An Explosive Gas Deal

Putin’s Hard Bargain Could Undermine Democracy in Europe

Sometimes the stumbling blocks in international affairs are glaringly obvious — such as the victory of Islamic fundamentalists in Palestinian elections, which has at least temporarily paralyzed the Bush administration’s policy of promoting democracy in the Middle East. Sometimes, though, they are complicated, confusing or simply opaque, and thus barely reported on by the press or understood beyond a small circle of experts.

That might explain why there has been so little discussion in Washington of a gas deal between Russia and Ukraine this winter that, in its own way, may be as significant as the Palestinian vote. Here is a terribly dense tangle of a half-dozen contracts that involves hidden partners, disputed pricing arrangements, and esoteric side agreements about transit fees and storage facilities. It is mind-numbingly boring — and it may tip the balance against democracy in much of the eastern half of Europe.

The story surfaced briefly at the beginning of January, when Russian President Vladimir Putin made the mistake of partially halting gas deliveries to Ukraine — and to much of Western Europe, which receives Russian supplies through a Ukrainian pipeline. Chastised by big customers such as Germany, Putin — who had been trying to force Ukraine to accept a 400 percent price increase — quickly turned the gas back on. A couple of days later a deal was announced in Moscow and Kiev that appeared to resolve the dispute more or less equitably: The nominal price of Ukraine’s gas rose by a mere 90 percent.

It was not until more than a month later that the Bush administration and other key allies of Ukraine’s pro-Western government — elected after the popular Orange Revolution of 2004 — learned more about what was in the Russian-Ukrainian contracts. When they did they were stunned. Ukraine’s president, Viktor Yushchenko, and Prime Minister Yuriy Yekhanurov had agreed to purchase Ukraine’s gas through a Swiss trading company whose owners and beneficiaries are publicly unknown — but are rumored to include senior officials and organized crime figures in both Russia and Ukraine. They granted this same shadowy company a 50 percent share in the business of delivering gas to Ukrainian consumers. They accepted a price deal on gas delivered to Ukraine lasting only a few months but guaranteed that rock-bottom rates charged by Ukraine for the storage and transit of Russian gas to the West would be frozen for 25 years.

Washington Post