The battle between Ukraine and Russia over natural gas, Jerome a Paris points out, are as old as Ukraine's independence. I haven't posted much about this because the battles have become annual events. I was reading through my book on Ukraine, published in 1998, and found this observation:

...the Russian government was still selling energy resources to Ukraine at less than half the world price it could receive. Ukraine was told by the Russian government that failure to adhere its currency policies to those of Moscow would result in being charged the full world price of oil and natural gas.

That refers to statements made in 1992. There are later references in the book to reductions in oil and gas imports in 1995 when the Ukrainians were sidestepping Russia by way of a trilateral barter arrangement which sent defense goods from Ukraine to Iran, who in turn paid the Turkmens to send natural gas to Ukraine. Gazprom basically bought the rights to the Turkmen spigot, preventing the Ukrainians from playing that game again.

LEvko notes that these contracts between Russia and Ukraine are always suspicious, going as far back as the mid-1990s, when current PM Yulya Tymoshenko was an energy executive. The contracts are not transparent:

It is this opaqueness that provides cover for continuing wide-scale fraud benefiting the two country's elites. These disputes have never been about gas prices and storage and transit rates, but about 'whose hands are in the middle-man's trouser pockets'.

Your blogger would suggest that it is not unreasonable to consider the current dispute is about elites both in Ukraine and Russia, fighting amongst themselves to maintain their piece of the action via these intermediaries, rather than the price of gas for Ukrainian consumers and its westward transit through the country which, as the Putin-Tymoshenko meeting illustrated, perhaps could be resolved without too many problems.

Ukraine is in pretty bad shape economically, and Tymoshenko and President Viktor Yushchenko are poised to run in elections against each other sometime in late 2009 (early parliamentary elections are expected in a few months). Right now Yushchenko is far behind, but Tymoshenko's star falls as this crisis drags on.

Labels: economics, Ukraine