Putin's Interventions Fail To Settle Russia-Ukraine Gas Crisis

Russian President Vladimir Putin personally intervened on Dec. 29, and then again on New Year's Eve, in the stalled negotiations between Russia and Ukraine over Russian natural gas supplies to Ukraine in 2006. Both attempts were unsuccessful. On Jan. 1, the Russian gas monopoly, Gazprom, cut supplies to Ukraine, while attempting to maintain enough gas in the pipelines to complete its deliveries to other customers. Gazprom officials described this approach as "a simple formula: Europe minus Ukraine." By the end of New Year's Day, Gazprom was already accusing Ukraine of stealing some of the gas intended for European customers, a charge that Ukrainian Prime Minister Yekhanurov vehemently denied.

On Dec. 29, the European Union and the U.S. State Department had both called on Moscow and Kiev to reach agreement. The fear is that the cutoff will also disrupt the flow Russian gas to Western Europe, since it is delivered through Soviet-era pipelines that run across Ukraine. On Dec. 31, the Italian energy giant ENI confirmed that Gazprom had warned of possible disruptions in deliveries. The latest turn of events may play havoc with Putin's just-announced bid to be the "energy security guarantor" for the world.

At issue is the price of the natural gas sold by Russia to Ukraine, which Gazprom proposes to more than quadruple, from $50 per thousand cubic meters, to $230. The price formulas are based on a shift to "market prices," a principle that Ukraine also endorses, but Ukraine wants a slow transition over several years. The "market price" of natural gas, like all other petroleum products, is driven by global derivatives speculation. In the talks between the heads of Gazprom and the Ukrainian energy firm Naftohaz, as well as the respective Industry and Energy Ministers, Victor Khristenko and Ivan Plachkov, Ukraine has rejected any immediate imposition of this price, while, at the same time, demanding higher transit fees for the gas transhipments to Europe.

Some Ukrainian officials and politicians threatened to jack up the rent Russia pays for basing its half of the Black Sea Fleet at Sevastopol in Ukraine's Crimean Peninsula; Russian Defense Minister Sergei Ivanov came out Dec. 27 with a stinging denunciation of this threat, saying that "attempts to revise that treaty would be fatal," in that it would call into question the recognition of the two countries' respective borders.

In his remarks at the Dec. 29 negotiations, Putin said, "This crisis resembles a crisis between our two countries. This is very bad." Putin said that subsidizing gas prices in former Soviet republics is quite legitimate, but "subsidizing, say, Indian business in Ukraine is another matter"—a reference to the recent acquisition of the giant Kryvorizhstal steel plant by Mittal Steel. He then proposed that Russia extend a $3.6 billion credit to Ukraine, guaranteed by a European or American bank, to finance gas purchases during 2006.

Ukrainian President Victor Yushchenko rejected that offer, saying, "We are 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." The Gazprom price, Yushchenko dubbed "a provocation." After conferring with Yushchenko by phone on Dec. 31, Putin followed up by ordering Gazprom to continue supplying Ukraine on the previous terms through March 2006, if Ukraine, by the end of that day, signed a contract to shift to market prices in April. This New Year's Eve deadline was not met, leading to the cutoff.

Ukrainian officials have indicated that they intend to cover domestic needs with natural gas purchases from Turkmenistan, from which they say they have contracted to buy 40 billion cubic meters next year. On Dec. 29, however, Gazprom announced its purchase of 30 billion cubic meters of Turkmen gas, including 15 billion in the first quarter of 2006, undercutting Turkmenistan's ability to deliver to Ukraine.

Goss: Russian Energy Policy Is Crucial for U.S.A.

Mid-December talks between U.S. CIA Director Porter Goss and Ukrainian leaders are suspected by the Russians of having contributed to the sudden stonewalling of Ukrainian negotiators in the ongoing gas-price dispute with Gazprom. In a backgrounder on the conflict, the Ukrainian Journal reported Dec. 30 that during hearings in the U.S. Congress last February, Goss portrayed the energy strategy of Russia, notably vis-à-vis Ukraine, as a "crucial" aspect affecting U.S. strategic interests in the region.

Adamov Extradited to Russia, Not United States

Overruling the Swiss Justice Department, the Federal Court in Lausanne, Switzerland ruled Dec. 30 in favor of former Russian nuclear-energy chief Yevgeni Adamov's appeal of an order for his extradition to the United States. Adamov was detained in Switzerland last May, on U.S. charges that he embezzled $9 million from funds earmarked to assist nuclear-security programs. That same day, Adamov was taken to Moscow. An uproar in Russia over the national security implications of his being interrogated by U.S. prosecutors has evidently been averted. Upon arrival in Russia, Adamov was jailed and indicted for "large-scale fraud and abuse of office," according to a spokesman for the Russian Prosecutor General's office.

Cato's Free-Trade Fanatic Quits as Putin Economic Advisor

Andrei Illarionov has resigned as one of the economic advisors to Russian President Vladimir Putin, a post he had held since 2000, Itar-Tass reported Dec. 27. Illarionov, who spent years in the Washington, D.C.-based Cato Institute (temple of worship of neo-con guru Friedrich von Hayek) reportedly resigned in a fury, fuming that he can no longer work in Russia because the country "is no longer politically free." He has been at odds with Putin over the imprisonment of Yukos oil company founder Mikhail Khodorkovsky, who had looted the Russian energy sector, and owed billions in taxes. Illarionov had also taken to denouncing Russia's turn towards "state interventionism," and measures against free trade.

"He will not be missed," commented Lyndon LaRouche, on hearing the news.