Power, politics fuels Russia-Ukraine war

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MOSCOW MILLS — More than a week after Russia halted natural gas shipments to Europe through Ukraine, about one-fifth of Europe's supplies remains hostage to a conflict that goes far beyond energy prices.

While the dispute has commercial roots, it is revealing itself increasingly to be a political struggle rooted in Ukraine's embrace of the West, domestic politics on both sides, and the Kremlin's ambition to expand its role as an energy superpower.

So far neither side seems in a hurry to resolve the crisis, which has crippled parts of eastern Europe particularly. Instead, each may be jockeying for long-term advantage in a high-stakes confrontation that could reorder Europe's energy grid.

Negotiations broke down Dec. 31, leading Russia's Gazprom to cut off the delivery of gas intended for Ukraine's domestic consumption the next day. Gazprom cut off all shipments through Ukraine to Europe a week later, claiming Ukraine was siphoning gas that had been meant to transit its territory westward to Europe.

Russian Prime Minister Vladimir Putin has taken a tough line on negotiations — demanding Ukraine's Naftogaz pay Russia the same as far wealthier western European customers, publicly accusing Ukrainian officials of corruption and refusing to ship gas without a contract.

Efforts by the European Union to mediate the dispute have resulted in frustration and confusion. An agreement collapsed Tuesday just hours after gas shipments resumed — when Russia pumped 1.6 million cubic meters (56.5 million cubic feet) of gas, and then accused Ukraine of failing to ship it west.

Some in Europe see this as a heavy-handed Russian power play and Moscow meanwhile has lost significant revenue. But Europe's frustrations could play to Putin's advantage if they help to swing EU opinion in favor of Gazprom's $15 billion Nord Stream pipeline project.

That project would carry gas directly from Russia to Germany through the Baltic Sea, bypassing Ukraine and other former Soviet bloc countries that have developed frosty relations with the Kremlin since the collapse of communism.

Germany supports the project. But some European critics, including Poland, worry that it would increase the continent's reliance on Russian gas.

By playing hardball, Moscow risks spurring Europe to seek alternate sources of natural gas. But they're difficult to find. Efforts to build the so-called Nabucco pipeline to carry gas from Central Asia to Europe has had routing problems. And Russia has signed high-priced contracts with Turkmenistan, the region's main supplier.

Since the end of the Soviet era, Moscow has repeatedly pressed Kiev to sell all or part of its pipeline network. Ukrainian leaders have resisted, regarding the pipelines as their trump card in relations with an increasingly assertive Russia.

Control of the pipeline would save Russia's gas giant Gazprom at least part of the $3 billion it now pays Ukraine in annual transit fees. Last year, Ukraine bought about $8.5 billion worth of gas from Russia.

Russian control of the pipeline network would increase Moscow's economic and political influence in Ukraine, a one-time ally that has tried to forge closer ties to the West since the Orange Revolution of 2004, which brought Yushchenko to power.

Ukraine's president has sought membership for Ukraine in NATO and the European Union, and supported Georgia in its August war with Russia — moves that have infuriated the Kremlin.

For more than a decade after independence, Ukraine was Russia's largest and closest ally in the former Soviet Union, and Moscow sold Kiev gas at a steep discount.

Low prices proved addictive, and today Ukraine's inefficient industries and government-run district heating plants burn vast quantities of the fuel.

A 2007 report by Simon Pirani of the Oxford Institute for Energy Studies said Ukraine has "the world's most energy-intensive economy." In 2005, the report said, Ukraine consumed 73 billion cubic meters of gas, "an amount similar to Japan, Italy, Saudi Arabia or the entire African continent."

Experts say Ukraine wastes so much gas because low prices gave it little incentive to conserve fuel.

Domestic politics in both countries also have made it harder for Russia and Ukraine to settle their dispute.

Yushchenko and Tymoshenko — former Orange Revolution allies — now control competing power centers and are rivals in presidential elections that could come as early as the end of this year.

Neither can afford to be seen surrendering to the Kremlin, nor do they want to be blamed for higher natural gas prices.

Economists warn that the Ukrainian economy, hit hard by the global economic crisis, could be crippled by the price Moscow is demanding. Dozens of major businesses could be forced into bankruptcy.

Russia, too, may be approaching a political watershed in which the gas dispute could play a role.

Some analysts predict that Medvedev will step down in the next few months and call special elections, paving the way for Putin to run for the presidency. Putin stepped down last year, honoring a constitutional limit on Russian presidents serving more than two consecutive terms.

But Putin remains Russia's most prominent political figure, and has taken the leading role in the current gas crisis. A victory over Ukraine in the gas war could rally popular support for Putin's return to the Kremlin.

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Moscow Bureau Chief Douglas Birch has covered Russia since 2001.

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