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What Is Putin Planning For Ukraine?

Despite a 2015 ceasefire, conflict…

Daniel J. Graeber

Daniel J. Graeber

Daniel Graeber is a writer and political analyst based in Michigan. His work on matters related to the geopolitical aspects of the global energy sector,…

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Putin is Losing Eastern European Energy Gamble

Putin is Losing Eastern European Energy Gamble

Russian President Vladimir Putin said he doesn't think the European community can do without the natural gas it gets from energy monopoly Gazprom.  With a Russian economy starting to decline, however, it may be Gazprom that's too strongly interconnected to the European market to break free.

The narrative over European energy security reaches at least back to 2006 when Gazprom first cut gas supplies through Ukraine. The fallout from the latest disruption in 2009 put opposition darling and former Prime Minister Yulia Tymoshenko in prison, but now the tables have turned for a Ukraine tilting more strongly toward the European Union.

Last week, Putin warned European leaders that gas supplies through Ukraine may be cut if Kiev didn't settle its $2.2 billion gas debt to Gazprom. With European allies mulling the best way to break Russia's grip on the region's energy sector, Putin said there are few alternatives to Russian natural gas.

"Can they stop buying Russian gas?" he asked in a question-and-answer session this week. "In my opinion it is impossible."

Russia sends about 15 percent of its natural gas supplies bound for the European community through the Soviet-era transit network in Ukraine. The European energy market has options in Caspian gas waiting in the wings, and potentially liquefied natural gas deliveries, though those alternatives provide little short-term relief.

U.S. State Department spokeswoman Marie Harf warned Putin against using energy as a geopolitical tool in a crisis that's re-opened old Cold War wounds.

"We’ve said very clearly that Russia should not use this as a weapon and that, actually, Russia has a lot to lose if they try to do so," she said.

Before the situation erupted into one of the most severe Eastern European crises since the 1990s, the Kremlin had expected 2.5 percent growth in gross domestic product.  Now, Economic Development Minister Alexei Ulyukayev said GDP growth should be "near zero" and the Ukrainian row may be to blame.

Trade in oil and natural gas nets Russia about 70 percent of the estimated $515 billion in export revenue and accounts for more than half its federal budget. Though Gazprom has sought entry to a growing Asian economy, most of its natural gas heads to the European market, meaning Putin's Russia may be as strongly linked to the EU as the EU is linked to the Kremlin.

Russian First Deputy Prime Minister Igor Shuvalov said the economic situation in the country in part depends on how the Ukrainian crisis plays out. The World Bank, he said, expects 1 percent economic growth for Russia this year. The view from the Kremlin, however, is much more pessimistic. With both Russia and the European community interconnected by natural gas, the relationship may remain intact despite the rhetoric from both sides of the lowering Iron Curtain.

By. Daniel J. Graeber of Oilprice.com




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Leave a comment
  • alex on April 19 2014 said:
    I failed to find in this article any facts and at least strong points to back up the title "Putin is Losing Eastern European Energy Gamble".
    In my opinion, these are the question needed to be answered to cover the article title:
    When can Europe replace 50% of Russia's supplies, at what price point? How much gas can Russia deliver to Europe around Ukraine (via Belarus and Nord Stream)? How much London City, Germany auto makers, Paris and Milan couture, etc would suffer without Russian investments, imports and shopping spree?
  • Earnst on April 19 2014 said:
    In the US they price of oil has shot up $5 in spite of all other data being bearish and Brent is up a couple of dollars as well..based on the Ukraine tensions. Gas is of course up too and meanwhile the pipes still flow from Russia. I believe it is Putin who is winning the energy gamble. That said he absolutely should not challenge the West that they can't do without his gas as that is not only wrong it is inflammatory!
  • Joseph Petita on April 19 2014 said:
    Mr.Daniel J. Graeber. Europe countries depends on Russian oil. Europe will be the one in real trouble
  • Anton Edgren on April 19 2014 said:
    Yea...the article leaves the reader a bit vague on details. Ukraine lost billions of dollars in just about to be drilled oil from the Black Sea when Russia grabbed Crimea. This would have cut their reliance on oil by at least 25% from the bear. The same goes for East Ukraine where significant oil in ground has been discovered. They cannot let the East go. Ukraine should from time to time cut power and water to Crimea. After all, the tourist season is here...water and power can be more valuable than gold.
  • Don Clifford on May 06 2016 said:
    For the life of me I don't understand why Russia and the EU can't be happy with the current arrangement. Both sides benefit. The EU is the natural customer and Russia the natural supplier. Using your major export as a weapon against your best customer doesn't make sense. Am I missing something?

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