Saturday, January 24, 2009

Is Russia-Ukraine gas dispute finally over?

Natural gas from Russia started flowing to the rest of Europe this week as Ukraine and Russia finally struck a deal, ending their dispute that has been going on since January 1. According to the US State Department, the United States "welcomes" the end to the gas dispute. Ukraine's Naftogaz and Russia's Gazprom signed a 10-year deal for Russia to sell Ukraine natural gas and for Ukraine to allow Russia to use its pipeline network to ship gas to other European countries. Ukraine gets a 20% discount from market prices this year before having to pay the same price as the rest of Europe in 2010; Russia will pay Ukraine market-rate for using their pipelines in 2010 as well.

But is this really the end of the gas war? Maybe not.

Ukraine's President Viktor Yushchenko is now saying the agreement needs to be renegotiated, again, claiming that the deal is unfair to Ukraine and that his country can't afford to pay near-market price for gas because of the country's ongoing financial crisis. Yushchenko wanted to pay around $200 per 1,000 cubic meters of gas (the way they price these contracts), less than half the rate other European countries are charged.

All of this is raising fears that the gas supply could be cut off again if Yushchenko goes ahead with trying to reopen the contract talks. Ukrainian Prime Minister Yulia Tymoshenko went to Moscow to negotiate the deal, but Russia worried that she didn't have the authority to sign a contract on Ukraine's behalf. All of this goes back to the long-running feud between Yushchenko and Tymoshenko that has basically brought Ukraine's government to a standstill as the two jockey for position ahead of Ukraine's presidential elections next year. Tymoshenko views her negotiations with Russia as a triumph; it's a victory Yushchenko doesn't want her to have.

So stay tuned to see if there's another chapter in the gas war.
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