<Pictures from the Lower 9th Ward The Oil Drum Monday's Open Thread>

121 comments on Our first problem of the year is an energy one

Comments can no longer be added to this story.

| Show without comments | PDF version

Glenn on January 1, 2006 - 1:41pm Permalink | Subthread | Comments top
So choice quotes that show how little folks understand about how international politics works:

The Russian state monopoly Gazprom said it had cut supplies to Ukraine by a quarter -- the level of Ukraine's own imports -- after Kiev refused to sign a new contract requiring it to pay four times as much.

Ok, reading a little between the lines Russia is basically saying: "Now that you're not our good friend anymore, we're not going to subsidize your energy supplies any longer."

Of course here in the US, charging 4x more overnight is considered highway robbery, no matter what the history of that "price" or the other intangibles that were exchanged as quids to support that price, so we shocked and cry foul at the free market replacing old client state relationships.

Though Russia says it is purely a business dispute, the row has fed concern that the Kremlin is prepared to use its vast energy resources as a political weapon.Ukraine's Western-leaning president, Viktor Yushchenko, has irked Moscow by trying to take his ex-Soviet state on Russia's western border into NATO and the European Union. Ukrainian officials say that is why the Kremlin is punishing Ukraine with such a huge price increase while letting more Moscow-friendly ex-Soviet states such as Belarus pay far less.

But I wonder who holds more power in this situation. Russia has the gas, but Ukraine has the pipeline:

Eighty percent of Russian gas exports to western Europe pass through Ukraine.

and they have Russia's Navy:

Ukraine has threatened to retaliate by raising the rent that Russia's navy pays to use the Ukrainian port of Sevastopol as headquarters for its Black Sea fleet.

It's already an interesting year.

Comments can no longer be added to this story.
Stuart Staniford on January 1, 2006 - 2:18pm Permalink | Subthread | Parent | Comments top
As far as I can see, the Russians have all the leverage here.  The fundamental problem is Russia supplies so much gas to Europe that by restraining output they will probably increase their revenue rather than reducing it - given demand is going to be very inelastic in the middle of winter.  So if Ukraine dips into European gas in transit, the effect will be to increase Russian revenue due to resulting price increases, but bring all the Europeans to exert pressure on the Ukrainians to cut a deal.  The Russians will be laughing all the way to the bank until Ukraine agrees to the terms.  Sure the Ukrainians can raise the rent at the port, but what's their leverage to actually make the Russians pay it?  How do you evict the Russian navy unless it agrees to be evicted?  No-one has anything the Russians need more than Europeans and Ukrainians need the Russian gas.  So Russia sets the terms of the deal.  The only other possibility is military threats, and since the Russians still have quite a few nukes, that probably isn't going to get too far either.  I'm expecting to see this settled after a flurry of negotiations, and the terms will not be too far from what Russia is asking for.

 

Comments can no longer be added to this story.
Glenn on January 1, 2006 - 2:34pm Permalink | Subthread | Parent | Comments top
I think your analysis is probably close to what will happen this time, but don't underestimate the poor hand that a landlocked supplier has to get their goods to market. Ukraine could (in theory) completely cut supplies to Europe and Russia will have to stop production since it has no way to bring its product to the EU market. Ukraine can play the same game with the EU, saying that Russia's unreasonable demands are what are forcing it to cut supplies to the EU.

The critical piece is how long the Ukraine can hold out without stealing gas from the pipeline and it seems they already are. They didn't prepare well for this round, but there will be more.

If Russia builds a pipeline through Belarus, then Ukraine could be literally left out in the cold.

