Russian Gas for Ukraine and the EU: Politics and Reality

In 2009 Yushchenko, fighting Tymoshenko for voter sympathy, called Russian gas “putrid”. Probably it is necessary to think that Western gas “doesn’t sweat, but smells”.

Talking about the “gas wars” between Ukraine and Russia, the tally of which has already passed a dozen (if we count the first, as far back as 1992, conflicts), experts, as a rule, longly and tediously listing the complex and understandable-to-nobody peculiarities of gas transportation systems, European (constantly changing) and international norms and rules, calculate billions of cubic meters of gas and billions of dollars that someone may or may not receive. In their complex mathematical calculations, they are right – but never, ever do their estimates and forecasts given ten years ahead coincide with reality.

I have a good friend, today an in-demand (both in Russia and Ukraine) oil and gas expert, who in 2005 on the square in front of the red building of Kiev’s Shevchenko University (behind the back at the monument to the mentioned Taras Shevchenko) tries to convince me that all (northern and southern) streams are Gazprom‘s bluff and that they will never be built, citing the fact that he, working for the press service of Naftogaz, has access to data unknown to me. Now he explains very conclusively why Ukraine will never win a gas war with Russia and why all streams will be built (even “North 10-12” and the same Southern or Turkish).

He, like when he argued with me 15 years ago, relies on complicated calculations (cubic meters, kilometers, dollars, etc.). And now I agree with him, but not because I am convinced by the numbers he uses. Even in those glorious days when we were 15 years younger, I said to him: “Dima, understand a simple thing: if there is a seller and a consumer, the transit problem is solved. Even if bypass gas pipelines cost two or three times more than you estimated at Naftogaz, there is one advantage: they will always work. I.e., sooner or later they will make back what they cost and start to bring profit, even in comparison with the ‘beautiful Ukrainian gas transit system’.”

My second, not so significant, argument was that Gazprom is a global-level company, and if it publicly stated that it would build bypass gas pipelines, it would build them, despite the costs.

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For fifteen years my then interlocutor grew up, gained experience, and now, explaining why Gazprom will always beat Naftogaz, relies on the same arguments I gave him 15 years ago. This is a rare example of an adequate Ukrainian expert who is not shy about learning from his own mistakes. Moreover, I can say that from the remaining oil and gas experts in Ukraine, he (and a couple of other people who, however, are politically engaged, unlike my friend) is assessing the situation the most adequately and realistically.

So, both then and now, assessing the arrangement of forces in Ukrainian-Russian gas conflicts, I am never interested in technical and legal details. I come from two givens:

• The supplier and the consumer will always be able to find each other (no matter how much they resist this transit) if they really need each other;

• Political needs always prevail over economic-financial expediency, regardless of what the media and politicians tell us.

Let me remind you that the United States unsuccessfully tried to block the “Gas-Pipes” contract (discussed since the late 1960s and implemented by the late 1970s). The result of their counteraction was that today not only Russia, but also Ukraine (still) has the capacity to produce pipes of the required quality and diameter for gas pipelines. I.e., like now, the sanctions played in favour of developing the necessary production on their (USSR) territory, but did not stop the supply of Russian (Soviet) gas to Europe.

Therefore, even in 1992, when working in the Ministry of Foreign Affairs of Ukraine, when gas conflicts had not yet turned into “gas wars”, I said and wrote (office memorandum for my leadership) that it is better to negotiate with Russia on the proposed terms (and they were simply fine for Ukraine) than to posture and achieve that transit through Ukraine will become unprofitable for both Russia and the EU. I argued my position simply: Gazprom can embed any Ukrainian wishes into the price for its European consumers. Ultimately, if Ukraine achieves that the price of Russian gas becomes unprofitable for Europe, it will kill its own transit (i.e., it will be left without money and without gas). At the same time, Russia can compensate for the loss of the European market by entering Asia. Since a gas deficit will increase its value, Gazprom will lose nothing, and Ukraine will remain without money and without gas.

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My “smart” leaders explained to me that Russia does not have gas pipelines in the eastern direction. And I drew their attention to the fact that in the 1960s the USSR had no gas pipelines in the western direction. But it didn’t impress them.

Today’s situation we are familiar with. And we can assess who was right and who was wrong. I can only say that if Ukraine’s leaders had listened to me in the early 1990s, they would now have a modernised and expanded gas transit system through which Europe would receive not 80% (like the 1990s), but 90% of Russian gas. And no bypass gas pipeline projects. And then Ukraine would really be treated like the biggest “apple of the eye” in the world (both Europe and Russia), because such volumes of transit require the territory through which they go to be politically stable. There would be no Maidans.

Why do I remember all of this?

Because both Northern and Turkish (instead of Southern) streams have already been built (and the southern streams are already in the project again). Moreover, Russia has become the main supplier to the global liquefied gas market. At the same time, in the next five years Russia’s liquified natural gas capacity is going to double or triple. And Ukraine is still trying to win “gas wars” due to its transit position. Smart experts (even those who focused exclusively on technical indicators) have long understood that the EU can either buy Russian pipeline gas (which is cheaper than the price of the world market) or say goodbye to its industry and immediately fall from the first to the third world. Ukrainian rulers still believe that a certain abstract West (which, of course, does not like Russia, but is not going to kill itself in order to pull a dirty trick) will necessarily compensate Ukraine, at Russia’s expense, for its loss, as long as Kiev continues to hold a Russophobic position.

The West would not be averse, but it is not going to suffer catastrophic losses to its economy due to the increase in the cost of gas and, at the same time, to finance Ukraine, which it does not need, for political and ideological reasons. The West is not opposed to a Ukrainian-Russian war (whether it be cold or hot), but only if it earns profits and doesn’t suffer losses.

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Kiev is unable to fight Moscow at its own expense. Europe is unwilling to finance the “gas war” that is causing it damage. The US would probably not refuse to support Ukraine, but it now has domestic political problems up to its eyeballs, and it cannot force the EU to work against European interests. The globalist European bureaucracy is not averse to pulling a dirty trick on Russia at the expense of the collapse not only of Ukraine, but also of the European Union. But it must be borne in mind that, for all the possibilities of European bureaucracy, no solution can be implemented at the national level if the authorities of the states concerned are against it. If the Baltics, Poland, Czech Republic, and Hungary can ignore EU directives on the reception of Asian-African migrants, Germany (the EU’s backbone and treasury) is all the more capable of circumventing unacceptable Euro-bureaucratic gas directives.

This is all you need to know about the current gas dispute with Ukraine, which is ready to move into another “gas war”. The EU, of course, can (theoretically) take the side of Ukraine, but only at the cost of committing financial-economic suicide. Russia will suffer losses, but not only will it not die, it will not even get sick.

The last standard question is: can Moscow make unforced concessions to Kiev? It can. But, as the practice and experience of 27 years of “gas wars” show, any Russian formal concession results in 2 days of holiday in Kiev and ten subsequent years of Ukrainian suffering (because gas only becomes more expensive as a result). In the current situation ten years for Ukraine is forever (a lifetime). Such states – in such circumstances – do not live so long.

Rostislav Ishchenko

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