The Other Gas Wars

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The most recent gas war between Russia and Ukraine took place January 1st after political tension caused gas price negotiations between the two countries to fall apart and Russia cut gas flows to Ukraine. A few days later, Russia stopped the flow of gas to Europe leaving at least 18 Eastern European Nations with scarce supplies.

At an American Enterprise Institute event, Anders Aslund, a senior fellow at the Peter G. Peterson Institute for International Economics discussed how the gas wars affected Russia and Ukraine. AEI describes itself as a private, nonpartisan, not-for profit institute dedicated to research and education on issues of government, politics, economics and social welfare.

Aslund discussed the two gas suppliers, Gazprom in Russia and Nafthoaz Ukrainy and how RosukrEnergo played a role. RUE is a company that transports natural gas from Turkmenistan to East European countries. Aslund said “RUE put a monopoly on gas exports from central Asia and Russia to Ukraine.” RUE was also dominant in domestic gas sales to industries.

Aslund then began to talk about the nature of the RUE agreement which was “meant to be long term, have normal prices and tariffs set by a specific formula and no intermediacy.” But RUE lost out and had no role in Russian-Ukrainian gas trade; it was no longer a domestic Ukrainian distributer and Gazprom sold RUE’s debt of 1.7 billion to Nafthoaz. Gazprom also had a direct loss of 2 billion dollars and had caused damage to their reputation.

Steven Pifer, a visiting fellow at the Brookings Institution, where he focuses on Ukraine and Russia, discussed some of Russia’s political motivations for the gas wars. Pifer said, “Russia was motivated to tarnish the reputation of Ukraine; so that it would become less reliable as a transit for gas.” He continued, “Russia grew unhappy with Ukraine as they grew closer to the North Atlantic Treaty Organization and the European Union.

The gas wars which have been going on since the early ‘90s after the collapse of the Soviet Union continue to persist because Russia wants more money from Ukraine and Ukraine doesn’t want to pay more and owed more money to Russia because of late penalties. Ukraine also has an upcoming presidential election and Russia could have started the gas wars to discredit President Viktor Yushchenko and Prime Minister Yuila Timoshenko.

Angelos Pangratis, deputy head of the Delegation of the European Commission to the U.S.A suggested that the European Union should intensify their efforts in the matter and develop a strategy that would be beneficial. Pangratis said “for an EU short term response, European states should help each other out and there should be a joint reaction.” Pangratis also had some suggestions for mid-term response by the EU which included, “interconnection of infrastructure projects and “an effort to engage Ukraine and work with Russia and Ukraine to restore confidence.” Lastly, Pangratis listed some long-term responses from the EU which included, “go further on elements of security and supply, develop an energy policy and completion of the internal market.”

The last speaker at the event, Gary Schmitt, a resident scholar at AEI, said “the real issue is specific dependence of certain countries.” Schmitt also listed some short- and long-term goals for the EU. Schmitt’s short term goals included “building storage capacities, building up pipeline connectors and greater EU effort to force European countries to create reserves.” For long-term goals Schmitt said “diversification.” He also said “the decision to move away from nuclear power puts more pressure on the gas market.

Alanna Hultz is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.