For many years, back in the days of the Soviet Union, the Ukrainian Soviet Socialist Republic was responsible for supplying most of the people’s democracies of eastern Europe with Russian gas, piped through its energy transport network. It performed this service to the socialist camp on the basis of planning and fraternal mutual assistance. Indeed, this was just one aspect of the myriad economic, political and cultural ties that bound the peoples of the USSR and its allies into a common socialist bloc.
Counter-revolution tore the USSR asunder, but many of these ties were so ingrained, had been in place so long and made such obvious sense that they persisted into the post-Soviet period. Natural gas was a case in point. Russia had the gas, Ukraine had the pipes, Europe needed heating and energy: common sense and economic and logistical realities dictated the solution.
So it was that Russia continued to supply gas to Ukraine after the USSR’s break-up, both for its own use and for onward transit to Europe. Only now the relationship was a commercial one: in this brave new capitalist world Ukraine would have to pay the market rate for the gas supplied by Russia. On the plus side, however, she would still pick up about $2bn a year in transit fees for piping the rest of the gas on towards other countries.
With increasing frequency, however, Ukraine’s state gas company, Naftogaz, failed to pay in full for the gas supplied by Russian gas company Gazprom, retarding payments, disputing rates and demanding retrospective discounts. When taken to task for this obstructive behaviour, Kiev had frequent recourse to blackmail, threatening to block Russian gas supplies to Europe. Matters got so bad that Gazprom decided that all further gas purchases by Ukraine would have to be paid for up front on a prepayment arrangement, pending resolution of the outstanding debts.
Needless to say, relations became even more strained after the western-backed 2014 coup installed a junta that inflicted war on the people of the Donbass and turned nationalist Russophobia into official state policy. In 2015, Kiev stopped buying Russian gas completely, instead buying much more expensive gas from Europe – most of which consists of Russian gas pumped into Europe and then re-exported at a mark-up of 20 percent or more! This, just like the blockade of the anti-fascist Donbass region in east Ukraine, is an act of sheer economic insanity, albeit one that is very much to the liking of the imperialists of the EU.
Chickens come home to roost
Now two developments are bringing matters to a head. First, Ukraine is being dragged through the debtors’ court to answer its failure to pay its gas bills, with a key judgment expected on 30 June. Second, Russia is pressing ahead with plans to bypass Ukraine entirely by means of the proposed Nord Stream 2 pipeline, potentially rendering Ukraine’s pipeline superfluous and ending years of blackmail.
The court in question, the Arbitration Institute of the Stockholm Chamber of Commerce, will rule on Gazprom’s demands against Naftogaz for the recovery of debt amounting to more than $37bn accumulated between 2012 and 2016. Even Naftogaz’s own financial accounts concede that the company owes nearly $8bn for the period between 2009-13. However, the total Russian claim against Naftogaz is said to be in excess of $80bn. To appreciate the true scale of such a hit, Ukraine GDP last year was estimated at about $90bn – and that was before the blockade kicked in.
The court will also rule on a flurry of vexatious counter-suits from Naftogaz, including one that seeks to retroactively adjust the gas price, thereby magically transforming Gazprom into the debtor. (Good luck to any readers tempted to adopt the same approach towards their unpaid gas bills!) Another counter-suit wants to retroactively change the terms of the contract to make them comply with EU regulations, seemingly oblivious of the fact that neither Russia nor Ukraine are members of the EU.
The director of Naftogaz, Yuri Vitrenko, has admitted that if the company loses at Stockholm it will face bankruptcy. Whilst the outcome of the projected court ruling may be expected to hinge less on the finer points of jurisprudence than upon what pressures imperialism is able to bring to bear, even a fudged verdict could still sink Naftogaz, given its parlous condition.
And, regardless of the outcome in Stockholm, Kiev’s habitual abuse of its own transit network as an instrument of energy blackmail, meanwhile neglecting the necessary investment in the network’s upkeep, has in any case raised grave doubts as to the future profitability of what had previously been such a reliable cash cow.
In the opinion of energy expert Professor Igor Yushkov, Ukraine’s “pipeline system is outdated; it needs to be repaired, but there’s no money. Without guarantees that the pipelines will be loaded up in the long term, no one is going to come and invest the necessary funds – neither the Europeans nor Ukrainians themselves. So I think that the history of Ukraine’s status as a transit state is coming to an end, and after 2019 [when the transit contract with Gazprom expires] it will be unlikely to get any long-term transit contracts.” (Ukraine’s once mighty gas pipeline network ‘faces being turned into scrap metal’, Sputnik News, 24 March 2017)
The most promising of the alternative gas-transit routes is the Nord Stream 2 project for an offshore gas pipeline running from Russia to Germany along the bed of the Baltic Sea, a solution which would end the headache of transit states using their position along the supply chain to exert economic or political leverage. Germany at present is raising a caveat that Ukraine’s own continuing transit status should be guaranteed. However, with Naftogaz likely staring bankruptcy in the face in Stockholm and Ukraine continuing to boycott Russian gas, it is doubtful how long Germany would be prepared to subordinate its own interests to the whims of the screw-loose Kiev junta.
Those whom the gods would destroy they first make mad
Every step the junta takes to try to isolate and undermine the anti-coup resistance in the Donbass region – now coalesced into the autonomous zones of Donetsk and Lugansk – serves only further to isolate and undermine the junta itself. By blockading rail and road links with the Donbass, the coup government in Kiev has obliged the peoples’ republics of Donetsk and Lugansk to expropriate Ukrainian businesses in the territory they control and actively to seek alternative economic partners in the Russian Federation.
Likewise, Kiev’s abuse of the ambitious network of gas pipelines engineered by the Soviet Union in happier times, letting it fall into disrepair and using it as a blunt instrument of economic blackmail against Russia has only succeeded in wrecking a valuable resource and necessitating the construction of alternative pipelines that exclude Ukraine.
It is the Ukrainian masses who will bear the brunt of the ruinous path taken by a regime that brays about patriotism whilst mortgaging Ukraine’s national future to a western-engineered provocation against Russia. Let workers in Ukraine understand who their friends are, and who their enemies, and stand with the anti-fascist resistance in the Donbass.
Down with the Kiev junta!
On 16 May Ukrainian president Poroshenko announced a ban on access to a number of popular Russian websites. The ban, intended to punish Russia, will instead hit primarily his own citizens, an estimated 25 million of whom use the websites.
Poroshenko’s popularity, already flagging in the polls, can expect to sink further thanks to this fit of pique. As Alexei Volin, Russia’s minister for communications, observed: “This is the Ukrainian government’s favourite game: shooting itself in the foot.” (Ukraine blocks access to Russia websites by Roman Olearchyk and Max Seddon, Financial Times, 16 May 2017)