Comments can no longer be added to this story.
Glenn on January 1, 2006 - 2:41pm Permalink | Subthread | Parent | Comments top
Sorry, I guess there is a pipeline through Belarus, but I guess it can't scale up much:

Comments can no longer be added to this story.
michacy on January 1, 2006 - 4:28pm Permalink | Subthread | Parent | Comments top
Actually, there is the "Yamal-Europe" pipeline through Belarus and Poland, but the plans for doubling its capacity have been postponed, probably indefinitely, due to the construction of The North European gas pipeline. This pipeline is planned to connect Russia and Germany under the Baltic Sea, bypassing both Belarus and Poland.
Comments can no longer be added to this story.
Glenn on January 1, 2006 - 7:01pm Permalink | Subthread | Parent | Comments top
What a tangled web of pipelines we weave...
Comments can no longer be added to this story.
billmasi on January 1, 2006 - 9:19pm Permalink | Subthread | Parent | Comments top
Doesn't Ukrane have quite a few nukes, too?  (Old Russian ones.)
Comments can no longer be added to this story.
Glenn on January 1, 2006 - 10:07pm Permalink | Subthread | Parent | Comments top
According to wikipedia most were returned to Russia, but they are suspected to have a few hundred that are not operational.
Ukraine - signed the Nuclear Non-Proliferation Treaty. Ukraine inherited about 5,000 nuclear weapons when it became independent from the USSR in 1991, making its nuclear arsenal the third-largest in the world. It transferred all of these to Russia by 1996. However recent news has surfaced that due to a clerical error, Ukraine may still possess several hundred warheads which were not accounted for in the armaments repatriation move 14 years ago. In any case, even if Ukraine does possess these weapons, they are technically missing and not in a deployed state or any part of Ukraine's defense posture.

Or at least, that's the offical story...

Comments can no longer be added to this story.
isaiah on January 1, 2006 - 10:15pm Permalink | Subthread | Parent | Comments top
it's a sad world where Wikipedia (that bastion of accountability and oversight) gets called "the official story"...
Comments can no longer be added to this story.
Glenn on January 1, 2006 - 11:02pm Permalink | Subthread | Parent | Comments top
I'll go out on a limb and just say that 99% of the time I find Wikipedia to be a good first source of information. Of course it has it's issues, but so does every information source.
Comments can no longer be added to this story.
isaiah on January 2, 2006 - 6:42am Permalink | Subthread | Parent | Comments top
as you said it's a "good first source", if you know next to nothing about the topic.  but to call it the "official story" is rather naive, given it's poor handling of many controversial subjects (e.g. depleted uranium, Central Banking and The Fed, nature of corporations).  why should i trust it to tell me where the Ukrainian nukes are?  there is no accountability (at least there is someone to blame for corporate-fed reporting in NYT, WSJ, etc.) and any person can write whatever is "acceptable" to the amorphous "editors" of Wiki.  i have found quite a bit of selective source inclusion/exclusion going on over there and uncited use of government propaganda.  
Comments can no longer be added to this story.
Glenn on January 2, 2006 - 8:17am Permalink | Subthread | Parent | Comments top
isaiah, I understand all that, but based on all else I found, Wiki was the best summarized and most succinct abstract on this very specific topic. And when I said "official story", I meant that there was probably much more to this issue (e.g. I bet the Ukrainians have a small nuclear deterrant), but without any other information to the contrary that has to be the story until more facts emerge. I invite you and others to explore this topic and research it in more depth.
Comments can no longer be added to this story.
wkwillis on January 2, 2006 - 12:40am Permalink | Subthread | Parent | Comments top
The Russian navy has to get water, fuel, supplies, whores, etc, from the port. The Ukrainians just shut down refuel, resupply, and recreation.
Comments can no longer be added to this story.
OregonCoast on January 2, 2006 - 12:56am Permalink | Subthread | Parent | Comments top
Too Funny
My drink is now on the screen!
Comments can no longer be added to this story.
jkissing on January 2, 2006 - 1:54am Permalink | Subthread | Parent | Comments top
Ukraine has a contract with gazprom through, I think, 2013 for gas at $50/mm3. They think this is binding and would be upheld at the Hague. The other part is their 15% transit fee, part of the same contract.
Until the Russians no longer need the pipeline, Ukraine can simply fulfill their contract from what passes through their territory.
Comments can no longer be added to this story.

121 comments on Our first problem of the year is an energy one

Comments can no longer be added to this story.

| Show without comments | PDF version