Last Friday, 8 November, Ukraine halted its imports of Russian gas after yet another dispute regarding gas prices erupted between the two nations. Ukrainian Prime Minister Mykola Azarov complained that the Russian-owned gas company Gazprom is charging Ukraine unfairly high prices for its gas, while Gazprom claimed that Ukraine has neglected to pay for past deliveries. Russian President Vladimir Putin states that the debt Naftogaz, Ukraine’s state-owned gas company overseen by the Ministry of Fuel and Defense, owes Gazprom has amounted to approximately 549 million euros. This quarrel between the neighboring countries is reminiscent of the gas pricing war in January of 2009 that left 18 European countries in the cold after their gas supplies that traveled from Russia through Ukraine pipelines were completely shut off.
Gazprom is the largest extractor of natural gas and holds a monopoly on the commodity, causing irritation to mount within the European Union. Russia supplies the EU with over a third of its consumed natural gas, of which 80 percent arrives via Ukrainian pipelines. Moreover, Gazprom’s pricing scheme binds customers to contracts that set the price of natural gas to the international cost of oil, which has sharply increased in recent years. Thus, the Commission has opened an investigation into Gazprom’s monopoly, stating that the company has hindered the free flow of gas within the European Union, bound consumers to unfair prices, and likewise prevented countries from diversifying their natural gas resources.
Ukraine pays an extremely high price for Russian gas compared to other European countries, costing the nation almost 300 euros per 1,000 cubic meters of gas. Despite Ukraine’s pleas to Russia to ease its gas prices in order to aid its struggling economy, Russia refuses to amend the contract that was shaped in 2009. Thus, Ukraine has struck reverse gas supply agreements with other European nations – most notably Germany, who pays the lowest price for Russian gas in Europe – to get around such obstacles. Although Gazprom claims that the re-buying of their gas from other nations is illegal, the Commission has not questioned the practice’s legality.
Large sectors of Ukraine’s economy are reliant upon Russia, but Ukraine is taking steps to increase its economic independence, especially in terms of energy. Prior to stopping its intake of Russian gas last week, Ukraine had been steadily decreasing its Russian energy imports since 2011, almost halving the cubit meters of Russian natural gas consumed in two years. Ukraine has begun exploring options to further diversify its energy sources and travel down the road to energy independence. In 2013 alone, Ukraine has drafted agreements with global energy giants such as Shell, Chevron, and ExxonMobil. Furthermore, the country is working with Croatia and Hungary on the Adriatic Gas Corridor Project in order to decrease the region’s dependence on Russian natural gas by expanding their pipelines to form a corridor that would connect to the Trans-Adriatic Pipeline. By 2019, this line will aid in diversifying Western Europe’s energy supplies by transporting natural gas from the reserves in Azerbaijan.
The obstruction of Ukraine’s gas imports from Russia occurred on the eve of the signing of the EU-Ukraine Association Agreement, a document that has been a source of great tension in Ukraine and Russia’s relationship. The Association Agreement is the first of many new agreements to be drafted with Eastern Partnership countries, and it emphasizes values such as democracy, the rule of law, human rights, and economic growth and recovery. Furthermore, it incorporates a “deep and comprehensive” free trade area between Ukraine and the Union that will remove many trade barriers, including import and export duties.
Negotiations for this agreement were pursued despite warnings from Russia, who wanted Ukraine to join its Customs Union of former Soviet states. Sergei Galzyey, President Putin’s official advisor of economic integration, cautioned Ukraine that its signature on the Association Agreement would lead to “economic suicide”, for it claimed that Ukraine would be violating the Russian-Ukrainian Friendship Treaty. Another advisor increased the threats, claiming that Russia would no longer view Ukraine as a sovereign state if it signed the document. Despite Russia’s vehement opposition, Ukraine hopes to solidify the flagship agreement at the Eastern Partnership Summit held in Vilnius, Lithuania, on 28-29 November, and continue making strides towards greater economic independence.
David Casa is a Nationalist MEP