Why is Ukraine dragging Russia into a new cold war

Russia and Ukraines gas conflict went far beyond a normal price dispute. After talks collapsed, Kyiv cut off Russian gas transit to Europe, turning it into a pan European energy problem. The article explains why Ukraine took this step, how the EU and Gazprom reacted, and why the stakes in this gas war were not only economic but political. The author also shows what the conflict could mean for both countries and why its consequences may affect all of Europe.

Due to the exhausting length of the New Year holidays, Russia’s latest gas conflict with Ukraine is still shrouded in fog for the average Russian. After all, if you don’t get into the details (and on New Year’s it is hard, strange, and even sacrilegious to get into details), what’s the big deal — Ukrainians are stealing gas... Well, Moscow and Kyiv will shake each other by the lapels while shouting at the top of their lungs, and then, as always, quietly reach an agreement...
In fact, the gas conflict is taking such a horrifying turn that Europe, freezing because of the shutdown of Ukrainian gas pipelines, may turn out to be only a minor inconvenience in light of the possible consequences…
So let us recall what actually happened.
How did it all begin?
With the usual pre-New Year bargaining — what the gas price for Ukraine in 2009 would be. The bargaining was, as always, heated and accompanied by Gazprom’s stern promises to turn off the tap to Ukraine, but it did not foreshadow anything extraordinary. Moscow has made such statements more than once, and it usually all ended with a contract being signed just hours before midnight.
And this time too, things were heading toward a compromise. Moscow even took a step toward Ukraine, offering to sell gas for an “anti-crisis” $250 per thousand cubic meters, which from a market standpoint was practically a royal gift. Considering that in Central Asia Gazprom buys fuel for $340, it turns out that it intended to trade with Ukraine at almost a loss.
But that was not enough for the Ukrainian delegation! And it bargained with abandon, trying to drive the price down to 235. Moreover, Kyiv agreed to pay only on the condition that the tariff for gas transit be raised from $1.6 to $2–2.2 per thousand cubic meters, which reduced the real price to an already quite indecent level.
The last straw was the brazen letter from official Kyiv stating that if the contract were not signed on Ukrainian terms, all Russian transit gas would simply be “confiscated” for the benefit of the local treasury.
As a result, the negotiations collapsed. The Ukrainian delegation proudly left Moscow. And Gazprom declared that from now on it intended to trade with Ukraine at market rates. So instead of the compromise $250, Kyiv received an even harsher offer — to pay like everyone else. And that is one and a half times more.
In response, Ukraine shut off the transit of Russian gas to Europe, turning a local economic dispute between two states into a pan-European energy war.
Why did Ukraine dig in its heels?
For an outside observer, the Ukrainians’ behavior in the gas negotiations is not just irrational. It is simply stupid. It is strange to blackmail a partner who subsidizes your own economy with low energy prices.
But that is if you ignore the political and economic situation in Ukraine.
The trouble is that Kyiv will soon simply have no money to pay for gas. The European anti-crisis loan of $16 billion has already been half spent. And of course Ukraine does not want to give the second half to Russia for gas. All the more so because if it does, it faces default either today or tomorrow.
In addition, local politicians are competing with one another in a favorite Ukrainian game — who can bargain better with Moscow. And for them, the difference between $235 and $250 for gas is crucial, not even from an economic standpoint. Rather, from a political one.
For the unpopular Viktor Yushchenko, the gas negotiations were an opportunity to significantly improve his rating ahead of the December 2009 presidential election. The Ukrainian president clearly wanted the laurels of a Gazprom conqueror and, apparently for that reason, ordered the Ukrainian delegation not to make any compromises.
Yushchenko probably had a “Plan B” in case of stubborn resistance from Moscow. By derailing the negotiations, he was counting on unconditional support from the West, which would immediately accuse Moscow of brazenly using “energy weapons.” But the plan worked in exactly the opposite way…
How is the West reacting to the conflict?
To Kyiv’s disappointment, Europe has maintained a grumbling neutrality from the very beginning of the “gas war.” The European Union made it clear right away that it did not care who among the disputants was at fault. The European Union simply needs gas. Especially since winter on the continent has been bitter, and the Ukrainians’ shutting down of the pipeline threatens to freeze half of Europe, especially countries that are completely dependent on Russian gas (for example, Bulgaria or Slovakia).
And when Gazprom brought documents to Brussels confirming Ukraine’s international obligations not to obstruct gas transit to Europe, Kyiv’s position became even more precarious. The Ukrainian press has been sounding the alarm for several days about the “information war won by the Russians.”
“We’ve really come to this! Even on the Champs-Élysées they’re slapping us around with a sharp Gazprom verdict,” write Kyiv newspapers.
“The Russians are shouting that Ukraine is stealing gas. Ours weakly deny it, and the whole world is being told that Ukraine is an unreliable partner. This is very bad.” — says Verkhovna Rada Speaker Volodymyr Lytvyn gloomily.
European distrust of Ukraine finally materialized the other day. Euro-observers appeared at gas compressor stations, and they will monitor how Russian gas is being stolen (or not stolen). This is, of course, humiliating for Kyiv. But what can you do!
How can the “gas war” end?
In any war, both sides suffer losses, regardless of whether they win or lose. And after the January “gas bloodbath,” both Ukraine and Russia will suffer above all reputational damage. The international community will view Kyiv as an unreliable transit country, one prone to relapse. Alas, there will also be questions for Russia, whose gas supplies usually fail during January frosts.
But right now the more pressing question is who stands to gain more from what is happening. In the pessimistic scenario, the West, frozen by the cold, will still force the conclusion of a “compromise” agreement that will freeze the problem without any fundamental, systemic solution until December 2009. In Ukraine, the presidential campaign will be in full swing, and therefore even less reasonable negotiators will come from Kyiv for the talks.
In the optimistic scenario, the parties will still reach an agreement that will not require negotiations next year. That is when the price of gas and its transit will finally be, as the Russian side demands today and as simple common sense requires, market-based...