Russia: No Gas for You

This is a transcript of the Unto the Breach program. Click here for the audio.

Ever since the breakup of the Soviet Union, Russia and the Ukraine have been fighting over the terms of natural gas deals. Ukraine is Russia’s gateway to Europe: a great deal of Russia’s pipelines, roads, power lines, and railways first transit through Ukraine. The two always end up coming together as Russia needs the money. But after Ukraine’s Orange Revolution in 2004, President Viktor Yushchenko led a government that does not act on Russia’s wishes. You may remember Yushchenko as the guy with the disfigured face – thanks to dioxin poisoning during the election. The poisoning may have been perpetrated by the FSB, the Russian successor of the KGB.

Ukraine wants to join the European Union and NATO, which would not benefit Russia.

The private intelligence company Stratfor provides excellent analysis on the subject:

Simply put, a Ukraine outside the Russian sphere of influence transforms Russia into a purely defensive power, one with little hope of resisting pressure from anywhere. But a Russified Ukraine makes it possible for Russia to project power outward, and to become a major regional—and potentially global—player.

Now Russia has somewhat of an economic buffer — they can afford a temporary shutdown of gas exports. The recent record-setting oil prices lined Russia’s pockets, giving Russia a $750 billion surplus by mid-2008. But with oil prices falling, and the market collapse over the last few months, Russia has lost an estimated $200 billion, and their 2009 budget is already in the red.

Stratfor says:

[B]efore 2004, the Russian-Ukrainian natural gas spat was simply part of business as usual. But now, Russia feels that its life is on the line, and that it has the financial room to maneuver to push hard — and so, the annual ritual of natural gas renegotiations has become a key Russian tool in bringing [Ukriane] to heel.

It hits home for Ukraine. Two-thirds of their natural gas comes from the Russians, and their economy depends on the flow of Russian gas through their pipelines. Ukraine’s economy is in a mess, and the global recession has all but shut down their steel mills. Plus, Yushchenko’s opponents are making sure that he takes the hit for their economy.

Both countries are in a bind, but Russia feels that they can outlast the Ukrainians.

Even if Yushchenko’s future were bright, Russia has no problem maintaining or even upping the pressure. The Kremlin would much rather see Ukraine destroyed than see it as a member of the Western clubs, and Moscow is willing to inflict a great deal of collateral damage on a variety of players to preserve what it sees as an interest central to Russian survival.

One-quarter of Europes gas comes from Russia, and 80% through Ukranian pipelines. Massive power outages and heating failures have been occurring, most especially in Eastern Europe. Europe is working on diversification of its energy sources so that it doesn’t depend entirely on Russian gas, but that’s still years away.

Russia seems to want to reign in their former states like the Ukraine, Georgia, Poland, all of whom would rather join the West, and understandably so. Although the Russians feel that Ukraine is rightfully theirs, all one has to do is look back to 1932-33. Millions of Ukranians were starved by the Soviet Union. Hopefully this time around, the Russians won’t use genocide as a tool to crush Ukranian nationalism.

Yesterday, Financial Times reported that Russia has broken promises to restart their supplies. Russia blames the Ukranians, and somehow, the United States.