Russia has long prepared to reap political rewards from energy crises in Europe, particularly through the isolation of Ukraine.
Early this month, the price of liquified natural gas on the primary European exchange reached five times its price. The next day, Russia’s President Vladimir Putin delivered an address suggesting he would not withhold supplies, sending prices plunging by 25%. Putin’s ability to swing prices with a single press conference led to cries throughout Europe that he had turned gas into an “energy weapon” and suggestions that the crisis itself is of Russia’s making. Ben Dubow of CEPA explains Russia’s game.
These criticisms miss the mark: Russia has had little influence on bringing about the energy crisis, but has long prepared to reap substantial political rewards when such a crisis occurred, above all through the isolation of Ukraine.
Russia’s European critics are correct that Russia stands to benefit enormously from the spike in gas prices. Oil and gas account for half of all Russian exports, and each of the country’s three largest firms is in that sector, with the largest, Gazprom, and third largest, Rosneft, owned by the state. Gazprom monopolizes sales to Europe, providing 43% of all gas on the European market. But much of that must pass through Ukraine, a country whose forces continue to fight Kremlin-directed separatists in the east, and which has been pummeled by Russia for almost a decade for its assertion of independence.
A full two-thirds of Gazprom’s revenue comes from deliveries that pass through Ukraine while Ukraine’s fees on gas account for 6% of government receipts. The entanglement of the two led to disputes as soon as the Soviet Union dissolved, with Russia cutting off supplies to Ukraine at least once every year from 1992-1994, with subsequent shutdowns occurring in the winters of 2005-6 and 2008-9.
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