All the dominoes are tumbling now. Moments after the Russian upper house of parliament approved the decision to use Russian troops in the Ukraine as expected, Ukraine’s acting president called an emergency meeting of security chiefs according to his spokeswoman. Oleksander Turchinov summoned his Security Council after Russian President Vladimir Putin sought parliamentary approval to deploy Russian forces in the Ukrainian region of Crimea. At this point the biggest and perhaps final wildcard is whether NATO does or does not get involved. If it does, and if Russia does not back off – which it has clearly telegraphed it won’t – futures may be looking at a limit down open on Sunday.
And while military escalation is now an official reality instead of merely YouTube clips of unidentified crap troops , Russia just sent another major warning shot across the bow when it issued several warnings on Saturday that Ukraine may lose a discount to the gas price it now pays to Gazprom due to Kiev’s outstanding gas debt. Russia’s state gas company Gazprom estimates Ukraine’s outstanding gas debt at $1.55 billion for 2013 and gas deliveries so far this year. This of course, was Russia’s trump card from the very beginning. Via Reuters:
“It seems that with such gas payments and fulfilment of its obligations Ukraine may not keep its current gas discount. The gas discount agreement assumed full and timely payment,” Gazprom spokesman Sergei Kupriyanov told Reuters.
A price increase would deepen Ukraine’s already dire cash situation and could lead to a new “gas war” between Kiev and Moscow as well as interrupt gas shipments to Europe, which gets around third of its gas from Russia.
In December, Russia agreed to reduce gas prices for Kiev by about a third, to $268.50 per 1,000 cubic metres from around $400 which Ukraine had paid since 2009, after ousted President Viktor Yanukovich spurned an EU trade deal in favour of closer ties to Moscow.
The deal allowed for the price to be revised quarterly between the 5th and 10th day of the first month every quarter.
The news agency Interfax cited a representative of the Russian energy ministry as saying on Saturday that Moscow sees no reason to extend the discount to Ukraine for the second quarter – because of the outstanding debt.
“If this continues to happen, is there any point in continuing the existing agreement on gas supplies at discount prices? No,” the agency cited an unnamed ministry representative as saying.
“It is important that the proposal for a reduced gas price is confirmed quarterly. It would be stupid and wrong to extend it to the second quarter.”
Ukraine’s newly appointed Energy Minister Yuri Prodan told reporters on Saturday that the price for Russian gas would stay unchanged in March but it could jump to around $400 per 1,000 cubic metres in the second quarter if the two sides fail to sign an agreement.
Ukraine, which has seen its currency spiralling down and cash and gold reserves falling significantly as a result of the political protests that led to the ousting of President Viktor Yanukovich last weekend, is in dire need of cash.
It faces a further $6 billion in foreign debt payments this year and has asked the International Monetary Fund for financial assistance of at least $15 billion. Ukraine’s newly appointed leaders estimated Kiev’s needs at around $35 billion.
Prodan told journalists that the Ukrainian energy firm Naftogas is in “active talks” with Gazprom over pricing. Ukraine consumes about 55 billion cubic meters of gas each year, and more than half of this amount is imported from Russia.
But far more important than Ukraine, which is merely a sacrificial lamb in the latest proxy war between east and west, is the Russian hint that what is likely to happen to Ukraine’s gas may soon hit Europe too if it also gets involved.
Apart from through Ukraine, Russian gas flows to Europe via Belarus and two subsea pipelines – under the Black Sea and the Baltic Sea. Gazprom plans to build another subsea pipeline – the South Stream – to bypass Ukraine by 2016.
So check to you NATO: will you defend the territorial integrity of Ukraine even as NATO actively pushed for a split in Yugoslavia some 15 years ago, or will it do the “right” thing… in the dark?