Foreign Policy Research Institute

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Foreign Policy Research Institute

tel. +38 (044) 287 52 58

Will the EU accept Russia’s gas ultimatum?

The gas crisis in Europe, which coincided with the completion of the Nord Stream-2 gas pipeline, is still under way. Currently, prices remain at around $ 1,100 per thousand cubic meters, which is much higher than in early August, when the price of futures on the Dutch hub TTF was about $ 515 per thousand cubic meters. As a result of the sharp rise in prices, a large number of Ukrainian and European companies have suspended their operations. Continuing production at too high cost has simply become impractical. In a matter of months, European capitals have realized the security threats that Ukraine has been talking about in recent years, when Germany and Russia were constructing the Nord Stream-2 gas pipeline.

However, even Russia`s energy blackmail did not make Germany to reconsider its policy. The German Ministry of Economy is doing everything possible to speed up the certification of the pipeline, as the Russian Federation wants it. The German Finance Ministry has already consulted with representatives of Italy, Austria, Poland, the Czech Republic, Hungary, Lithuania, Latvia and Estonia and concluded that the certification of Nord Stream-2 does not threaten the security of gas supply in Germany and other European Union countries. No consultations were held with Ukraine. Thus, as the director of the Center for Global Studies «Strategy XXI» Mykhailo Honchar noted, Berlin ignored the position of Art. 274 «Association Agreements between Ukraine, of the one part, and the European Union, the European Atomic Energy Community and their Member States, of the other part»: «The Parties shall endeavour to facilitate the use of gas transmission infrastructure and gas storage facilities and shall consult or coordinate, as appropriate, with each other on infrastructure developments. The Parties shall cooperate on matters related to trade in natural gas, sustainability and security of supply...»

The current situation has divided European countries, which have different views on Nord Stream-2. In October, British journalist Edward Lucas published an article in the Daily Mail, in which he stated that energy infrastructure gives the Russian president enormous leverage in his quest for ever-greater domination of the region. The journalist stressed that Gazprom first devastated its own gas storage facilities in Europe, and then limited gas supplies. At the same time, Vladimir Putin openly stated that the volumes could increase if the certification of the Nord Stream-2 gas pipeline is accelerated. Edward Lucas remarked: «Critics say Nord Stream 2 will give Russia too much influence over regional energy supplies and their prices. But crucially, the project is backed by Germany, which puts cheap reliable supplies of Russian gas ahead of the security interests of its Eastern European neighbours. The result is that Russia can now hold Ukraine and other Eastern European states to ransom. The Kremlin could shut down their gas without having to cut off the rest of Europe. In effect, one group of nations will be played off against the other in a fearful system of divide and rule, with Russia in command».

The construction of Nord Stream 2 is an element of the Russian Federation's strategy to expand its own influence in Europe by diversifying energy supplies. Even before that, the Turkish Stream gas pipeline was built, which from an economic point of view will become profitable only if significant volumes of gas are supplied, however it is already appropriate for the Kremlin in terms of achieving geopolitical interests.

In this situation, it is worth noting the reasonable step of the Ukrainian leadership with an offer to provide a discount to Gazprom on the use of the Ukrainian gas pipeline. President Volodymyr Zelenskyy said that Ukraine had offered additional capacity to all potential transit countries. «We would like to see European countries as consumers, but additional capacity is also available to Gazprom. And compared to current transit tariffs, I guess the discount will be 50%. Ukraine, for its part, guarantees transit, special anti-crisis conditions for transit in excess of the stipulated volumes... Europe's losses this winter will be huge. Only rapid coordinated action can stop the crisis».  As expected, the Russian Federation did not increase supplies, thus confirming that the new gas pipeline was built solely to achieve the geopolitical goals of Russia's foreign policy.

