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Russia: Does Ukraine 'Gas War' Cast Shadow Over Moscow's G8 Chairmanship?

By Claire Bigg and Daisy Sindelar A worker examines equipment at the Gutsulivske gas-extraction facility, some 700 kilometers west of Kyiv (AFP) Prague, 30 December 2005 (RFE/RL) -- 1 January is not just the start of a new year. It's also the day that Moscow will assume the rotating chairmanship of the Group of 8 (G8) industrialized nations -- and the day it has threatened to cut off gas supplies to Ukraine if it refuses to accept a fourfold price hike. Some say Russia's pressuring of Ukraine amounts to blackmail, prompting the question: Does Russia deserve the G8 leadership?

Russia will spend the year of 2006 at the helm of one of the world's most powerful global alliances. It is a rare opportunity for President Vladimir Putin to boost his country's international standing. As the chair, Russia will host a number of ministerial-level meetings to discuss issues of global concern.

Russia is not a formal member of the G7 grouping of Japan, Britain, France, Italy, Germany, Canada, and the United States, as it is not among the world's leading economies.

But Moscow has enjoyed steady economic growth and a rising profile as a major oil-and gas-producing power. Energy policy will be high on the agenda of Russia's G8 chairmanship.

Moscow's ongoing dispute with Kyiv over the price of Russia's natural gas, therefore, presents a potential problem.

Can Russia present itself as a stable energy provider to Western markets as it engages in an ugly showdown with a former Soviet neighbor?

Gas Spat

Russia's Gazprom monopoly has remained firm in its insistence that Ukraine pay the full market price of some $230 per 1,000 cubic meters of gas -- more than four times higher than what Kyiv currently pays.

Putin, attending a meeting on 29 December of Russian and Ukrainian energy officials, took pains to publicly chastise both sides for failing to reach an agreement: "You -- and I am talking both to Russian and Ukrainian participants of this meeting -- have simply caused a real crisis, and not only in the energy field. This crisis looks like a crisis between two countries, and that is very bad."

Russia has yet to back down. Its NTV television network has even broadcast footage of pipeline officials rehearsing a gas-line cutoff -- in preparation for what Gazprom says will be the real thing if no deal is reached by 1 January.
Last-minute talks between Russian and Ukrainian gas officials in Moscow yesterday apparently ended with Russia rejecting Kyiv's proposals for resolving the gas dispute.

Ukrainian President Viktor Yushchenko yesterday said $75-$80 per 1,000 cubic meters was an "objective" price for his economically struggling country. Gazprom is demanding that Ukraine pay $230.

Yushchenko also rejected a Russian proposal to provide Ukraine with a $3.6 billion loan that would help cover the price hike: "Talking about a price for Ukraine, we are very grateful for the proposed large credits. But Ukraine does not need them. Ukraine will pay with its own money at a price set in a comprehensible, objective fashion."

EU Gas

Ukraine's gas supplies are only part of the issue. Gazprom also uses Ukrainian pipelines to pump its gas to lucrative European markets further west.

A New Year's shutoff could mean a fuel crisis in the European Union, which gets a quarter of its natural gas from Gazprom. However, Gazprom head Aleksei Miller said today that there is a "detailed plan" to ensure EU supplies are not disrupted.

Even if gas supplies stay on, Ukraine has threatened to raise its transit rates -- and to siphon off gas bound for the EU.

The European Commission has continued to urge a resolution of the dispute.

Of all the former CIS countries, westward-leaning Ukraine -- which stirred Russian anger with its 2004 Orange Revolution -- is facing the steepest price hikes. Armenia, Azerbaijan, and Georgia will pay just over $100 per unit -- pliable Belarus, meanwhile, is paying less than $50 per unit.

Some observers say Moscow is using the gas issue to pressure weaker ex-Soviet republics into re-entering its sphere of influence.

Gas Pressure

But others say Russia is only protecting its interests -- and in this is no different than economically powerful countries in the West.

Eric Kraus is chief strategist at the Sovlink Securities brokerage firm in Moscow.

"Russia does not have to subsidize countries which are overtly hostile to Russia. The Americans, or the French, or the Germans, can give foreign aid to some countries and not to others," Kraus said. "They heavily subsidize Egypt; they don't subsidize Syria. Does this give Syria the right to complain of unfairness? Russia can choose to subsidize for geopolitical reasons countries of her choosing. It's a sovereign right."

Russia's former presidential economic adviser, Andrei Illarionov, was a vocal critic of what he said was Moscow's politically motivated manipulation of Ukraine's gas prices. He also would have served as Russia's main representative in the G-8.

His resignation on 27 December came after months of souring relations with Putin, and was a surprise to few. But the liberal economic adviser, who spent six years in the post, is largely credited with devising the policies that helped Russia pay off a large portion of its foreign debt and normalize business taxation. Some worry his absence will deal a blow to the integrity of Russia's G8 chairmanship.

And Moscow's controversial bill restricting the work of nongovernmental organizations could cast a shadow over its year at the helm of the G8. But Kraus says such political issues have little bearing on the G-8 chairmanship.

"Why is Russia invited to the G8? Two reasons. First of all, energy policy -- Russia is very rich in energy resources, and it's a politically stable and safe source of such resources. Secondly, Russia has, among other things, a veto on the UN Security Council, so the Americans are very concerned. One doesn't have to suit tastes of a particular political faction to become part of the G8," Kraus said.

The approach of New Year's Eve may be evoking different feelings in different countries. In Ukraine, officials say they are creating a commission that will coordinate emergency measures in the event of a gas shutoff. The European Union is pressing for a last-minute breakthrough. And Moscow may be hoping the controversies like the gas impasse does little to mar its year as the G8 chair.

The Russian daily "Moskovskii Komsomolets" predicted: "The Russian presidency of the 'eight' will be associated not with roses but with a large quantity of healthy thorns."

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