The Ukraine Energy Crisis starting June 3
May 29, 2014
On June 3, 2014 Ukraine will be faced with the next great economic crisis, and Europe may be the victim as well. In 2006 and 2009 Russia turned off the gas supply to Ukraine when Ukraine failed to pay its bills. That was when the two countries were far more amiable than they are now in 2014.
It seems that Russia is far less likely to feel generous toward Ukraine in 2014. Russia does not have to invade Ukraine. They can sit back and watch Ukraine collapse economically, and let the West subsidize them as the latest welfare state. No wonder Putin is willing to recognize the new Ukrainian president. The borrower is servant to the lender.
Kiev is feeling emboldened by the successful election of a new Ukrainian president and a bloody surge against separatists in the east, but in just a few days, Russia says it will twist the gas spigot, and there’s very little Kiev can do to stop that.
On June 3, Russia plans to reduce the gas supply to Ukraine — and hence, to Europe — if Kiev has failed to pay in advance for next month’s gas deliveries, the price for which has been doubled as a result of the political crisis….
Ukraine owes $500 million just for May gas deliveries, on top of a whopping $3.5 billion in outstanding gas debt (according to Moscow). If at least part of this debt is not paid, there won’t be any negotiating over price. …
In the coming days, Russia will recognise Poroshenko’s legitimacy and remind him that June 3 is right around the corner. By next week, we could see the disruption of gas supplies to Europe, Russia’s largest and most profitable market.
If this happens, an acute energy crisis in Ukraine is all but certain. Ukraine stockpiles its gas supply for the winter heating months during the summer. With current low supplies and higher prices expected for this summer, Russia will walk all over Kiev.
Short of handing Gazprom a cashier’s check, there is no way to avoid the present crisis.