Did your New Year get off to a rocky start? If so, you are probably still having a better year than Ukraine, where it’s year began with Russia shutting off natural gas supplies. Here is a video discussing the situation:
Russia did the same thing to Ukraine three years ago, and it has cut supplies before that, so it doesn’t seem to be much of a stretch to say that a pattern of behavior is developing. Russia uses its oil and natural gas as weapons to show off its power, and countries like Ukraine get hurt by these displays.
Russia has said that Ukraine has over $2 billion worth of debt that must be paid, while Ukraine has said that Russia sets unfair prices that it cannot hope to pay.
I have to side with Ukraine in this dispute. Last year, Ukraine paid $178 per thousand cubic meters (tcm), while Russia wants it to pay $418 per tcm this year. Ukraine should not be expected to have to pay that much more for natural gas, especially since it is still developing its economy and the world markets are troubled as it is. This added burden is unfair for Ukraine. Now, Ukraine may be behind on its payments, but energy supplies should not be treated purely as a business by Gazprom. It supports the livelihoods of millions of people, and cutting off energy has more than just economic costs.
Gazprom is suffering. It went from being the third largest company in the world at the start of 2008 to ending the year as the 47th largest company. Also, it has $10.6 billion of debt to pay off by the end of June. This makes its approach of pushing for the highest prices it can get understandable, but the company should understand that the days of oil and natural gas are numbered anyway. It ultimately will have to face the choice of fighting for every last penny as supplies dwindle, or diversifying into other energy sources. The far more sustainable business practice will be to develop other energy sources, and avoid the negative image it gets from playing tough for natural gas.
If this standoff continues much longer, it will have an effect on the rest of Europe. Countries like Germany get a large portion of their gas from Russia, and as Ukraine gets more determined to get its gas, it will siphon off more and more that is meant for other countries. Already, Ukraine has been accused of siphoning off small quantities of gas, so the process seems to already have started. With all of Europe involved, this situation could be very harmful to relations between Europe and Russia, adding another reason why Russia should not be acting this aggressively with its natural gas.
The world has enough problems with bad economies and tense relations as it is. Russia does not need to make things worse. Hopefully it will show some sense soon and move to reach an acceptable agreement with Ukraine.
Have you ever tried to fill up your car and refuse to pay?