Blue &Yellow: Politics and Economics in Ukraine

With the new year just around the corner, Russia has decided to start the New Year by threatening to again shut off gas to Ukraine.  BBC Ukraine and the Wall Street Journal are reporting that Gazprom will shut off gas on the 1st of January 2008 if debt owed to the energy giant is not paid. Ukrainska Pravda's article on this situation mentions that Ukraine owes money for gas given provided for the months of October, November, and December. 

Interestingly, Eurasia Daily Monitor had a article about Gazprom's financial difficulties in the next year (Volume 5, Issue 240-"The Price of Gas and Russian Democracy").  While other gas disputes with Ukraine since 2006 have ended without gas being shut off, perhaps next year the company will be more forceful and shut off the gas if its demands are not met because of a projected drop in revenue. Russia may try to hasten to collapse of the new coalition.  OU-PSD commitment could collapse under pressure from the president. A prolonged dispute would shake the Ukrainian economy even further and may create further public discontent. 

 Earlier, in November, the deputy head of Gazprom Export, Sergey Chelanov, predicted that in the first quarter of 2009 the price of gas would be in the range of $360 to $400 (Kommersant, December 15). If these predictions come true, Gazprom’s profit will drop by $20 billion in 2009.

Low gas prices will also delay Gazprom’s investment policy and the development of desperately needed new gas fields. The state-owned gas monopoly has already requested that the government suspend tax levies on importing equipment vitally needed for the development of the Shtokman gas field project and the East Siberian fields. If this request is vetoed, these major projects might be forced to suspend their activities for some time.

The crisis might also delay the North Stream and the projected South Stream pipelines, both of which are highly expensive and would serve Russian political rather than commercial needs.

A drop in the price of gas by 30 to 40 percent will reverberate throughout the battered Russian economy which already is seeing a steady devaluation of the ruble and a major slowdown in economic growth. In November Russian industrial output shrank 10.8 percent on the month and payments arrears are rapidly growing (Moscow Times, December 17).