Don’t blame Gazprom (again)

Another cold Russian winter, another dispute about Russian gas prices. Time‘s Yuri Zarakhavich has a useful summary:

In the buildup to Dec. 31, Russia accused Ukraine of having arrears of more than $2 billion on its expired gas contract. Ukraine said that it had paid all its debt. Moscow said it would start charging a new price, which it presented as both the “market” price and a “preferential” rate—just $250 rather a sharp rise on the 2008 price of $179.5 per 1000 cubic meters of gas. Ukraine said that it could pay $201.

In response, Gazprom, Russia’s state-run natural gas monopoly, dropped its “preferential” offer and said it would have to charge the real “market” rate of $418. It also insists that Ukraine still owes Moscow $ 614 million, and, at 10am on Jan. 1, turned off gas taps to Ukraine.

Pretty much the same thing has happened for the last three winters. Worried about its own supply, the EU is anxiously working to broker a compromise between Ukraine and Russia. As a European Commission representative said:

“Since we are the main market for Russian gas … we have an obvious interest in applying pressure on these parties to reach as soon as possible an agreement which is definitive.”

It’s easy enough to cast Gazprom — a state monopoly with a penchant for heavy-handed ultimatums — as the villain in this recurring drama. But that lets Europe off the hook a bit too easily. As energy investor Jérôme Guillet wrote for FP during the 2007 edition of the dispute, Gazprom doesn’t behave all that differently from any other company and its demonization is a convenient way for European leaders to divert attention from their lack of a coherent energy policy:

[I]t’s a bit rich to see the supposedly pro-market Westerners calling for heavy subsidies. And a country like Ukraine that’s angling to join NATO (an organization that Russia understandably perceives as anti-Russian) can hardly expect a discount on its gas. So why is Russia getting demonized for defending its interests? The answer lies with European leaders, who are trying to distract the public from the mess they’ve made of European energy policy. Europeans themselves are to blame for their dependency on Gazprom, which is doing what any company would do in its place. […]

As for European leaders, they have no one but themselves to blame for turning worrying domestic gas problems into a major international crisis. Europe, led by the United Kingdom, has made a conscious choice to rely on gas as its main new source of energy at a time when its domestic supplies are declining—and declining a lot faster than everybody expected. And Europe’s economic liberalization encourages market players to build easier-to-finance gas-fired plants, thus feeding demand for more gas. If political leaders were really worried about gas supplies from Russia, they should change that structural feature of the market rather than wailing about Gazprom’s clumsy—but ultimately harmless—fights with its neighbors.

Two years after Guillet wrote that, Europe is still just as dependent on Russia for its energy supply, meaning that this New Year’s tradition is likely to continue. If the corner store continually rips you off, yet you continue to patronize it, can you really keep blaming the store?

Photo: SERGEI SUPINSKY/AFP/Getty Images