By Dmytro Tymchuk
Third Gas War: Prologue
On June 13, Ukrainian Prime Minister Arseniy Yatsenyuk ordered Naftogaz Ukraine, relevant ministries, and regional state administrations to prepare for a complete suspension of Russian supplies of natural gas as of Monday, June 16. The PM also ordered the National Energy Regulatory Commission (NERC) to establish economically viable rates for the transit of Russian natural gas through Ukrainian territory.
In turn, Gazprom boss Alexei Miller announced that Ukraine would be moved to a system of advance payment for natural gas as of 10:00 a.m. on June 16: “No payment, no deliveries.” In addition, Miller emphasized that this extension was the final one and was made solely at the request of the European Commission, while Kyiv was resorting to “outright blackmail.”
Such is the current state of the latest round of trilateral negotiations among Ukraine, Russia and the EU. Essentially, there has been no progress.
Recall that Russia has set ‘final’ dates for moving Ukraine to the system of advance payments twice already. These dates were 2 June, 9 June, and now 16 June. The toughening of Moscow’s position on the natural gas front and potential escalation with complete suspension of gas deliveries is largely due to an increasingly complex international environment for Russia.
This week, the situation with the construction of the South Stream bypass pipeline deteriorated dramatically. The key countries—Bulgaria (as the entrance into the continent) and Serbia—have officially announced that they are suspending their participation in the project. The final decision of these states regarding their involvement in the pipeline’s construction will be made after the European Commission’s findings on whether South Stream complies with EU antitrust legislation.
The annexation of Crimea violated a complex gas balance between Ukraine and the Russian Federation, rendered the Kharkiv Agreement [of 2010] meaningless, and led to the necessity of political and legal clarification of the contractual framework between the two countries.
Ukraine therefore has a clear chance to improve its position with regard to purchasing natural gas from Russia. Each side has recorded its vision of a fair gas price. Kyiv insists on $268 per 1000 cubic meters, while Moscow offers a discount to $385.
Despite the fact that the price of gas is an extremely important indicator for the economy, the principles of price setting in this case are even more important to Ukraine. Russia is trying to implement yet another ‘discount’ scheme, which would establish gas prices by a decree of the Russian government through cancelling or reducing customs duties. Ukraine insists on changing the structure of the gas contract dated January 19, 2009.
If the negotiations fail, Ukraine intends to file a lawsuit against Russia in the Stockholm Arbitration Court. Russia is preparing to respond with its own lawsuit for the gas that Ukraine did not take, violating the ‘take or pay’ clause in 2012-2013.
Deliverance from Stockholm Syndrome through Stockholm arbitration
Stockholm Syndrome is an affection which arises between a victim and an aggressor during the course of violence or threat thereof. In a sense, this describes what has been happening in Russian-Ukrainian gas relations for the last 20 years.
Every revision of agreements was effectively an act of political and economic violence against Ukraine, as every time they became increasingly discriminatory and humiliating for Kyiv.
Anyone who reads the agreement of January 19, 2009 will be shocked by the inequality between the parties who concluded this contract.
Every time, Ukraine entered negotiations with increasingly unfavorable positions, and the negotiations were repeatedly conducted by politicians with different interests, which did not often coincide with Ukraine’s national interests. Russia, in turn, conducted its own consistent hardline policy, led by almost the same people throughout the whole period.
From 2009, there was a series of discussions in Ukraine that concluded that the only possible way to modify gas prices in our favor is through Stockholm Arbitration. Over time, this thesis was fully confirmed. In the following years, Ukrainian-Russian gas dialogue yielded little to no results.
More than a dozen European energy companies filed lawsuits against Gazprom (or publicly announced their intentions to do so) in this period. In most cases, these companies achieved their desired results in court or, more often, reached settlements with Gazprom before the hearing. These were German, Baltic, and Eastern European companies.
Therefore, a Ukrainian appeal to Stockholm Arbitration may contribute not only to the establishment of a market price for gas, but also to stripping Ukrainian elites of their deeply entrenched Stockholm Syndrome.
This week, Ihor Kolomoyskiy, the governor of Dnipropetrovsk Oblast, proposed to newly elected President of Ukraine Petro Poroshenko that a wall almost 2,000 km long be built along the Ukraine-Russia border. According to the project, the wall should separate Donetsk, Luhansk, and Kharkiv Oblasts from the Russian Federation and prevent the infiltration of combatants, weapons, and military equipment into Ukrainian territory.
We should note that such a radical solution has been successful in Israel, which erected a wall on the border with Palestine, but on quite a different scale—these are small states in comparison with Ukraine and Russia.
The main feature of the wall is that similar constructions were built to shield a ‘civilized Ecumene’ from barbarian raids and invasions. More than two thousand years ago, the Middle Kingdom of China began building the Great Wall on its northern border to protect itself from the nomadic Turkic tribes.
In fact, the same motive prompted U.S. authorities to build a 3000 km-long wall, completely separating the United States and Mexico in an attempt to prevent mass illegal immigration.
The Berlin Wall, which was not defensive but ideological, could perhaps be considered an exception.
Returning to Ukraine, we note that the border between Ukraine and Russia has existed more on maps than in reality since the declaration of Ukraine’s independence.
Moreover, the idea of a real cordon was mentally unacceptable to many Ukrainians and Russians. It is no accident that the process of delimitation and demarcation of Ukrainian-Russian borders has taken a couple of decades, while the Azov Sea area is undivided even today.
Thus, one could argue whether the wall would be an effective technical solution, and whether it will really prevent undesirable elements from entering Ukraine. But there is no doubt that Kolomoyskiy’s Wall would have a crushing psychological effect.
The Wall is not only a physical object or a materialized dividing line. The Wall is also a symbol of Ukrainians and Russians going in different directions. The Wall is a symbol of the collapse of the great myth of the two fraternal Slavic nations.
Translated by Oleg Naumenko, edited by Robin Rohrback
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