Gazprom Uses Gas To Tighten Noose On Ukraine
Move will push Ukraine’s energy costs to crippling levels, far above average EU costs
The move came as military tensions between NATO and Russia continued to escalate on several fronts, belying claims that the world’s most serious geo-political clash since the Cold War is subsiding.
Nato chief Anders Fogh Rasmussen denied claims by Moscow that Russia is withdrawing its 40,000 troops concentrated near the Ukrainian border. “This is not what we have seen. This massive military build-up can in no way contribute to a de-escalation of the situation, so I continue to urge Russia to pull back its troops,” he said.
The alliance suspended “all practical civilian and military cooperation” between NATO and Russia at a closed-door session in Brussels. Poland’s foreign minister, Radek Sikorski, called for two heavy brigades with 5,000 NATO troops to be sent to the Polish-Ukrainian border as a show of force. German fighter jets have been sent to Lithuania to bolster air defence in the Baltics, where tension is also high.
Markets appear to operating in a parallel universe, betting that the worst is over. The RTS index of Russian equities has regained most of the ground lost at the outset of the crisis in late February, while yields on Russian dollar bonds have dropped 70 basis points to 4.82pc.
Gazprom said it had raised the price of gas for Ukraine from $268 to $385 per 1,000 cubic metres, a tariff that may soon jump to $480 as the Kremlin ends the lease discount for Russia’s Black Sea fleet in Sevastopol, rendered null and void by the annexation of Crimea. This will push Ukraine’s energy costs to crippling levels, far above average EU costs. Gazprom claims that Ukraine owes $16bn for unpaid gas bills, equal to 11pc of GDP.
The EU is drawing up emergency plans to cut dependence on Russian energy. It is searching for ways to funnel gas to Ukraine at a viable cost if need be, but there are serious doubts over whether this can be done quickly.
Citigroup said it would be a complex task to set up a “reverse flow” of gas to Ukraine from western Europe though Slovakia. Nor is it clear where the immediate supplies would come from. The global market for liquefied natural gas (LNG) remains tight, despite a largely symbolic move last week by the US to open an export terminal. There have been interruptions in supplies from Norway.