Gas War in Ukraine
Late last week two disturbingly related stories moved on the worldwide news wires.
On Thursday, the Russian gas monopoly Gazprom cut off gas supplies to Ukraine when it demanded a price rise to $250/1,000 cubic meters and Ukraine offered only $200. Gazprom also wants to collect half a billion dollars in fines for late payment.
On Friday, crude oil prices jumped nearly 4% to just over $46/barrel. Traders worried that decreases in gas flow to Ukraine could undermine the flow of gas to Europe, creating scarcities.
Why, it was almost as if Russia wanted to disturb the gas market and drive up prices artificially due to a panic. Why would it want to do an outrageous thing like that, bordering on terrorism? For one thing, as it is now the Kremlin has frittered away half its cash reserves defending the ruble and the stock market from plummting world oil prices. As the Wall Street Journal has reported: “Natural gas prices tend to follow oil prices with a six- to nine-month lag: With crude down more than $100 since reaching a record high of $147 a barrel in July, gas prices are expected to fall steeply next year.” So another big shock is in Russia’s future, and it needs to scrape together all the cash it can in hopes of avoiding bankruptcy.
And if a few million people in Urkaine have to freeze, so be it. Careful though, Russia. One day soon you may yourself be standing in Ukraine’s felt boots and asking the West for help. When that day comes, we will remember your behavior towards Ukraine.
It’s difficult to say, then, whether Russia cut off gas supplies to Ukraine because it wanted to bludgeon Ukraine back into a position of submission, forcing it out of NATO’s protective embrace, or because it wanted to panic the gas market in a desperate bid to keep the gas price up. Given the relentless devastation wrought by the plunging oil price, it’s not difficult to foresee a total Kremlin collapse if the price of gas were to follow suit. As we previously reported, the drop in oil prices along has wrecked havoc with Gazrpom’s market capitalization; if gas prices did the same, Gazprom might simply cease to exist.
What is clear is that, citing an agreement Ukraine claims does not exist, Russia refuses to acknowledge Ukraine has the right to raise transit prices on gas Russia sends through Ukraine to its European markets even as Russia demands that Ukraine itself pay dramatically higher prices. Russia doe snot care that gas prices are due to fall in the very near future, it wants to squeeze Ukraine for all it can before they do. This bespeaks desparation.
Equally clear is that Russia is jeoparizing Europe’s gas supplies, creating chaos in the markets. This makes it clear that Russia is not above destabilizing financial markets in order to turn a quick profit, belying any Russian contention that it is a “stable partner” in the energy field and therefore deserving of, for instance, a seat at the G-8 table.
Russia is doing to Ukraine with natural gas what it did to Georgia with tanks. Just as was the case with its barbaric invasion of Georgia, Russia is cutting off its nose to spite its face. Europe is polarizing against Russia, especially Eastern Europe which is the first affected by reductions in pressure on the Ukrainian gas lines and the resulting inability of Ukraine to pass gas along to them. As Ukrainians witness blatant Russian aggression little different from that practiced by the USSR, they are reminded of how horrible it would be to be absorbed by neo-Soviet Russia, and move closer to NATO, just as Georgia is doing.
And Russia is left alone, friendless in a cold cruel world. Does Russia really imagine, as the USSR did, that it can pursue such a course of action indefinitely, with impunity? Does it really think it can make friends and influence nations with threats and intimidation? How can it, when it saw the USSR destroyed by such conduct? Have Russians learned nothing from their own history? Do they even know it?
Russian willingness to provoke the outside world, and then to wail and complain about “foreign encirclement” when the world responds, is indicative of national psychosis. Russia seems bent on repeating the same self-destructive cycle over and over again until it is ultimately destroyed. If NATO were to behave towards Russia as Russia is now behaving towards Ukraine, Russia would call it an act of war. But Russia has no problem acting in a unilateral manner towards smaller nations it feels it can dominate, even as it demands that larger, more powerful nations than itself treat it as an equal.
This is Russian hypocrisy laid bare. It destroyed the USSR, and it will do the same to Russia.