Europe shivers in gas war

The first 20 days of January 2009 saw an ostensibly commercial, but in fact highly political, dispute over gas prices between Russia and Ukraine trigger Europe’s worst energy crisis in a generation. In so doing, it also served to highlight the contradictions between Russia and the imperialist powers, as well as between the US and European imperialists.

Europe is highly dependent on gas supplied from Russia via Ukraine. According to the US Energy Information Administration’s figures, it accounts for 60 percent of Austria’s needs, Germany (42 percent), Turkey (67 percent), Greece (82 percent), Italy (28 percent), France (24 percent), Hungary (60 percent), Czech Republic (80 percent), Slovakia (100 percent), Bosnia (100 percent), Serbia (87 percent), Bulgaria (96 percent), Poland (40 percent), Slovenia (64 percent), Croatia (37 percent), Macedonia (100 percent), and Romania (28 percent).

Therefore, when the gas flow was interrupted, countries like Serbia, Slovakia and Bulgaria were immediately forced to ration gas and close factories and schools. The finance minister of Slovakia estimated that this would shave 1.5 percent off the country’s economic growth this year, and both Slovakia and Bulgaria threatened to restart Soviet-era nuclear reactors, which they had been forced to close as a condition of admission to the European Union (EU).

Whilst fought with economic means rather than with tanks and guns, in geopolitical terms the dispute between Russia and Ukraine over gas prices was as much a war as the conflict between Russia and Georgia last summer over South Ossetia.

The factors leading up to the gas war are well documented. Whilst presented by most imperialist governments and media as allegedly stemming from arbitrary actions and bullying tactics by Russia and by the gas monopoly Gazprom, which is majority-owned and controlled by the Russian state, the fact is that, until now, Ukraine has not been paying a market price for Russian gas, but rather a price based on the old ‘friendship’ rates from the socialist period.

Ukraine insists on keeping these prices, but, under its present government, installed following the US-scripted ‘orange revolution’, which deposed the democratically-elected government of Viktor Yanukovych and his Party of the Regions, equally insists on pursuing a provocative anti-Russian policy, seeking to join Nato and the EU, supplying arms to Georgia during the brief war with Russia, threatening to expel the Russian Navy from its Black Sea bases in the Crimea (a majority Russian-speaking territory which was only transferred from Russia to Ukraine after the death of Stalin), and so on.

In such a situation, for Russia to continue subsidising Ukraine’s energy makes neither commercial nor political sense.

On 2 October 2008, the Russian and Ukrainian prime ministers signed a memorandum of understanding envisaging the two countries’ switch to a market pricing mechanism between Gazprom and its Ukrainian counterpart Naftogaz, with the Russian side allowed to sell directly to end users in Ukraine.

Follow-up negotiations were well-advanced at the end of November, when Ukraine suddenly began stalling on its repayments of pending debts for gas supplied to it earlier, which was a precondition for a new deal by 2009.

As mentioned, until now, Russia has been heavily subsidising the supplies to Ukraine, at an average cost of $179.95 per 1,000 cubic metres, whereas it buys and delivers from the Central Asian producers, such as Turkmenistan, at $375 per 1,000 cubic metres. Russia sought a reduction in the subsidies, with a gradual increase in price to $250 per 1,000 cubic metres for the 2009 contract (still below both what Russia pays Turkmenistan and charges European countries), but Ukraine refused and unilaterally broke off the negotiations.

With no contract in place to supply Ukraine with gas in 2009, Russia, logically and legally, cut its supplies on 1 January. Ukraine promptly retaliated by refusing to allow the transit of Russian gas to Europe through its territory, sparking the European energy crisis.

A further problem is that Ukraine had been illegally siphoning gas intended for the European market, thereby creating, at no extra cost to itself, a gas reserve that could see it through to the spring, whilst many of the relatively poor countries in the Balkans and central Europe were immediately and catastrophically hit by the interruption in supply.

In looking at Ukraine’s motivations for precipitating this conflict, one cannot overlook its acute economic crisis. The 2004 ‘orange revolution’ reduced the country with the best economic growth rate of all the former Soviet republics to a state of penury.

In November, the International Monetary Fund (IMF) extended a $16.4bn credit line. The national currency, the hryvnia, has lost over 80 percent of its value against the dollar in the last three months. Massive debt rollovers, amounting to some 45 percent of gross domestic product (GDP), are falling due and will be very difficult to secure considering the present international banking crisis. Industrial production contracted by 28.6 percent in November, and some estimates suggest that GDP may decline by as much as 10 percent this year.

