Russian-Ukrainian accord does not ease regional security concerns

Igor Torbakov

Although Russia and Ukraine have settled their differences over the price of gas deliveries, concerns over energy security are lingering in Europe. The maintenance of steady supplies could depend in part on unpredictable Turkmenistan.

The complex pricing plan forged by Russia and Ukraine involve at least two tricky points, most independent energy analysts suggest. First, it dramatically enhances the role of a shady intermediary company that will serve as the sole gas provider to Ukraine. Second, the deal appears to be hinging on Central Asian supplies, in particular on gas coming from Turkmenistan, a country whose energy policy is notoriously fickle.

Under the terms of the five-year accord, Gazprom, Russia’s state-run energy monopoly, will sell gas to an intermediary, RosUkrEnergo, at a rate of $230 per thousand cubic meters (tcm) -- the price that it had insisted Ukraine pay. Ukraine will then buy gas from RosUkrEnergo for $95/tcm – nearly twice what it had previously been paying Gazprom. RosUkrEnergo, which is owned by Gazprombank and a Swiss subsidiary of Austria’s Raiffeisen Bank, claims it can pay and charge different prices because it will also be buying gas from the Central Asian nations of Kazakhstan, Uzbekistan and Turkmenistan for comparatively low prices. According to Ukraine’s President Viktor Yushchenko, Turkmen gas will cost roughly $50/tcm.

The deal has raised the eyebrows in many quarters. RosUkrEnergo opaque operating structure and methods have prompted many energy analysts to believe the company to be a front, designed to facilitate corrupt practices. Its true beneficiaries, some well-informed sources contend, can be found among the Gazprom’s senior management and the Kremlin leadership. In addition, Raiffeisen Bank reportedly represents unnamed Ukrainian investors. The deal has already met considerable political opposition in Ukraine.

Another dicey aspect of the deal, energy analysts say, is the assumption that the Central Asian nations will continue to serve as reliable suppliers at existing, rock-bottom prices. While Kazakhstan and Uzbekistan are relatively minor gas producers, Turkmenistan, which supposedly holds major gas reserves, has exhibited signs of discontent over existing gas prices.

Turkmen leader Saparmurat Niyazov is likely to try to take advantage of the Russian-Ukrainian pricing dispute by seeking a better price for Turkmen energy, some experts suggest. "Turkmenistan can now put forward the argument to Russia that ‘if you do it, why can’t we’ and unilaterally increase its prices," says Eduard Poletayev, editor-in -chief of the Kazakhstan-based journal Mir Evrazii.

Last January, Turkmenistan briefly cut gas supplies to both Russia and Ukraine in a price dispute. The recent Russian-Ukrainian gas accord appears to give Ashgabat more leverage. Given the terms of the Russian-Ukrainian agreement, analysts expect that over the next five years, Kyiv will try everything possible to reduce the volume of Russian imports and up the level of cheaper Turkmen energy. But the tough question is: how long will the mercurial Niyazov tolerate the energy status quo. Turkmen officials have already indicated that the country may start charging a global market rate starting in 2007.

If Niyazov finds himself unable to get a price he thinks Turkmenistan deserves from Ukraine and Russia, he could always order a cut-off in supplies. If a cut-off occurs, Ukraine would likely continue drawing fuel from the pipeline, possibly leading to a repetition of the situation that occurred during the first days of 2006, when the European customers suffered shortages caused by the Russian cutoff.

In the eyes of many European policymakers, the Russia-Ukraine gas dispute exposed Europe’s deep dependence on Russia. To reduce that vulnerability, they argue, Europe should seek out other gas suppliers and develop alternative fuels. EU energy officials have called for a "clear and more collective policy" concerning energy security.

Turkey, an EU candidate country, is among the countries most dependent on Russia for energy. Ankara gets around 15 billion cubic meters of Russian gas annually, which constitutes more than 60 per cent of national consumption. The gas is delivered via two routes: a western route that runs through Ukraine, Moldova, Rumania and Bulgaria; and the so-called Blue Stream pipeline under the Black Sea. [For background see the Eurasia Insight archive]. With Blue Stream transporting around 16 billion cubic meters of gas annually in the coming years, Turkey’s energy dependency on Russia should increase dramatically, a number of Turkish experts say. This situation could create complications for Ankara’s foreign policy, in particular in the South Caucasus and Central Asia, where Russian and Turkish interests often clash.

In his annual address, Gen. Hilmi Ozkok, Turkey’s Chief of the General Staff, specifically emphasized the importance of energy security in the country’s strategic calculus. According to a recent report published by the Radikal daily, Turkey’s National Security Council also considers the country’s dependence on Russia for energy as an issue of strategic security.

On November 17, during the Blue Stream inauguration day, Russian President Vladimir Putin proposed the construction of a second Black Sea pipeline for both oil and gas. Such a route could raise capacity from this year’s 3.7 billion cubic meters of gas to around 30 billion cubic meters. Many Turkish analysts have reacted cautiously to the proposal. "Turkey cannot be so dependent on any single energy provider," argued Suat Kiniklioglu, the head of the Ankara office of the German Marshall Fund of the United States. "Turkish decision-makers would be well advised to rethink Turkish energy diversification," he added in a commentary published by the Turkish Daily News.

Editor’s Note: Igor Torbakov is a freelance journalist and researcher who specializes in CIS political affairs. He holds an MA in History from Moscow State University and a PhD from the Ukrainian Academy of Sciences. He was Research Scholar at the Institute of Russian History, Russian Academy of Sciences, Moscow; a Visiting Scholar at the Kennan Institute, Woodrow Wilson International Center for Scholars, Washington DC; a Fulbright Scholar at Columbia University, New York; and a Visiting Fellow at Harvard University. He is now based in Istanbul, Turkey.

http://www.eurasianet.org/departments/business/articles/eav010905.shtml

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