The odd trio again: gas, Russia, Ukraine

By Nina Bachkatov and Andrew Wilson

The war that never started was averted thanks to an agreement signed ahead of the 31 December deadline. The negotiations concerned gas deliveries, but in fact they have to be seen against a larger background involving Ukraine-Russia bilateral relations; relations of both countries with EU; and divisions inside EU about everything concerning Russia.

This is the reason why it took months to come with a draft agreement, and still the question is so sensitive that only limited information had emerged since 20 December, when the three partners announced that a preliminary agreement had been signed between Moscow and Kiev on the transit of Russian gas via Ukraine to Europe.

This discretion is due to the fact that Russian Energy Minister Alexandr Novak and his Ukrainian counterpart, Olexiy Orzhel, had to take the text to their respective capitals before the details were agreed upon and the agreement was finalised.

But the most important chapters are known; Russia agreed to a five-year deal with a minimum of 65 billion cubic meters to be supplied in 2020 (slightly less than this year’s projected imports) and 40 billion cubic meters in the following years.

Both sides compromised on outstanding litigation that arose from the two countries’ previous tumultuous relationship as partners in the natural gas business. Gazprom agreed to pay Naftogaz the $3 billion it had won in an arbitration case, and Naftogaz agreed to drop lawsuits seeking an additional $8 billion and to refrain from filing others.

In another episode linked to energy, in early December, Ukraine’s state-owned oil pipeline operator Ukrtransnafta and its Russian counterpart Transneft have extended the existing oil transit agreement for 10 years.

There was no Christmas miracle – and in any case the Orthodox Christmas is on 7 January in that region. Trust is still in short supply between Ukraine and Russia, and between Russia and EU, but the agreement is a sign that even in those conditions the three partners have been able to be guided by pragmatism, necessity and fear of opening another conflict in an already tensed region on EU doorsteps.

Since independence

Since independence, the delivery of Russian gas to Ukraine has polluted relations between Kiev and Moscow. Any discontent on any matter would spill into the gas question, linking it with other contentious matters, notably the rent and the conditions of the Russian fleet base in Sevastopol. Gas has always been political: Russia provided huge discounts in return for Ukraine’s participation in post-Soviet space reorganisation; Ukraine bargained thanks to the dependency of Gazprom to Ukrainian pipeline for exporting gas to EU.

This is why the 20 December agreement can be seen as a partial return to economics and exposed a rare demonstration of Russian and Ukrainian capacity to accept concessions in return for a win-win solution.

Russia wanted a very short term contract, first of a year, then three. Obviously, Putin has difficulty to accept his reduced leverage on his neighbour and wanted to remember that in a couple of months Nord Stream 2 would allow Gazprom to be less dependent of the Ukrainian transit.

Ukraine wanted a long term contract, of 10 years. The longer the term, the less Russia would be able to use alternative routes to export gas in the EU. The $3bn it receives from the transit is indispensable for the state budget and the price of Gazprom deliveries to the Ukrainian market is important for social peace in the country.

The EU started the negotiations as a defender of Ukrainian interests but also as a defender of its normative power, a key element of its international posture. And indeed, European norms will be observed by Moscow and Kiev concerning the transit pipeline. This is certainly a diplomatic success and it might have positive consequences on the relations between Russia and the EU, all without having betrayed Ukrainian interests.

The heavy involvement of Washington helped too, as EU officials had no choice but to protest against this further example of American extraterritorial jurisdiction that is accepted both by Democrats and Republicans. This attitude also reduced the value of arguments saying that Russian energy deliveries are a threat to European security, when everyone knows that Washington wants above all sell its liquefied gas to EU and to this effect has played a divisive role between EU members.

Where the devil is

Now the details have to be discussed in both capitals – and the devil is in the details.

There is no risk that EU will change its position. Nor Moscow where Putin has involved himself in the debate and decided to use the opportunity to project Russia as a responsible partner. In any case, he is on the same line as Gazprom CEO Alexei Miller and one does not see who in Russian can oppose the president.

This is not the case for president Zelensky who tried to stay above the fray, and watch from a distance contradictory declarations among his government, officials and even the CEO of Naftogas, Yuri Vitrenko. He has also to guard himself against the active minority still living in the high militaro-nationalist mood that his predecessor cultivated to survive politically. Those groups are armed and well trained.

Ukrainian media comments after the signature of the draft agreement gave large space to the position of those who consider that Zelensky caved in to “the enemy” simply by resuming Russian deliveries interrupted by Poroshenko in November 2005. They consider that there is no reason to sign anything before the end of December as Ukraine stored enough gas for the winter and can wait April – the date at which, in their mind, the US’s fresh sanctions against the Nord Stream 2 pipeline would have made Russia almost completely dependent on Ukraine and more inclined to compromise.

This fragility of Zelensky has been a key element in the EU push for compromise, but also for Putin’s moderation bearing in mind that none of them, and the majority of Ukrainians, want a new Maidan in the grey zone between EU and Russia. Moreover Zelensky is the only hope to reach a settlement in Donbass, in line with the recent Paris meeting of the Normandy Four format.



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