Putin’s Ukrainian Power Play

Russia’s latest threats to cut off natural gas supplies to Kiev are part and parcel of its growing push to force the West to back down in the battle for Ukraine.

By Keith Johnson, a senior staff writer at Foreign Policy.

Russia is unsheathing its energy weapon once again, threatening to cut off its natural gas shipments to Ukraine and warning of potentially dire impacts on Europeans reliant on energy deliveries that come through the war-torn state.

The move marks the second time Russian strongman Vladimir Putin has thumbed his nose at the West in recent days. On Monday, Feb. 23, Russia offered to sell advanced air-defense systems to Iran in defiance of pleas from Washington and its allies to avoid arming Tehran. U.S. Secretary of State John Kerry and other senior administration officials, meanwhile, have threatened to increase the sanctions on Russia in response to its continued support for the separatist rebels making major gains in eastern Ukraine. On Tuesday, Kerry said in congressional testimony that Russia baldly lied to him about its involvement there.

Putin has basically rejected those demands out of hand. Now, he’s reopening an old front in his pushback against the West by using his country’s natural gas wealth as a bludgeon to try to get his way on other issues. The latest gambit seems part of a multipronged campaign to force Washington and its allies to accede to Moscow’s land grab. Even as the United States grapples with Russia over the fate of Ukraine, it is seeking Russian help to pressure Iran into abandoning its nuclear weapons program. Putin is using the latter to help push back against the former.

“Russia is upping the ante for the West. They are basically saying, back off over Ukraine, or we will raise the stakes in the Iran talks, as we know you need us to broker a solution,” said Sijbren de Jong, an analyst at the Hague Centre for Strategic Studies. “It all fits together. Russia knows like no other how to play one power off against the other.”

The latest chapter in the long-running gas saga between Kiev and Moscow came Monday, when Ukraine’s gas company complained that contracted shipments from Russia had been cut in half. On Tuesday, Russian energy giant Gazprom warned it might have to stop gas shipments to Ukraine due to a dispute over payments.

To top it off, Gazprom boss Alexey Miller warned that a disruption in gas supplies to Ukraine could also have “serious” consequences for the rest of Europe, since Europe gets about 15 percent of its natural gas from Russia via pipelines in Ukraine.

The two sides have quarreled for years over contract terms and outstanding debts for Russian gas. In 2006 and 2009, Moscow closed the taps entirely, which led to disruptions in gas supplies in Europe. Last summer, Moscow cut Ukraine off for six months. Russia offered discounts on gas shipments to the old, pro-Russian Ukrainian government, but quickly rescinded the sweetheart deal when a more hostile government came to power.

But the nominally commercial dispute ramped up sharply late last week, when Kiev was forced to temporarily suspend gas deliveries to the rebel-held eastern part of Ukraine. Separatist fighters had damaged several natural gas pipelines there and refused to let Ukraine’s gas company repair them. In response, Russia immediately began shipping natural gas directly to the rebel-held areas — and charging Kiev for the “humanitarian” deliveries.

That makes clear Gazprom is not simply wrangling with a delinquent gas customer, but rather is part of Moscow’s plan to use energy as a bludgeon to intimidate smaller neighbors.

“We got the impression that they first ruined the gas infrastructure and then decided to supply gas to [eastern] Ukraine,” Andriy Kobolyev, the chairman of the board of Ukraine’s Naftogaz, said at a press conference late last week. Naftogaz said it was able to repair the damaged pipelines and resume normal deliveries, but Russia apparently continues to ship gas paid for by Kiev to its own proxies.

Energy experts say that Russia’s diversion of natural gas to eastern Ukraine and reductions in shipments this week appear to be a violation of the gas deal Kiev and Moscow reached last autumn. Under that accord, Ukraine agreed to pay some debts and pay for gas upfront to the tune of about $3 billion, and Russia agreed to supply Ukraine with enough natural gas to last through the winter.

Now, though, it seems that some of the gas that Kiev paid for is being sent instead directly to areas of Ukraine that are in the hands of pro-Russian separatists (and, according to Ukrainian leaders, regular Russian army forces), while Naftogaz is receiving only about half the gas it requested.

“Gazprom claims it has changed the terminals to supply gas to the regions of Donetsk and Luhansk. But unilateral change of terminals is not allowed,” said Mikhail Korchemkin, head of East European Gas Analysis, a consultancy.

If the two sides can’t reach an agreement on gas supplies and Russia does cut off Ukraine again, it would deal a sharp blow to the already wobbly Ukrainian economy. Ukrainian officials expect the economy to shrink about 5.5 percent this year; on Monday, Ukraine’s currency hit a new low against the dollar. Foreign currency reserves are rapidly dwindling. Prominent economists warn that the country faces an economic “meltdown.”

“Ukraine’s economy is in shambles. It cannot handle a gas supply interruption right now,” said the Hague Centre’s de Jong. Ukraine’s natural gas storage tanks are only 25 percent full — the lowest level in Europe — which means that it has little cushion to absorb any sustained disruption in gas imports. Meanwhile, neighboring countries like Hungary that had helped supply Ukraine with emergency shipments of gas last year have buckled under Russian pressure and curtailed those shipments.

Some in Europe are nervous about their own gas supplies. If Ukraine is cut off, the fear is that it will filch Russian gas being shipped through the country on its way to other European customers, as happened in the past. A European Commission spokesperson said Tuesday that EU gas supplies would likely not be affected.

Despite Gazprom’s ominous warnings, Europe is better placed to weather a supply disruption than a few years ago, when Russia turned off the taps in the dead of winter, Korchemkin said. Spring is coming, which will mean lower levels of gas consumption in Europe as a whole.

At the same time, Ukraine has cut its requirements for Russian gas, meaning it should feel less pressure to dip into gas supplies meant for Europe. And even if Hungary has stopped sending emergency gas to Ukraine, other neighbors such as Slovakia are preparing to increase their aid.

“European customers are safe,” Korchemkin said.

Photo credit: SERGEI KARPUKHIN/AFP/Getty

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