Gas dispute between Ukraine and Russia continues into 2016

Ukraine’s state owned gas company, Naftogaz warned that Ukraine might stop buying gas from Russia from the beginning of 2016. Natural gas supplies from Russia are only secured until the end of this year and Ukrainian authorities stated that they would rely on European supply in 2016 unless Russia offered a competitive price. They also expect a serious fall in gas prices at the beginning of next year. Naftogaz CEO Andriy Kobolev stated that Kiev set a deadline for Russia to resolve the pricing issue by December vowing that otherwise Ukraine would start purchasing all of its gas from Europe.

Russia had resumed its gas supply to Ukraine in October after the deal to provide 2 billion cubic meters of gas was hammered out between Gazprom, Naftogaz and mediators from the European Union. Under the deal, Ukraine was ensured to receive gas from Russia for six months through March, 2016 and Russia agreed to lower the price to the same level granted to neighboring countries, from $251 to $230 per 1 000 cubic meters. Gazprom began to supply gas after it received $234 million as a prepayment from Ukraine. The amount is part of $500 million aid that the European Commission has pledged to Ukraine for gas supplies.

However, Ukraine has an eye on diversification fearing Russia will again use gas supply for political reasons. In favor to Kiev, energy demand has dramatically fallen in the country as a result of the conflict in the east and a steep price hike to consumers, which is already in the pipeline. Ukraine needs 19 billion cubic meters of gas in underground storage by the end of 2015 for winter season but already holds 17.1 billion cubic meters according to the Energy Minister. Loss of control over the energy-hungry factories in Donbas, eastern Ukraine and general economic crisis has significantly decreased demand for gas. Ukraine’s other sources stem from European states such as Poland, Hungary and Slovakia, amounting up to 20 billion cubic meters overall, however the shipments still originate from Russia and is supplied to Ukraine in reversed flow. At the same time, their agreements with Gazprom limit this type of supply to some extent, which in one instance forced Slovakia to refuse gas flow to Ukraine from one of its four main pipelines.

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News Briefs:

  • Russia turned to Turkey with friendly overtures as Vladimir Putin congratulated his counterpart, Recep Tayyip Erdogan on victory of Justice and Development Party (AKP) in the recent elections. The victory will allow the AKP to form its own government. Syria is an issue in which their different positions has pitted Moscow and Ankara against each other. Moreover, Russia and Turkey have been struggling to finalize the deal on replacing the South Stream project with TurkStream and to solve disagreement over the promised discount from Russian side. Eventually Turkey filed the case for international arbitration against Gazprom. The talks were frozen when AKP lost its parliamentary majority in June, but recent election results can direct the two sides to introduce some repair to their deteriorated relationship.
  • The Baltic States alongside the six central European states issued a joint statement calling for stronger NATO presence in the region amid Russia’s recent moves in Ukraine. Slovakia, Bulgaria, Hungary, Romania, Poland, the Czech Republic and Baltic States also appealed to Russia to respect international law and international obligations “as a precondition for NATO-Russia relationship based on trust and confidence”. The Polish side argued for the need of more troops, infrastructure and common actions from NATO’s side. The statement declared that the leaders would work on deepening relationship with NATO and the European Union. At the same time, the parties announced their plans to boost military and defense spending at home.
  • Moldova and Ukraine signed cross border cooperation agreements with the assistance of the European Union Border Assistance Mission to Moldova and Ukraine (EUBAM). The first agreement establishes a joint control at the Pervomaisc-Kuchurhan border crossing point and allows easier move of goods through Transnistria. The second agreement serves to increase security by the automated exchange of border crossing data on movement of vehicles and goods between the two countries. This will potentially remove the obligation for foreign citizens to register with Moldovan migration authorities on entering Transnistria region.
  • Azerbaijan expressed readiness to hold a joint naval drill with Kazakhstan in the Caspian Sea. Defense Ministers of the two countries held a meeting in Astana,discussed join exercises for their armed forces and stressed importance of development of military-technical cooperation. The first joint naval drills were planned for the first time last summer in a trilateral framework between Russia, Azerbaijan and Kazakhstan. Joint exercises implied drills in protecting sea lanes and areas of economic activity as well as firing at targets both in the sea and on shore.
  • Iran and Saudi Arabia clashed several times in heated debates over Syria talks in Vienna. Iran accused Saudi Arabia of terrorism and blamed its nationals for the 9/11 attacks (surprisingly) that threatened to end the new negotiations and hardly made any agreement on Syria. However, the meeting produced a nine-point joint statement that outlined common goals for the crisis resolution. Later on, the Saudi Foreign Minister, Al-Jubeir criticized Iran for its involvement in Syria during his visit in Bahrain and as a result yielded Iran’s threat to withdraw from the talks.
  • Sputnik called U.S. moves in Central Asia and more specifically State Secretary John Kerry’s tour in all the five countries as being aimed at damaging Russian interests. Sputnik is one of the publications closely associated with Kremlin, which is considered to be filtering reality close in Moscow’s narrative. The news agency stated that the U.S. was returning in the region due to its political reasons after practically leaving the region by closing its bases and ended all missions there. Sputnik defined the political reasons as foreign policy failures in Syria and Afghanistan and called the U.S. ‘pivot’ to Central Asia Obama’s last chance to make up for its losses in the international arena, with the presumption to harm Russian interests by maintaining instability in Afghanistan.