Jim Dean -- Russia-Ukraine Gas Transit Deal Nears Completion

27.12.2019 Author: Jim Dean

Russia-Ukraine Gas Transit Deal Nears Completion

Column: Politics

Region: Russia in the World

“Just societies cannot be run by big money or armed forces with their too narrow agendas. Limitless desire for wealth and blind ambition must be watched and contained as potential public dangers.” ~ Plato

It was a deal that many said could never be done. Why? Because of too much bad blood, as in $125 billion in counter claims between Russia and Ukraine, which made it the largest arbitration dispute in history. Agreement was announced on December 21st that both parties have agreed to settlement terms to for a new five-year gas transit contract where just about everybody comes out winners.

No one attempted to strong arm the other party into a bad agreement, as both needed a settlement that both sides could benefit and live with financially and politically. Long term budget planning had been floating in the air for both sides without predictable sales volumes for Russia’s Gazprom and transit revenues for Ukraine’s Naftogaz, money desperately needed for Zelensky’s budget and a needed big accomplishment for the new president.

The Stockholm arbitration agreement had given Ukraine a $2.9 billion award which Russia will be paying, and Ukraine agreed in return to drop $12 billion in pending claims.

While Ukraine had wanted a 10-year deal, Russia did not want to go that far now, but did agree to having a 10-year renewal option. We have not yet seen what the fine print in the option is, but I bet you it has a clause along the lines of “if both parties have faithfully abided by the terms of the agreement.”

The political ramifications are more complex, as they involve both real and fake issues. The main real issue was that the EU wanted to solidify needed gas imports, which are at record levels due to a decline in European production. Germany especially was in favor of multiple gas lines serving Europe from various directions as protection against war and geopolitical uncertainty, like the unpredictable trade sanctions from the US. Trump has already unleased a new barrage of year-end Russophobia in his build up to his State of the Union address in January.

Despite what Trump and the NeoCons think about excessive dependence by the EU on Russian gas, they conveniently leave out of their analysis that the deal makes them cross dependent on each other, a win-win for both.

The 40 billion cubic meters of gas flowing through Ukraine to the EU in years 2 through 5 of the contract, added to the double Nordstream pipe flow of 110bcm when the second line is completed will cover a major chunk of the EU’s 200 bcm market for natural gas. That leaves room for the Turkstream project to add additional supplies and a better future distribution network, particularly for the Balkans area.

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