Russia: Ukraine gas crisis

Energy ‘deal’ highlights imperialist scramble for energy resources

In the infamous Charge of the Light Brigade, an ill-advised cavalry charge during the Battle of Balaclava, (Crimean War), took place on what is now Ukrainian land as the nineteenth century imperialist powers fought over control and influence in the region. This New Year’s holiday saw a different battle, this time, for gas fought to the brink, as Ukraine and Russia, as the new capitalist elites try to expand their control of the region’s natural resources.

This brings to sharp focus the struggle for energy resources in the region and its consequences throughout Europe and the world. By just throwing a few switches, Russia’s biggest company ‘Gazprom’ cut off the supplies of gas to the Ukraine and put under threat 25% of Europe’s natural gas supplies. Within hours, Austria, Croatia, France, Slovakia and Slovenia reported drops of over 30% of supplies arriving from Russia through the Ukraine. Germany, Italy, Hungary and Poland were also badly affected. The stranglehold over Europe’s gas supplies is demonstrated by the fact that just four pipelines cross the Ukraine, and one crosses Belarus, each of which can be blocked automatically by the flick of a switch.

Gazprom holds 25% of the world’s gas supplies and a considerable chunk of oil reserves too – in fact, its oil and gas reserves are only exceeded in size by those of Saudi Arabia and Iran. If Gazprom was a country, its GNP would be larger than that of Ireland, and the GNP per head (per employee) at over $40,000 USD would be higher than that of Luxembourg or Switzerland. Not surprisingly, it is rumored that if Vladimir Putin is to give up his post as Russian President, he could well take over Gazprom.

Ever since the collapse of the former Soviet Union, Russia has attempted to maintain control of the former Soviet republics by using its domination of their energy supplies. In fact, after Georgia’s ‘Rose revolution’, which saw Kremlin ally, Shevardnadze, overthrown, the Kremlin consciously changed its strategy from attempting to politically pressurise the leaders of other republics to using its economic muscles to take control of industry and energy supplies. Gazprom and the electricity supply company, RAO ES, have been key instruments in the attempts to blackmail the other republics. Indeed, Russia’s ‘Special Envoy’ to the Ukraine, is none other than former Premier and Head of Gazprom, Victor Chernomyrdin.

Repercussions of ‘Orange revolution’

The Ukraine, which uses more natural gas than Germany, has little of its own gas and, therefore, has to import from Russia. But it also subsidises its own gas supplies by allowing the transit of Russian gas across its territory. It has proved particularly susceptible to this energy blackmail, which was stepped up in March, just after pro-West presidential candidate, Victor Yushenko, came to power on the back of the ‘Orange revolution’ in December 2004.

Gazprom, which according to the Ukrainians was breaching an agreement signed much earlier in the nineties, demanded that the Ukraine pay market prices for its gas. The price they proposed would increase from $50 for a 1000 cubic metres to around $130. As the Ukrainians beat around the bush, delaying an agreement, Gazprom kept pushing its prices up, eventually demanding $230 at the end of 2005. With no agreement reached, Gazprom’s board shut the valves on New Year’s Day, allowing only enough gas to flow to meet the requirement of the European Market. Gazprom then bitterly complained that the Ukraine was tapping off gas worth $25 million a day, to meet domestic supply. Russian TV reported statements made by Ukrainian ministers that they would use what they needed particularly if temperatures were to fall further. Apparently, Ukraine’s attempts to diversify supplies, by signing a deal with Turkmenistan, were foiled, as that gas had to flow through Russian pipelines and Gazprom blocked that too.

A war of words was waged on both sides. The Russians complained bitterly about the theft of gas and reported gleefully that European countries such as Austria and the EU were “issuing statements” – what was said in the statements was not reported but the implication was that they supported Russia. Commentators explained that this was a pre-election stunt (parliamentary elections are due in March in the Ukraine) by Yushenko, whose support has plummeted over the past few months. It was, they said, an attempt to whip up Ukrainian nationalism. It was also widely reported that Yushenko was acting in this way at the behest of the Western powers, in particular, the US.

In the Ukraine, Russia was accused of using the gas issue to build support for its candidates in the coming Ukraine elections – the argument ran that Yushenko would be discredited and the pro-Russian parties could reach a pre-election compromise with Gazprom. Another argument went that Russia had provoked the crisis because it wanted to gain international support for the pipeline it was planning to build under the Baltic Sea, to bypass Poland and the Ukraine and to supply energy directly to Europe. Indeed, Russia’s announcement of the Baltic Sea pipeline plans before last year’s German parliamentary, and the agreement to appoint former German Chancellor Shroeder as President of the Shareholders of the Pipeline Company, had already seriously upset the Poles and Ukrainians.

When sharp disputes between capitalist nation states come to the fore, all sorts of nationalist sentiments are whipped up by politicians and the media. The Russia/Ukraine gas conflict was no exception. One Ukrainian city mayor, for example, commented recently “During the Tuzla conflict [part of the war in the former Yugoslavia in the 1990s] a local ‘granddad’ with a berdanka [a large calibre gun used to hunt big game] was seen running along the coast in the Crimea ready to combat the aggressor [Russia]. During the Orange revolution there were hundreds of thousands of such ‘granddads’ and now we need them to grow in numbers”.

