Russian President Vladimir Putin penned a long letter to 18 European leaders today, accusing them of shedding responsibility for Ukrainian debt and threatening to cut off Ukraine’s gas supply — which in turn could lead to gas shortages in Europe. This issue is why the crisis in Crimea, is much more than just a local territorial dispute.
Gas has long served as an effective political bargaining chip for Russia, which is the source of more than half of Ukraine’s natural gas, and roughly 30 percent of Europe’s. In the winters of 2005-2006 and 2008-2009, Russia’s state-run energy company, Gazprom, cut off gas supplies to Ukraine, which led to a squeeze in Europe and global wariness to poke the Kremlin. Now, Russia has made explicit the implicit threat that it will stem that oil flow once again if they don’t get their way. In his letter, Putin says Russia is not the one that should be blamed for Ukraine’s current economic crisis:
To a large extent, the crisis in Ukraine’s economy has been precipitated by the unbalanced trade with the EU member states, and this, in turn has had a sharply negative impact on Ukraine’s fulfillment of its contractual obligations to pay for deliveries of natural gas supplied by Russia.
He adds that Ukraine’s delinquency means Gazprom might have to shut off their spigot, unless Kiev starts paying for its shipments in advance. By Gazprom’s count, Ukraine owes the company $2.7 billion in outstanding monthly bills since last year.
The letter follows Ukraine’s repeated refusal to pay Gazprom’s newly-steep prices. Earlier this week, Ukrainian officials said they would refuse to pay any more until a dispute over the previously negotiated discount owed to Ukraine is resolved. The problem there — aside from the simple fact that Ukraine is in a major recession — is that some of the discounts are tied to future leasing of Crimean ports for use by Russia’s Black Sea Fleet. According to Russia, Crimea (and those ports) now belong to them. The Kyiv Post reports:
The so-called 2010 Kharkiv Accords introduced a discount in exchange for an extension of the Russian Black Sea Fleet in Crimea until 2042. But now that Russia has seized Crimea by military force and annexed the territory — nearly 5 percent of Ukraine’s land mass and population — Kremlin leaders have decided to cancel the discount.
In this way, the letter highlights another reason Crimea is so important to Russia, and why Western leaders, fearing another gas shortage or higher prices, want things back the way they were. Since 2009, European countries have attempted to reduce their reliance on Russian gas, with limited success. This strategy was banking, in part, on closer ties between Ukraine and the West, a move that could have both boosted the Ukrainian economy and shifted a much-needed energy source to friendlier hands. As Reuters explained back in March, pre-annexation:
Ukraine’s Black Sea push has attracted energy majors as investors, including Exxon Mobil, Royal Dutch Shell, ENI and OMV… As Ukraine is a member of the EU’s energy community, the European Commission also supports Kiev’s efforts to develop its fuel resources and storage. In the event Crimea does join Russia, analysts said Ukraine’s Black Sea gas could end up in Russian hands though be connected to Ukraine’s gas infrastructure. They say Ukraine would then likely cut off supplies to Crimea.
In other words, Russia has not just upset the balance of political power in Eastern Europe, they’ve potentially disrupted the entire global oil market — a market where battle lines are not drawn along international borders. The friendly relationship between Gazprom and major U.S. gas companies is the reason sanctions against Russia over the annexation have been basically toothless. As the New York Times explains:
Oil and petroleum products represent more than two-thirds of Russian export earnings, and they finance just over half of the federal budget. But the rub is that the interests of the Russian companies — many led by powerful allies of President Vladimir V. Putin — are increasingly entwined with those of American and European corporations, with which they share critical projects.
As long as the world needs Gazprom, Russia can comfortably resist pressure to get out of Crimea, and prevent the U.S. and Europe from stepping on its toes in any meaningful way.
Arthur on Fri, 11th Apr 2014 2:52 pm
Europe, Japan, KSA are in the sphere of influence of the US.
Syria, Iran and the Ukraine are in the sphere of influence of Russia.
The idea is to draw the Ukraine from the Russia club to the US club. 2014 is a repetition of the failed ‘Orange Revolution’ of 2004.
Has nothing to do with oil.
That doesn’t mean that oil and gas-transport through the Ukraine aren’t going to be heavily affected by this stand-off and it painfully shows how much Europe is still under the thumb of the US and is acting against it’s own interest by letting this crisis happen in the first place. Europe is in dire need of a successor of general Charles de Gaulle, the greatest post-war European, to implement his vision of l’Europe des Patries, Europe of the Fatherlands (Paris-Berlin-Moscou).
https://www.youtube.com/watch?v=qigmeyh0-S8
Davy, Hermann, MO on Fri, 11th Apr 2014 4:30 pm
I get tired of the everything is about oil meme.
rockman on Fri, 11th Apr 2014 6:08 pm
Davey – OK…you get your wish. Let’s chat about refined products instead of oil. Be a nice change of pace. LOL
A simple dynamic: Crimea depends upon the Ukraine for electricity, refined products and water. Ukraine depends upon Russia for NG and refined products produced in the Ukraine by refineries owned by the Russians for the most part. Again, the makings of a match made in hell. LOL. But there maybe be some winners on the periphery.
