Red Hot Chilly Peoples

Ukraine and Russia have settled their natural gas dispute -- for now. But that doesn't mean the wider conflict is anywhere near resolved.

Emmanuel Dunand - AFP - Getty
Emmanuel Dunand - AFP - Getty

The three-way interim deal that Russia, Ukraine, and the European Union have reached to restart shipments of natural gas staves off the specter of a freezing winter both in Kiev and farther west. But although the deal underscores the limits of Russia’s ability to use energy as a geopolitical weapon, it doesn’t mean that the frozen conflict over Ukraine will thaw anytime soon.

After weeks of back-and-forth negotiations, which seemed to break down this week, Russia and Ukraine finally agreed late Thursday that Gazprom would resume exporting natural gas to Ukraine after Kiev pays at least some of its billions in arrears.

Ukraine has to cough up $3.1 billion for old bills and advance cash payments for fresh gas shipments from Russia. Once Ukraine pays its first debt installment and for November deliveries — approximately $2.2 billion — Gazprom will open the spigot, perhaps next week. The European Union and the International Monetary Fund said that Ukraine can use existing EU and IMF credits to help pay for the gas.

It’s not a long-term solution to the energy impasse. The deal guarantees Russian gas supplies for Ukraine through the end of the winter at a price roughly comparable to what other European customers pay. But Gazprom said that after March, it might charge more.

Tense as the talks have been since Russia cut off Ukraine’s gas supplies in June, experts think the accord will hold up.

"I think this deal can stick," said Steven Pifer, a former U.S. ambassador to Ukraine and a senior fellow at the Brookings Institution. "All sides have an interest: Ukraine wants and needs the gas to get through the winter; Russia wants to earn money, including getting some of the old gas debt repaid; and the EU wants to ensure no problems could disrupt transit gas flows through Ukraine to Europe," he said.

The deal will supply Ukraine with about 4 billion cubic meters of gas through the end of the year; Ukrainian gas executives figure the country needs a minimum of 5 billion cubic meters to get through the winter.

For Europe, which gets about one-third of its gas from Russia — and half of that via Ukraine — the deal is also attractive just as colder temperatures are setting in. European officials are haunted by memories of prior Russia-Ukraine gas disputes, including those in 2006 and 2009, which ultimately led to energy shortages for European consumers.

José Manuel Barroso, the president of the European Commission, the EU’s executive body, hailed the agreement: "There is now no reason for people in Europe to stay cold this winter," he said. The EU’s outgoing energy chief, Gunther Oettinger, also cheered the deal, telling Europeans, "We can guarantee security of supply over the winter."

The resolution illustrates the mutual dependence between Russia and Europe that limits the geopolitical options for both. Russia’s ability to wield the energy weapon to cow other states is curbed by Gazprom’s need for earnings from its largest export market. By the same token, Europe’s ability to take a tough stance against Russia is constrained by the strong commercial ties, especially in the energy trade, between the two.

In particular, Gazprom had both short-term and long-term incentives to end the gas impasse with Ukraine. European demand for natural gas is down. And more players in the market are pushing prices down. That has hit Gazprom’s bottom line right at a time when it is trying to invest tens of billions of dollars in new projects and when international sanctions are choking its ability to access capital markets.

Gazprom and the Kremlin must also maintain Russia’s image as a reliable energy supplier, which was called into question during the 2006 and 2009 shut-offs and tarnished again after Gazprom halted gas exports to Ukraine this year.

"I want to reassure you that Russia has always been a reliable supplier of energy resources to Europe and other consumers. It has been, is, and will be a reliable supplier," Russian energy minister Alexander Novak said at a news conference after concluding the deal.

Although Russia and its big energy companies are also pivoting to Asia, partially to reduce their excessive reliance on the European market, they need their reliable supplier image intact. Russia and China this spring concluded a massive $400 billion natural gas deal and could finalize another mammoth deal soon. Russia is also trying to more deeply penetrate the market in Japan, which is desperate for alternative sources after the 2011 Fukushima nuclear accident led to the closure of its entire nuclear fleet. Although energy demand in most Asian countries is growing, they are leery of becoming too reliant on Russian imports.

The interim deal doesn’t resolve the broader dispute among Russia, Ukraine, and Europe over Russia’s annexation of the Crimean peninsula and its role in destabilizing eastern Ukraine. Russian jets are increasingly flying into European airspace, and a Russian submarine was recently stalking waters off Stockholm.

Russia also continually undermines the Minsk agreement reached in September that was meant to end the armed conflict in eastern Ukraine. Moscow’s most recent provocation, Pifer said, involves plans to recognize the results of upcoming local elections in separatist-held areas including Donetsk and Luhansk; U.S. Secretary of State John Kerry called those elections "unlawful." And it is blocking international observers from ensuring compliance on the ground with the provisions of the Minsk accord.

"I would not read too much into Moscow’s agreement to the gas deal," Pifer said. "Russia still appears to want a frozen conflict in eastern Ukraine."

Keith Johnson is a senior staff writer at Foreign Policy. Twitter: @KFJ_FP

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