Russia 1, Ukraine 0


Vladimir Putin had a very good weekend. His counterpart, Ukrainian prime minister Yulia Timoshenko, didn’t.


That about sums up the two-day Russia-Ukraine summit that convened Saturday and Sunday to talk out the gas standoff; the summit wrapped up with Ukraine giving Russia just about everything Russia had wanted.


The deal:

– Ukraine will pay the 80% of the rate that Europe pays for Russia’s natural gas this year and next. Since the going rate in Europe is now 339 Euros per 1,000 cubic meters of gas, this equals 271 Euros per 1,000 cubic meters of gas.

– Starting 2010, Ukraine will pay 100% of the rate Europe pays.

– Russia will pay Ukraine’s Naftogaz the same transit fees it paid in 2008.


“We had come to a mutual understanding,” Tymoshenko said to reporters after the talks.


There’s nothing mutual about it.          


Remember that this 271-Euro rate equates to 79% of what Russia had initially asked for (which was 336.8 Euros per 1,000 cubic meters). And it’s more than double what Ukraine was paying last year (which was 134 Euros per 1,000 cubic meters).


Put another way, Gazprom gets more than three-quarters of what it had hoped for, and Naftogaz gets a heating bill roughly twice as high as it was the year prior. Pleasantries aside, the Ukrainians got rolled.


No surprises here. Ukraine has nothing on its northern neighbor. Its economy is heavily dependent on, and heavily subzidized by, Russian business interests. It is Russia who is funneling 130 billion cubic meters of natural gas through Ukraine every year, not the other way around. And it is Ukraine who is going without gas as of January 1, not the other way around.


Moreover, Timoshenko has some credibility problems at home, judging by this Gallup poll in which the majority of Ukrainians say Russia is in the right 


Timoshenko is probably worried about her credibility in mainland Europe as well, much of which is shivering because her country’s economy cried poor when its gas bill arrived. Sooner or later, the gas will start flowing again, but consumers in most of the countries on the receiving end of Gazprom’s spigots may entertain some longstanding doubts about whether they really want one-fifth of their gas running through such a demonstrably unreliable route as Ukraine.


This sullied reputation may cost Timoshenko’s government a lot of potentially juicy new deals down the road—not the least of them being South Stream, the proposed international natural-gas pipeline whose future route is expected to trace either through Turkey or through Ukraine. By the looks of things now, I’m putting my money on Turkey.



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