Russia-Ukraine Gas Dispute Cools Off… For Now

Articles — By forcechange on January 12, 2009 9:18 am

Although Russia and Ukraine have apparently reached an agreement to accept international monitors in order to reestablish natural gas flows to Europe, this is unlikely to be the end of this geopolitical saga.  Both countries are still far apart on a final solution, with Moscow insisting that Ukraine pay “market prices” (or higher) and Ukraine insisting it should receive cheaper gas, in part due to its importance as a conduit for Russian gas to Europe.

Illustrating the gamesmanship and hostility involved in this recent stalemate, Russia actually raised its price demands every time Ukraine rejected a prior offer.  (Starting at $250 and eventually reaching $450 per 1,000 cubic meters.)

However, it is clear that this conflict is more than just a price dispute.  It also has geopolitical ramifications.  Reuters quotes David Cox, chief consultant at Poyry Energy Consulting in London, as stating:

“If we want the Ukraine in the EU and we want them on our side, rather than Putin’s side, maybe we have got to pay a cost for that and that is partly helping them with the transition [to market prices].”

And of course, what fuels this international tug-of-war is access to natural resources.  Russia has them, Ukraine transports them, and Europe needs them.  Decrease that dependency and you decrease a major component of this conflict.