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Russia-Ukraine Energy Disputes: Between War and Contracts

This article is based on research presented at the UACES Graduate Forum Conference 2018 (12-13 July, KU Leuven, Belgium)

As a result of the Euromaidan and the ouster of President Yanukovich, Russia-Ukraine relations hit rock-bottom with the former´s military intervention in Ukrainian territory. Based on previous disputes, it seemed justified to fear that gas relations between the countries would also suffer. Eric Pardo examines the relationship between the Russia-Ukraine war and energy disputes in terms of the “energy weapon” thesis and through the lens of “spaces”, concluding that the latter approach yields a more nuanced understanding. 

Ministry of Foreign Affairs of Ukraine, Kiev © Natalia Bratslavsky/AdobeStock

As a result of the Euromaidan and the ouster of President Yanukovich, Russia-Ukraine relations reached their nadir with the former´s military intervention in Ukrainian territory. It was expected that gas relations between the countries would also come to suffer. Post-Soviet energy relations involving natural gas had been contentious since the fall of the USSR, with notorious disputes between Russia and Belarus in 2004, 2007 and 2010 and with Ukraine in 2006 and 2009.

The latest dispute in 2009 had completely disrupted natural gas flows through Ukraine in the midst of winter. So, it seemed justified to fear that the same might happen after the Euromaidan; indeed, Russia’s Gazprom ceased to supply natural gas to Ukraine for several months.

Was this new energy dispute a consequence of the ongoing war?

The coincidence between the war and the energy dispute offers the perfect test for the “energy weapon” thesis. This term popularly refers in a more or less explicit way to the use of energy as a political tool, something we intuitively would suspect to happen when real weapons are also being used.

However, it is tempting to fall into reductionism, as is frequent in analyses of energy disputes in the post-Soviet space. It is therefore necessary, as other authors have already done, to distinguish between different “spaces” (space of flows, contractual space, regulatory space and space of places).

Of particular relevance here is to consider both the contractual space and the space of places; that is, the contracts signed between Russia and Ukraine and the diplomatic relations.

The space of places had become manifest since the Euromaidan crisis started. Whereas, the contractual space between Russia and Ukraine, based on the contract signed between Ukraine and Russia in January 2009, had been supplemented by two discounts: the first, of 2010, had been offered by Moscow in exchange for the lease of the naval base in Sebastopol (Crimea) to the Russian Black Sea Fleet; the second, of late 2013, was an obvious reward for Yanukovych after not having signed an Association Agreement with the European Union. This soon led to disagreements.

Until April 1st 2014, Ukraine imported natural gas under the advantageous and under-market prices agreed in December 2013. Following the principle established in the contractual framework of 2009, revisions happened on a trimestral basis. The radical change in the space of places provoked by the Euromaidan did not alter this contractual principle.

The first price revision by Gazprom came on April 1st and did respond to the new political relations, as the subsidy granted to Yanukovich was withdrawn, with Moscow intending to revert to the contractual status quo ex ante. Rather than a hard “energy weapon”this price revision should be seen as a restoration of the contractual framework ex ante, with “soft” political incentives granted to an administration with closer political affinity being eliminated.

The revision of April 4th was a direct consequence of Russia´s takeover of Crimea and involved the suspension of the discount granted back in April 2010. This act is arguably the best candidate for suspecting the use of an “energy weapon” to punish Ukraine.

However, the contractual space mediated the change in the space of places. The hard “energy weapon” again meant the elimination of a “soft” energy incentive, and reverted mutual energy relations into the full contractual framework agreed in January 2009.

With Ukraine´s Naftohaz insisting on the price of US$268tcm and Gazprom insisting on US485tcm, Ukraine would pay deliveries only on the basis of the former. Therefore, from the Russian side´s interpretation, debts were accumulating.

The path to the suspension of natural gas deliveries from April to June 2014 occurred along with the worsening situation in the Donbass. Yet, the time correlation does not provide us with clear proof of causality. Gazprom kept delivering natural gas during the worst stage of the insurgency outburst and maintained trilateral conversations with the EU in order to find a solution.

Eventually, suspension happened after Gazprom demanded to switch to a pre-payment mode of delivery, something fully foreseen by the contractual framework. After lengthy talks that lasted months, deliveries were restored on the 2nd of December following an agreement reached with EU intermediation. It is noteworthy that a flare-up in hostilities during February 2015 did not affect normal deliveries.

Therefore, a nuanced picture has to be extracted from this episode; one that goes beyond the simplification of the concept of “energy weapon”, since the contractual space often appeared detached from political changes in the space of places.

Besides, even when the most brutal change in the space of places (the incorporation of Crimea into the Russian Federation) directly impacted the energy dispute, this was based on elements of the existing contractual framework. There was evidently a high level of politicization of energy relations through the incorporation of positive incentives in 2010 and 2013 into the contractual framework. The elimination of these incentives could not simply be labelled as the use of the concept of “energy weapon”, because such suppression simply restored the contractual space as agreed in 2009.

Are energy relations in the post-Soviet necessarily based on the blatant and unrestrained use of energy as a weapon for pressure?

Not necessarily. Politics may not be the only factor. At least in this episode, the contractual space continued to constrain the scope of Russian political manipulation of natural gas.


Please note that this article represents the views of the author(s) and not those of the UACES Graduate Forum, UACES or JCER.

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Eric Pardo @epardosa

Eric Pardo Sauvageot has a PhD from the University Complutense de Madrid (UCM) and has been working as Assistant Professor in Deusto University from February 2016. His main research interests concern energy in the post-Soviet Space and EU-Russia Relations.

 

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