‘Market prices’

Gazprom presented its case during the dispute by saying that in a market economy Ukraine should pay market prices. After all, Gazprom managers indicated, Western leaders have often complained about cheap energy supplies in the CIS. But the reality is that the conflict was part of a wider attempt to bring the Ukraine back into the Russian fold. Putin played his usual populist moves, implying he could not interfere with commercial decisions but “generously” offering to lend the Ukraine nearly $4billion to pay for its gas supplies. And as the details of the deal are revealed it does appear that Gazprom has succeeded in getting most of what it wants – the Ukraine is to pay over $200 for the gas it gets from Gazprom, but the latter will also mix in Turkmen gas, which is considerably cheaper, thus bringing down the average price to nearer a $100 for a 1000 cubic metres. This deal, however, will deal a blow to the Ukrainian economy which has already seen a dramatic fall in its growth rate since Yushenko came to power. Some economists are warning that inflation will now jump to 30%.

The International Herald Tribune (IHT, January 5, 2006), described the deal reached by Russia and Ukraine as “complex” and “murky”. “Both countries surrendered control over all of the gas supply to Ukraine to a middleman company [‘RosUkrEnergo’], of uncertain ownership”. This “allowed both nations to claim victory”. The newspaper warned that “Russia emerged with its reputation on world energy markets bruised after disrupting natural gas supplies to Europe in the middle of winter”. But the deal means Ukraine’s gas utility bill will “about double”. Ukraine’s Prime Minister, Yuri Yekhanurov, warned that higher prices would lead to bankruptcies at some chemical and metallurgical plants – the two energy intensive sectors that “form the core of Ukraine’s exports”.

No sooner was the deal struck, than Yulia Tymoshenko, the former 2004 ‘Orange revolution’ leader and prime minister, until she was sacked by Victor Yushenko in 2005, opened a legal challenge to stop the gas supply agreement Ukraine signed. She previously attacked the deal’s intermediary company, RosUkrEnergo, as a “criminal canker on the body” of the state energy firm Naftogaz. The IHT describes the middleman company as “a little known Swiss based joint venture owned half by Russia’s gas monopoly Gazprom and half by Austria’s Raiffeisen Zentralbank”. It was “set up by the former government of Ukraine, under President Leonid Kuchma, shortly before it was ousted from power…within months of appearing from nowhere it had taken control of Ukraine’s gas imports from Turkmenistan by the start of 2005” (IHT, January 6, 2006).

EU energy reliant

The gas crisis brought home to the EU powers their vulnerable position regarding energy supplies. When Russia turned off the taps, lower gas pressure, and possible siphoning of gas by the Ukraine authorities, meant supplies fell to states like France, Poland and Italy, which use Ukraine’s pipeline. The EU energy commissioner, Andris Piebalgs, said the EU needs a “more cohesive policy on security of energy supply”. He added that a planned pipeline to deliver gas from the Caspian to Europe via Turkey is needed to help diversify the EU’s gas supplies. However, Russia presently supplies about a quarter of Western Europe’s needs and this is due to rise dramatically. Natural energy supplies in Western Europe are, by comparison, in short supply. Norway produces oil but much less than Russia and it is not in the EU. Britain is in the European Union but its North Sea oil supplies are running out.

Not surprisingly, energy will be a top priority during the EU’s March summit, according to Martin Bartenstein, Austrian Energy Minister, and a member of the EU presidency holding government. Western governments, like Tony Blair’s New Labour administration, have announced that they want to look at the possibility of increasing their nuclear industries.

Reflecting its imperialist aims and the intense scramble for energy resources on the world stage, the Bush administration reacted angrily to the Russia/Ukraine gas deal. US Secretary of State, Condoleeza Rice, said Russia had behaved irresponsibly in withdrawing gas from Ukraine on the same weekend that it took leadership of the G8.

This conflict also brings to the foreground the role played by companies such as Gazprom and “RAO UES”. The former is technically privatised although the government maintains a 40% share and the majority of board members are government appointed. However, in no way does either of these large monopolies act in the interests of working people. Despite the huge profits made by these companies they do not reinvest significant amounts. Indeed, the Head of RAO UES, Anatolii Chubais, and one of the architects of the rapid drive to capitalist restoration in the former Soviet Union, complained that he had no money to repair a ten thousand pound electricity transformer that blew up last year, blacking out most of Moscow for a day. On the contrary, these huge companies work as classic capitalist concerns; enormous profits are divided up through various schemes to the bureaucrats and businessmen who control Russia today. And as is seen in the recent Russia/Ukraine gas dispute, the monopolies are used as crude instruments to further imperialist interests. Commentators in the West refer to Putin’s “energy imperialism”.

Energy resources must be put in hands of working class

Energy resources exported are used as instruments of domination or pressure, and are also used to inflate prices to line the pockets of bureaucrats and managers. The CWI in the CIS demand that the cost of heating, electricity use and other energy needs should be subsidised for working people to ensure everyone has enough heat and light etc. Natural resources throughout the CIS should be publicly owned and managed by democratically elected workers’ committees. All energy resources should be integrated into a systematically planned network, with the necessary investment provided to ensure safe, reliable and sustainable resources. Only a system of democratic socialism will see an end to capitalist plundering of natural resources, exploitation and environmental destruction.

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January 2006