But, despite Ukraine’s own economic imperatives, it is not credible that it would single-handedly trigger a massive energy crisis in Europe without at least a covert nod from the United States.

Actually, it was not so covert. In mid-December, the United States concluded a ‘strategic partnership’ agreement with Ukraine, which included a clause on energy cooperation. Aleksandr Medvedev, deputy chief executive of Gazprom, directly linked that to Ukraine’s actions in January, stating:

“It looks like they are dancing to music that is not orchestrated in Ukraine. They are dancing to music orchestrated elsewhere. I am making reference to the agreement between Ukraine and the United States.”

Just as the United States used the Russia-Georgia conflict to formalise its agreement with Poland to deploy its Missile Defence (MD) system, allegedly directed at Iran but in reality against Russia, so US strategy appears to have been to use Ukrainian provocations and bad faith to cast Russia as an untrustworthy partner in energy supply, seeking to drive a wedge in its relations with Europe.

However, the US strategy has not been particularly successful. Whilst Russia has certainly not escaped its share of criticism, many European countries sought to present this as essentially a bilateral matter between Russia and Ukraine. Indeed, Jose Manuel Barroso, the President of the European Commission, commented: “If Ukraine is trying to be closer to the European Union, it should not create problems when it comes to the supply of gas to the EU.”

The European imperialists are torn between their desire to keep leverage over Russia through governments such as that of Ukraine and the fact that, as January’s events so dramatically showed, they are crucially dependent on smooth and guaranteed supplies of Russian gas.

For its part, the Russian economy is disproportionately dependent on the revenues it earns from oil and gas exports, as was shown positively by the boom the Russian economy enjoyed until recently, when prices were high, and negatively by the collapse in the value of the rouble, and in Russia’s foreign exchange reserves, which have been spent at an alarming rate trying to prop it up, following the slump in oil prices since last summer.

Such mutual economic dependency, incidentally, makes a nonsense of claims from both the United States and from right-wing circles, especially in Britain, that Russia is somehow seeking to ‘blackmail’ western Europe by lightly turning off the gas pumps.

Beyond this, some west European monopolies and politicians seek to draw closer to Russia in energy cooperation and away from the United States, reflecting the same inter-imperialist contradictions that were highlighted in the build up to the US-led invasion and occupation of Iraq. The Italian multinational Eni, in which the government holds a 30 percent ‘golden share’, and Germany’s former social-democratic chancellor Gerhard Schroeder are prime examples of this trend.

These different trends are also lining up around different alternative pipeline options – Russia and its partners seeking to construct new pipelines that bypass countries, such as Ukraine and Poland, with poor relations with Moscow, whilst the United States is encouraging its close allies to pursue alternative non-Russian gas sources.

The two Russian initiatives are the North Stream pipeline, in which Schroeder serves as a director and company chairman, to bring Russian gas direct to Germany under the Baltic, bypassing Poland, and South Stream, to bring Russian gas to Italy, via Bulgaria and Serbia, whose governments tend to be friendly with Russia, and the Adriatic.

The anti-Russian lobby is pushing the Nabucco pipeline, which would bring gas from Azerbaijan through Georgia to Turkey, bypassing Russia. Besides Azerbaijan, Turkmenistan, Iran and Iraq are all mooted as possible replacements for Europe’s present imports of Russian gas.

But none of these options are problem-free. The Azerbaijan government, which recently took steps to assert its independence, such as excluding the BBC, Voice of America and Radio Free Europe from its airwaves, is looking favourably at a Gazprom offer to purchase its entire gas production. Turkmenistan, whose government is continuously pilloried in the west on account of its refusal to follow US and EU imperialist diktat in its economy and internal affairs, has decided to ship much of its gas east through a new pipeline to China.

The suggestion of Iranian gas is being made by the very people who are seeking to enforce ever-tighter sanctions on Iran’s energy and financial sectors (!), while the supply of Iraqi gas cannot be guaranteed due to the strength of the Iraqi resistance. And, with the US scaling back its occupying force after suffering a strategic defeat in Iraq, there is every chance that future governments in Baghdad will not be pro-American.

According to the agreement reached between Russia and Ukraine, contracts will now be valid for 10 years but adjusted to current market prices. In reality, however, the chance of a 10-year peace on the gas war front is highly remote, not just on account of Ukraine’s proven record of bad faith and duplicity, but because, behind the posturing clowns of Kiev stand the US and other imperialists, to whom this is just another front in their ongoing war to destroy Russia as an independent power and to reduce it to neo-colonial status.

> Global consequences of failed Ossetian invasion – October 2008