Energy Security: Russia-Ukraine Dispute Settled & US Nordstream Sanctions Looming

Written by | Tuesday, December 24th, 2019

Russian energy giant Gazprom has agreed (21 December) ‘in principle’ to pay $2.9 billion to its Ukrainian counterpart Naftogaz to settle a long-running dispute over transit fees for gas transported to Europe. Gazprom chief Alexei Miller has reportedly accepted the settlement, which was originally ordered by an arbitration court in Stockholm in February 2018, whereby a related agreement is expected to be signed later in Minsk.
In a separate but related development, Ukraine, Russia and the European Commission, after hours-long talks on Thursday (19 December), struck a preliminary deal on the transit of Russian gas to Europe via Ukraine starting from 1 January 2020, European Commission Vice President Maroš Šef?ovi? told a briefing. The current gas transit contract between Russia, an important gas exporter, and Ukraine, a key transit route for Russian gas, expires at the end of the year. Relations between the two ex-Soviet states have been strained since Moscow annexed Crimea six years ago and supported a separatist insurgency in eastern Ukraine.
According to Maroš Šef?ovi?, who is in charge of foresight and who also represented the EU at the trilateral gas talks, this is good news for Europe and all parties concerned for a number of reasons. Firstly, the deal has secured an uninterrupted transit of Russian gas to Europe via Ukraine for a period of up to fifteen years. The EU has thus demonstrated it can guarantee warm homes, stable markets and competitive prices. Secondly, Ukraine will remain a strategic transit country, which is significant because gas transit revenues are an important source for the Ukrainian national budget. Thirdly, Russia will maintain its role of a reliable supplier to the European market, while keeping diversified transit routes.
Meanwhile, a German think tank urges the EU to fight back against sanctions related to the Nordstream 2 deep-sea gas pipeline recently passed by Washington. The threat of sanctions has already prompted some construction companies do reconsider their plans and drop out of the project. An environmental economist at the German Institute for Economic Research (DIW) argues that Brussels should enact “climate tariffs” against the United States in response to its sanctions. Claudia Kemfert from DIW says these tariffs will be designed to prevent gas extracted through an ecologically harmful process called ‘fracking’ from being exported from the US to Germany and the EU. Washington’s sanctions against the EU are an “aggressive instrument of a fossil energy crisis,” as the economist put it, adding that both the US and Russia are using natural gas as a “political weapon,” whereby the sanctions are intended to facilitate US companies’ gas sales to Germany and the EU at the highest possible cost.

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