Russia - Ukraine Gas Dispute: What Next?

Russia-Ukraine Gas Dispute
James F. Collins, Martha Brill Olcott, Dmitri Trenin, Anders Aslund December 30, 2008 Washington, D.C.
Summary
Russia has threatened to cut gas supplies to Ukraine on January 1st if a $2 billion gas debt is not resolved, and both countries stand to lose if they fail to reach a settlement in time. Carnegie experts in Washington and Moscow discuss the implications of the dispute for regional stability, European energy security, and Russia’s relations with the West.
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Russia has threatened to cut gas supplies to Ukraine on January 1st if a $2 billion gas debt is not resolved, and both countries stand to lose if they fail to reach a settlement in time.  Carnegie experts in Washington and Moscow discuss the implications of the dispute for regional stability, European energy security, and Russia’s relations with the West.

Key points:

  • Both Russia and Ukraine stand to lose if they fail to reach a settlement: Russia will look brutal and ruthless; Ukraine’s reliability as a supplier to Europe will be called into question and its squabbling leadership will lose credibility domestically and abroad.
  • Russia, concerned about European perceptions of its actions, does not want a showdown. After the August war in Georgia, and the resulting chill in relations between Russia and the West, the Kremlin wants to project a less aggressive image.
  • Though Ukrainian political elites are embroiled in a power struggle, all sides want the crisis solved—but to their advantage—and none want to alienate Europe.
  • The global economic crisis adds urgency to the negotiations: Gazprom, strapped for cash, can’t afford financial losses from the European financial gas trade. Ukraine received a $16 billion IMF bailout and the government predicts a GDP contraction next year, thus can’t afford to pay higher prices.
  • A cutoff is likely, but it will probably catalyze both sides to reach an agreement shortly thereafter. Ukraine has enough gas stored that disruptions to European supply will be minor.

About the Russia and Eurasia Program

The Carnegie Russia and Eurasia Program has, since the end of the Cold War, led the field of Eurasian security, including strategic nuclear weapons and nonproliferation, development, economic and social issues, governance, and the rule of law.

 
Source carnegieendowment.org/2008/12/30/russia-ukraine-gas-dispute-what-next/33az

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