneously ceased deliveries of coal to Ukraine, causing severe fuel shortages in the country‘s power generation capacity.

Ukraine had hoped to avoid the necessity of making such purchases until 2015, attempting to stand firm on its position regarding what are viewed by Kiev as unfair debt payments being demanded by Moscow for past gas deliveries and remaining disagreements over the price of gas going forward.  Much of Ukraine‘s domestic coal supply originates in the east, where rebel leaders have demanded prepayment terms for Kiev that are not agreeable to the government for a variety of reasons.  Simultaneously, deliveries from Russia of coal that had already been paid for by Ukraine were inexplicably held up at the Russian-Ukraine border on freight trains controlled by state-owned Russian Railways.  Furthermore, a last minute attempt to import coal from South Africa was derailed in an unusual way, involving the arrest of a Ukrainian official on alleged embezzlement charges.

As a result, Ukraine agreed to break the stalemate over natural gas purchases and prepay $378 million for 1 bcm of gas, immediately after which the freight cars with Russian coal began moving across the border.  It is likely that these events were an orchestrated effort by Moscow to squeeze Ukraine‘s energy production capacity and gain leverage over the ongoing gas supply negotiations.