Putin Strikes Back: Cuts Ukraine Gas Discount

We had wondered at the relative lack of response by Russia to extended sanctions and asset freezes in Europe and now we see the first major move. Having confirmed new counter-sanctions this morning, Russian President Vladimir Putin just threw The IMF (US taxpayers), and Ukraine's 'American' finance minister under the bus...

"Moscow can no longer give Ukraine gas discounts due to the current drop in oil prices."


The price must be on level of other countries like Poland, he added.

While Christine Lagarde has made it clear she will spend Other People's Money in Ukraine (but not Greece) no matter whether Ukraine defaults or not, one suspects the end of the gas discount will crush IMF expectations for Ukraine growth and make it increasingly impossible for her to justify throwing worse money after bad...

Does Ukraine have any gold left with which to grease the skids?

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As we asked previously, is this the start of Russia's move to cut Ukraine out of the loop?

This is an eventful period for EU-Russia gas relations.

EU-Russia existing gas connections

So, how should the most recent evolutions of the Russian waltz of pipelines be interpreted? There are three possible scenarios:

i) Turkish Stream for Turkey only & Nord Stream for the EU. In this scenario Russia would target the construction of the first string of Turkish Stream to divert the 14 bcm per year currently supplied to Turkey via the Trans-Balkan pipeline (crossing Ukraine, Moldova, Romania and Bulgaria) by 2016, as recently agreed in Ankara. This would allow Russia to capitalize on the massive investments already made in the "Russian Southern Corridor" and to make use of the South Stream pipes already delivered at the Varna harbor and of the pipe-laying ships already placed in the Black Sea. Considering the regulatory and financial barriers to the development of new infrastructure to deliver Turkish Stream gas to EU destination markets, Russia would abandon its plan to supply the EU market via Turkish Stream and rather invest in the expansion of Nord Stream to cover this market. 


ii) Nord Stream expansion as a bargaining chip to advance Turkish Stream. In this scenario Russia would propose the expansion of Nord Stream, in order to have another bargaining chip in the negotiations with Turkey (and Greece), and to quickly advance the full Turkish Stream project and ensure better commercial conditions. This would allow Gazprom to avoid further controversies around the OPAL pipeline and to deliver gas directly to southern European markets. This way Gazprom’s ability to sell gas to southern Europe would not depend on additional north-south pipelines under EU rules, and some price-differentiation between the northern and southern market for Gazprom gas could be maintained.


iii) No pipelines, just politics. In this scenario Russia does not intend to develop either the full Turkish Stream (but at most the first string for the Turkish market) or the expansion of Nord Stream. The proposals are thus intended to create political cleavages within the EU, at a moment when the EU is toughening its stance against Russia due to the Ukraine crisis. They create cleavages between northern and southern EU countries (Germany favoured by Nord Stream; Italy and Greece favoured by Turkish Stream); between the EU and Member States (for example Member states’ actions that counteract the Brussels strategy to diversify away fro m Russia); and within EU countries (by causing the interests of governments and energy companies to diverge). In such a scenario, this waltz of pipelines thus represents a new chapter in Russia’s enduring divide and rule strategy vis-à-vis the EU energy market.

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With potential Greek pivots still on the table (as The IMF shuns Greece's offer) and the odd new allies in The Middle East, it appears this economic sabre-rattle will once again boomerang back to Washington as Ukraine goes from failed state to failed-er state.

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Source: SputnikNews


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