It’s Russo-Ukrainian gas crisis time!

Ah, Christmas. A time for family, opening presents, and eating far too much. Oh, and time for the annual Russo-Ukrainian gas crisis.

In a move that has become almost as traditional as Santa’s squeeze down the chimney, Russia is threatening to cut off Ukraine’s gas supply unless a debt of $2 billion is paid by the 1st January 2009. Never ones to deny tradition, the European press are naturally worrying that if Russia cuts off the gas to Ukraine, supplies to Western Europe will also be affected, leaving the British unable to reheat their Christmas turkey leftovers next year.

Usually, a few days after the gas is actually cut off, the EU puts enough pressure on Ukraine and Russia that they come to a deal. But I wonder if it will be as simple this year, in the midst of a global economic downturn that is affecting all the major players.

Ukraine, in particular, may simply find that it doesn’t have the resources to comfortably meet this year’s bill – let alone next year’s, when (as a result of last year’s deal with Russia) gas prices are expected to double from $179.50 per cubic metre to around $400. The Ukrainian economy is in meltdown – consider this list of woes:

  • the value of the hryvnia has halved since September (by 12% in just two days last week)
  • the IMF had to step in with a $16.5 billion stabilization loan last month
  • Ukraine has a total corporate and state debt of $105 billion, and is rated the third least credit-worth country in the world at the moment (after Ecuador, which has just defaulted on its loans, and Argentina)
  • Production of steel (which accounts for almost 40% of the country’s exports) halved in November.

Although Ukraine has just paid $800 million of the $2 billion it owes, and is promising to pay more soon, I wonder if it will attempt to withold some or all of the remainder as a bargaining tool against next year’s planned price increases. In the current uncertainty – can Ukraine really afford to see the price of gas double?

Gazprom’s position is an interesting one. The current financial climate means they aren’t as secure, or as confident as they have been over the past few years. You could argue that this means they are more likely to cut a deal with Ukraine, but I’m leaning the other way – Gazprom will be prepared to play hardball with Ukraine if necessary, for fear that any sign of weakness could encourage other Eastern European customers facing hard times that they might be able to save a bit of money on their gas bills. Gazprom have already signalled their intent not to back down by releasing a statement designed to make European customers nervous:

“It is not ruled out that the current position of the Ukrainian side and some of its actions could lead to disruptions in the stability of gas supplies to Europe”

It’s going to be an interesting couple of weeks… we’ll see where we are when we come back after the Christmas break.

Update: By the way, the Gas Exporting Countries Forum are meeting in Moscow this week. As far as I can tell, there’s nothing on the agenda about forming an OPEC-style cartel, but that hasn’t stopped the media from speculating

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12 Responses

  1. Argentina wins again? Sheesh.

    The Expatresse´s last blog post..Dee Dum, Dee Dum, Delightful

  2. Kyle says:

    Merry Christmas!

    From Kyle & Svet

    Kyle´s last blog post..Christmas Postcard Slideshow from Windows to Russia!

  3. Merry X-Mas Andy and all!
    In the case the gas goes off to you Brits I recommend keeping warm with vodka (or should I say gin)!

    Da Russophile´s last blog post..X-Mas Special – Zen and the Art of Vodka Drinking

  4. TRex says:

    And probably they’re out of gas as of this writing?

    TRex´s last blog post..HAPPY NEW YEARS!!

  5. Free World says:

    The UK is supplied from its own gas reserves in the North Sea which are dwindling and Norway. So it should be largely uneffected by this apart from the wholesale gas price. Germany and eastern Europe are currently looking for other suppliers mainly Norway putting pressure on Norway supplies.

  6. Alex says:

    Plus we should remember two important facts. At first, Ukraine will suffer losses because the price for using Ukranian gas pipe didn’t grow proportionally to the Rusiian gas price. Let’s make a simple calculation. Russia pays Ukraine $1,7 for transporting 1000 cubic meters of gas on 100 km. Average distance which is passed by Russian gas by our pipe aproximately 1100 km. Russia transports to Europe at least 110 milliards cubic meters of gas annually. So Ukraine gains about $2 milliards anually. And the lowest European price is $4 per 100 kilometers, so we could gain about $4,7 milliards. Accordingly we can say that Timoshenko complimented Putin about $2,7 milliards.

    How much gas could be purchased by these? 10-12 milliards of cubic meters at least. Timoshenko grants Putin more than the 50% of annual gas necessity of Ukraine. Receiving the increasing of prices and Ukraine’s obligation to buy technical gas by own cost, though at favourable prices.

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