January 1, 2006

Eastern Bloc, Blocked

Russia's back to acting just like it did in the Cold War days: Arrogant, cruel, and vindictive. Now it's punishing the pro-West behavior of the Ukraine, Georgia, Hungary, and other former Soviet satellites by cutting off supplies of natural gas:

Russia's state-controlled OAO Gazprom, which holds a monopoly over roughly a quarter of the world's natural gas, halted the flow of gas through three of five pipelines into Ukraine at about 10 a.m. local time.

Gazprom described the action as the result of a simple price dispute with the Ukrainian gas company, and promised that European customers would remain unaffected as pipelines would continue to send gas across Ukrainian territory.

Within hours, however, Poland and Hungary reported decreased pressure in their gas pipelines, and Italy's gas utility was warning about possible disruptions to supply.

The price dispute ain't exactly over a few pennies, I should add. From the BBC:

Russia said it had no choice but to act after Ukraine refused to sign a new deal accepting an immediate increase in gas prices from $50 to $230 per 1,000 cubic metres. The average EU charge is $240.

I'm all for market rates and if the EU average charge is $240 per 1000 cubic meters, $230 is obviously reasonable--except that if you think Gazprom's applying that price increase fairly, well, you don't know much about how Russia operates:

Ukraine's neighbour Belarus has avoided such problems, still paying $47 per 1,000 cubic metres, but that country's authoritarian regime also enjoys warmer relations with Russia and recently agreed to sell control of its pipelines to Gazprom.

Translation: Kiss Putin's ass, and you can keep warm this winter. Push for greater freedom, and you'll get that, all right--freedom from discount energy prices.

As I've said, I support free markets. I certainly favor market-based pricing. The problem is, this isn't about going along with the market; this is about punishing those countries who won't hop aboard the mothership. It's only going to get worse as Russia cements its grip on the world's energy supply:

Russia's position in the energy market will also strengthen as construction begins on a Siberian pipeline scheduled to start pumping crude oil into Asia in 2008, and an undersea Baltic pipeline connecting Russia directly to Germany. PetroCanada is also discussing a deal with Gazprom that could send liquefied natural gas to North America.

These are some nasty bastards with a wealth of energy resources at their disposal. It's not an encouraging picture for the rest of us.

Posted by at January 1, 2006 10:51 PM | PROCURE FINE OLD WORLD ABSINTHE

Unfortunatly if you give someone a handout you have every moral right to attach any kind of strings you want. Ukraine and the other countries should bite the bullet and pay market rates for their gas. Then Russia will have no hold over them.

One of the reasons that the USSR fell was that it improvished itself by subsudising its client states. They paid Castro far more than his sugar was worth and sold their petrolum to their Warsaw Pact allies for far less than OPEC prices. If Putin tries to paly the same game he will run Russia's economy right into the ground and bring about another revolution.

Posted by: Daniel Upton at January 2, 2006 10:00 AM

Many are labeling Russia’s pressure on Ukraine to pay market prices for natural gas as “Cold War” tactics. Of course, the Ukrainian government is paying the full price for their anti-Russian rhetoric and pro-Western orientation. Russia is flexing the only muscles she has: natural resources. But, it’s not so much a message to the Ukraine as to the West. And it’s not so much “Cold War” as Realist geo-politics.

Putin quickly realized that Russia only has one card to play in today’s world of growing demand for natural resources. Domestically, this realization became clear with the takeover of the Yukos oil company. Disguised as retribution for legal transgressions, Putin removed the threat of a western-oriented Yukos
by imprisoning its managers, and paved the way for a predictable government takeover of Russia’s oil industry. Today, it is not so clear what the rules of oil investment are (i.e. no foreigner shall hold majority stock in a Russian oil company), but it is very clear who makes the rules.

Posted by: Kira Zalan at January 8, 2006 2:46 PM