Another component of the Russian Federation's geopolitical offensive to establish full dominance in Europe and the split of the European Union is the signing of bilateral gas supply agreements with individual EU member states in order to destroy a common policy within the European Union. In September, Hungary agreed to sign such a contract. The new 15-years contract between Moscow and Budapest can be revised in 10 years. According to an agreement, Hungary will receive 4.5 billion cubic meters of gas per year, bypassing Ukraine. 3.5 billion through Serbia via the Turkish Stream gas pipeline, and one billion through Austria.[2] Commenting on Hungary's decision, Ukrainian Foreign Minister Dmytro Kuleba stressed that the country is a member of the EU and NATO, and has special relations with Russia, and has struck at Ukrainian-Hungarian relations by excluding the Ukrainian gas pipeline from Russia's gas supply scheme. Dmytro Kuleba stated that this is another blow to our national interests, and Ukraine will respond accordingly. Due to the decision of Hungary, Ukraine canceled the planned joint intergovernmental Ukrainian-Hungarian commission on economic cooperation. Ukrainian-Hungarian relations are likely to remain extremely low in the short term.

Besides Ukraine, Moldova also came under pressure from the Russian Federation. The Kremlin is trying to use the energy leverage to change the current political vector of Moldova, since the pro-European position of Maya Sandu does not suit Moscow. According to the Financial Times, Russian Gazprom has offered Moldova to amend the Free Trade Agreement with the EU and postpone the reform of the energy market in exchange for cheap gas for the country. According to sources from the publishing house, the Russian state gas company also wants Moldova to postpone the implementation of EU rules requiring the liberalization of gas markets and increased competition. The Russian proposal came after Moldova's gas contract with Gazprom ended on September 30. In early October, Moldovagaz extended the contract for one month and now buys gas at an index price of $ 800 per 1,000 cubic meters, while in September the price was $ 550. On October 6, the company asked consumers to cut gas consumption, since the country consumes more than it imports, and on October 22, Moldova declared a state of emergency for one month due to the energy crisis because of the gas shortages.[3] It can be expected that in the current geopolitical conditions, in the absence of support from the European Union, Russia will increase pressure on the current government of Maia Sandu in order to change its policy or further change Maia Sandu to a pro-Russian puppet, as it was during the time of Ihor Dodon.

In the situation around Moldova, the Ukrainian leadership has taken a proactive position. On October 22, at a meeting of the National Security and Defense Council of Ukraine, the decision was taken to help Moldova with gas supplies free of charge, but with the return of gas in the future. This is the second time that Vladimir Zelenskyy's government has responded to Russia's gas aggression from a position of strength. Moldova was also supported by Poland, signing two contracts to supply first 1 million cubic meters of gas and then another 1.5 million. The purchase of gas from Poland and Ukraine was the first purchase of non-Russian gas since the independence of the Republic of Moldova. Thus, Poland and Ukraine, joined by Romania, have shown solidarity, which is currently not demonstrated by the European Union.

Poland has once again shown its leadership in Eastern Europe. The country continues to unite Eastern European countries, and one of the factors that should strengthen the country's position is the construction of a gas pipeline from Norway. The idea of ??building a Polish-Norwegian gas pipeline, which is scheduled to start operating as early as October 2022, fits into the Polish concept of building a gas «Northern Gate». According to this idea, Poland should become completely independent from Russian gas supplies through the construction of a liquefied natural gas terminal in Swinoujscie (in operation), a Baltic Pipe (under construction) and an LNG terminal in the Gulf of Gda?sk (planned). In the future, Ukraine may also join the Polish-Norwegian gas pipeline, which will reduce the leverage of the Russian Federation. It is worth noting that the Baltic Pipe is part of a larger North-South gas project that, in contrast to Russian pipelines, will create an alternative gas supply system in the region of Central and Eastern Europe from Croatia to Poland.[4]

Thus, in the context of the Russian Federation use of energy as a weapon, Eastern European countries have shown strong solidarity, in contrast to the European Union, which has been unable to consolidate the policies of its member states. Ukraine has taken the lead by supporting Moldova, as well as offering Russia a discount on gas supplies. Given the strategy of the Russian Federation to establish dominance in the region, Russia is not interested in constructive cooperation at the present stage, and therefore, the volume of gas transit through the Ukrainian gas pipeline will decrease. Moreover, on October 30, Russia stopped pumping gas to Europe via the Yamal-Europe gas pipeline, which runs through Russia, Belarus, Poland and Germany. This means, the gas is now pumped bypassing Poland, directly to Germany. Germany has in fact entered into an alliance with Russia and acts solely pursuing its own interests. It is worth noting that such actions may bring dividends in the short term perspective, but in the long run may have negative consequences for the unity of the European Union as a whole.