A major energy crisis was averted last week in parts of Europe when common sense prevailed over the habitual hard-headedness often displayed by many politicians.
Russia was set to turn off the gas spigot to Ukraine on June 3 amid tensions over recent political developments in the former Soviet country that have spiraled into an internal crisis with international dimensions.
The situation took a turn for the better after the Ukraine’s new president, Petro Poroshenko, agreed to start talks with an envoy of Russian President Vladimir Putin in an effort to find agreement on energy deliveries and payment.
Cutting off Ukraine from natural gas delivered by pipeline would have also prevented gas from being delivered to European countries, which would have intensified the crisis and the political gap between Russia and the West.
The new deadline might see the two sides reach a compromise and avoid a larger crisis that would have made life even harder for Ukrainians, who have been going through a political tsunami. For several months now, the country has been in the throes of something akin to an identity crisis, trying to establish not only its political identity, but also its ethnic, nationalist and historic loyalties. Ukrainians are torn between remaining close to Moscow, as many in the eastern part of the country want, and those in the West who favor integration with the U.S. and Europe.
Why should the situation look any different one week later?
For one thing, U.S. President Barack Obama and Putin had a short, impromptu face-to-face chat on June 6, on the sidelines of the ceremony to mark the 70th anniversary of the D-Day landing by Allied forces in Normandy.
Perhaps the two men’s brief talk has injected some hope for further dialogue, and Moscow will keep the gas flowing despite its initial insistence that Kiev pay in advance for next month’s gas delivery and pay back billions in debt.
The other reason to be somewhat optimistic is that the brief reunion between Obama and Putin may have been enough to get the two sides to realize that escalating this crisis into an open conflict is not going to be to anyone’s advantage.
If Russia and Ukraine maintain their current positions, in all likelihood much of Europe will experience severe shortages of gas within weeks, if not days.
Moscow is asking for payment up front, while Ukraine’s new interim prime minister, Arseniy Yatsenyuk, insists that there can be no discussion on the gas issues until Russia settles an outstanding debt of $1 billion for gas Kiev claims Moscow “stole” from Ukraine when it annexed Crimea in March.
Moscow, meanwhile, has a counterclaim on Ukraine. Ukraine, say the Russians, owes Moscow $500 million for deliveries just for the month of May.
Then there is an additional $3.5 billion, part of what Moscow claims is owed by Ukraine for previous deliveries. Moscow insists that at least part of the debt is paid before the talks can move forward and continued deliveries can be ensured.
If there ever was a dialogue of the deaf, this is it right here. Moscow is talking about huge sums of money owed while Kiev is talking about stolen gas.
Yet all is not entirely dark. Ukraine’s election of a new president has brought some a renewed sense of hope. Poroshenko arrived on the scene after winning some 60 percent of the vote. In addition to keeping the gas turned on, now his challenge is win over the country’s other 40 percent.
If the common sense demonstrated last week prevails, the June 9 deadline will again be reset, buying everyone more time. If it isn’t, it will be a disappointment, but not a surprise.
By Claude Salhani of Oilprice.com