The Belarusian oil refining industry (on the border of northern Ukraine) may profit from the situation in Crimea because the industry has the best chances of satisfying the peninsula’s market with oil products. The opinion was voiced by Sergei Kuyun, Director of the Ukrainian company Consulting Group A-95.
The expert explained that at present either Russian companies or Belarusian ones can satisfy the Crimea market. But since Russia is experiencing a shortage of oil products and particularly high-quality gasoline, Belarus’ chances are very high. Kuyun believes that Belarus can sign very profitable deals because pricing is free in Crimea yet calm and quite predictable.
The expert is convinced that oil products can be delivered via Ukraine in transit and nobody will interfere with that. Crimea needs 400,000 tonnes of oil products per year, with gasoline representing one half and diesel fuel representing the other half. “Belarus will benefit from the situation in Crimea regardless of how sad some people in Ukraine can be about it,” concluded Sergei Kuyun.
And currently the Crimea needs the Ukraine I another energy area: The Autonomous Republic of Crimea suffers from power shortages. It imports more than 80% of the consumed energy from the continental part of Ukraine through a network of power lines with 220/330 kV voltage through the Isthmus of Perekop and Chongar peninsula.
But who owns those other Ukrainian refineries? Russia’s largest oil company, Rosneft could buy Ukraine’s Odessa oil refinery, which has been secured by Russian state bank VTB due to the outstanding debts of the former owner. Rosneft already controls Ukraine’s second-largest Lisichansk refinery. The Odessa refinery was sold by Russia’s No.2 crude producer LUKOIL to Ukraine’s VETEK Group last year. VETEK, owned by Ukrainian multi-millionaire Serhiy Kurchenko, grew rapidly under the presidency of Viktor Yanukovich, who was removed from power last month. An agreement on selling the refinery, designed to process 70,000 barrels per day of crude oil had been reached last week and the deal could be closed in the near future. It said that Kurchenko, who left Ukraine last month, had been unable to repay the VTB loan which he had received to buy the refinery and that he had transferred the asset to the bank. It also said the plant was processing oil from stocks and did not expect new supply in the near future.
You would think China would see some opportunity here. Wait a second: Chinese companies planning to build two oil refineries in Ukraine. The government conducts negotiations with Chinese companies about construction of two oil refineries in Ukraine. Negotiations continued but no idea where they are today. The amount of investments in those projects will be USD 1.5-2 billion.
But is there an alternative energy future for the Crimea? Found this little gem: The region has considerable potential to develop generation of alternative energy such as solar and wind power. Crimea is now successfully realising a programme aimed at switching the region to environmentally friendly energy and constructing solar power plants. Four photovoltaic plants with a total capacity of 227.5 milliwatt were constructed over 2010-2012. Pilot generation of wind energy takes place at seven wind power plants managed by four companies. It was in Crimea that the Soviet Union built its first industrial wind-power plant, the world’s largest, in the 1930s. The plant was destroyed in 1942.
Arthur on Fri, 11th Apr 2014 8:50 pm
EU offered to pay part of the outstanding Ukrainian gas bill:
http://www.reuters.com/article/2014/04/11/us-ukraine-crisis-oettinger-idUSBREA3A0PO20140411
The EU wants to prevent that the Ukraine not paying it’s debt to Russia, will lead to Russia stop feeding gas into the Russia-EU pipelines via the Ukraine.
Hopefully does the EU use this development to assert a moderating influence on the coup-perpetrators in Kiev.
Arthur on Fri, 11th Apr 2014 8:53 pm
Four photovoltaic plants with a total capacity of 227.5 milliwatt were constructed over 2010-2012.
One of those was in 2011 the largest in the world:
https://www.youtube.com/watch?v=WXQA62w1cZk
More video:
deepresource . wordpress.com/2012/05/05/giant-solar-plant-in-the-ukraine/
Makati1 on Sat, 12th Apr 2014 2:09 am
The Ukraine is about access to Russia’s border by the US. Putin’s actions are to prevent it. If Russia wanted to put a military base in Cuba, about 100 miles from the uS border, what would the uS do? Maybe we will find out soon. Putin has plans to put military bases in Cuba, Venezuela, and several other Latin America counries. Should be interesting.
Russia is being forced to move East and away from Europe. Good for China, bad for the EU. Russia doesn’t need oil, it need customers and the East contains more than half of the world’s population. It is also the only area still growing.
Kenz300 on Sat, 12th Apr 2014 2:25 am
The conversion to alternative energy sources like wind and solar, produced LOCALLY, can not come soon enough.
Makati1 on Sat, 12th Apr 2014 5:42 am
Might want to read Putin’s letter to the EU r.e. nat gas deliveries in the future. Looks like the EU is painting itself into a cold winter corner if they keep kissing the Us’ a–.
http://www.globalresearch.ca/vladimir-putin-to-european-politicians-we-urgently-need-to-stabilize-ukraines-economy/5377482
“”Vladimir Putin to European Politicians: ‘We Urgently Need to Stabilize Ukraine’s Economy'”
Arthur on Sat, 12th Apr 2014 9:12 am
Yes Makati, the sensible and moderate tone of the Russians is striking, compared to the howling tone of the NATO fools.
McCain: Russia a gas station, masquerading as a country.
Arthur on Sat, 12th Apr 2014 9:16 am
Europe should collectively follow the example of the brave American Richard Snowden and move to Moscow, virtually of course.