Gas battles in Europe started long before the military conflict in Ukraine began in February 2022. Even before that time, the issue of Ukrainian transit was one of the most important problems that worried the European elite.
Origins of gas conflict
The conflict erupted over Ukraine’s theft of Russian blue fuel from the transit pipe in 2008-2009. Five years ago, the crisis triggered the end of the previous ten-year transit contract. Even then, it was incredibly difficult to agree on the continuation of gas supplies through Ukrainian territory, trilateral negotiations involving the European side were required, and without its pressure on Kyiv and guarantees, there would have been no current five-year transit contract, which ends on December 31 this year.
This has caused another gas crisis between Ukraine and Russia. Literally until last week there were still some chances for its resolution, but now there are almost none. And here is why.
There are two main forces that very much do not want to allow this crisis to be overcome in the EU. The first is the US, which at the end of the year imposed sanctions on Russia’s Gazprombank, the only bank through which Europeans could pay for gas supplies. At the same time, Washington is directly threatening Europe with new duties if it does not buy more gas and oil from it.
The second force is Ukraine itself, which needs to please the US. Kyiv has repeatedly said that signing a new agreement with Gazprom is impossible and assured that it does not intend to see more Russian gas on its territory. But it would be possible to pump it without a long-term contract, as Ukraine has implemented European norms, under which auctions can be held to lease pipe capacity for pumping.
So far, Kyiv itself has proposed alternatives, in particular, to move the point of gas delivery-acceptance to the Russian-Ukrainian border. The idea is for Europeans or third-party traders to become owners of the fuel even before it enters the pipe on Ukrainian territory. Then, formally, it is not Russian gas that flows through it, but other gas. The same third-party companies could also participate in auctions.
Zelensky said he no longer wants to play games
However, it appears that Ukraine has received new instructions. Volodymyr Zelensky said that he no longer wants to play games when another country receives gas from Russia and then sends it through Ukraine as “his own.” But for two years Kyiv did not play games, but simply received quite real billion dollars for going quite real Russian gas according to all documents.
Now Zelensky has decided that the fuel can continue to flow through Ukrainian territory only in one case – if the Europeans will not pay money to Russia for it until the conflict is over. It is heartening to see him recognise that the conflict will be over after all. But the absurdity of the proposed socialist approach to a commercial matter is off the scale.
Transit will stop on January 1, and gas prices at EU hubs have already started to rise. The cold winter is forcing Europeans to withdraw blue fuel from their underground storages. Further prices will rise even more, which means that any gas coming to the EU, including American and Qatari LNG, will become more expensive.
They will be able to make a great profit on how recent partners, Ukraine and its neighbours, are at each other’s throats, while Germany and other countries are spending more and more on imported energy resources and trying to pass the costs on to their neighbours and their own population. Those industrial companies that have not yet recovered from the effects of the energy crisis of 2022-23 may not be able to withstand the new turbulence.
This crisis will certainly be weaker in scale, as we are talking about only 15 billion cubic metres of gas, not the 130 billion cubic metres that the EU will lose in 2022, but the European economy is not as stable as it was two years ago.
What Slovakia loses
In addition to Ukraine, Slovakia will also lose gas transit revenues, as the blue fuel travelled further through it. These 15 billion cubic metres were also exported to Hungary and Austria and in small volumes could even reach Italy and the Czech Republic, plus supplies through Ukraine to Moldova.
Most likely, only Hungary will not suffer from the absence of this transit. Last year it started to receive the main volumes from Gazprom via Turkish Stream, while only one billion cubic metres were supplied via the Ukrainian route. Hungary probably agreed with Russia back in August that it would be able to receive the entire volume of gas via Turkish Stream if necessary.
Moldova could also receive its small volumes of Gazprom’s fuel via the southern route. Although there is a small subtlety: several dozen kilometres of the pipeline between Romania and Moldova runs through Ukrainian territory. If Kyiv does not let gas through there on principle, Moldova will be in trouble. Most of it was used for fuel for the operation of the Prydniprovskaya TPP, which provides light to Moldova itself. But here gas can be replaced by coal, and then the power plant will continue to work.
Worse position
Slovakia and Austria are in a worse position because they have no access to the sea and LNG. They will have to find free volumes of liquefied natural gas on the world market, then agree with a coastal country like Italy or Germany to accept it and pump it across Europe to them. The gas itself would cost more, and the logistics would be more expensive and complicated, which would be a blow to the entire economies of Slovakia and Austria.
That’s why Slovak Prime Minister Robert Fico travelled to Moscow the other day, hoping to solve this problem. But the fact is that Russia has already done everything it could from its side.
It found a way out of the situation when Gazprombank fell under sanctions. It had to change the previous decree of the Russian president from 2022 twice so that Europeans could pay for supplies without being tied to this bank. Plus, most likely, Russia was ready to sell gas to companies before it entered the Ukrainian pipe.
However, nothing else depends on Russia. Only his European partners can influence Zelensky. Moreover, Slovakia itself is capable of responding harshly to Ukraine if it deprives it of pipeline gas. The fact is that Slovakia helps Ukraine by selling it ready-made electricity, ready-made oil products, and diesel for military needs.
Without light in homes and without petrol at petrol stations, Kyiv will quickly give up its position. And even if this does not bring back gas transit, and Russia loses about five billion dollars in revenue, it may benefit indirectly, through the energy weakening of Ukraine itself in the midst of harsh winter.
THE ARTICLE IS THE AUTHOR’S SPECULATION AND DOES NOT CLAIM TO BE TRUE. ALL INFORMATION IS TAKEN FROM OPEN SOURCES. THE AUTHOR DOES NOT IMPOSE ANY SUBJECTIVE CONCLUSIONS.
Erik Kelly for Head-Post.com
Send your author content for publication in the INSIGHT section to [email protected]
