Gazprom breaks contracts with Ukraine. Europe will suffer, but not immediately

What's happened? Gazprom announced that it is beginning the procedure for terminating gas contracts with Ukraine. Right now, Europe is not in danger of being left without Russian gas, but Europeans remember well past gas wars, which led to supply disruptions in 2006 and 2009.

• The new gas war is the result of almost four years of legal proceedings between Gazprom and the Ukrainian Naftogaz.
• The dispute concerned the already forgotten gas contracts that Gazprom and Naftogaz signed in 2009 after negotiations between Vladimir Putin and Yulia Tymoshenko. According to them, Naftogaz assumed obligations to buy Russian gas (and if there was a shortage, to pay the difference on a “take or pay” basis), and Gazprom – to pump 110 billion cubic meters through the territory of Ukraine to Europe. m of gas per year. Both agreements are valid until the end of 2019, but since 2014 the parties have been challenging them and demanding mutual compensation in the courts (you can read more about this here ).
• The Stockholm arbitration put an end to the conflict this week. In short: as a result of all the proceedings, Gazprom ended up owing Naftogaz $2.56 billion.
• The decision looks controversial. The court took into account the economic difficulties of Ukraine (reducing the volume of gas required to be purchased from Gazprom by more than 10 times), but did not take into account Gazprom’s arguments that the demand for gas in Europe had fallen and to fulfill the company’s previous transit agreements became unprofitable. Kommersant calculated that due to the arbitration decision, Gazprom will lose $450 million a year (even if it maintains transit volumes at last year’s record level).
• A day later, the chairman of the board of Gazprom, Alexey Miller, announced that the concern does not agree that Ukraine’s economic problems should be solved at its expense, and therefore is immediately launching the procedure for terminating both gas contracts with Naftogaz.

What will happen now? All this does not mean that tomorrow Europe will be left without gas ( unlike Ukraine). Legal proceedings will take months, if not years. In addition, Gazprom continues to envy Ukraine as a transit country (in 2017, transit through Ukraine accounted for almost half of Russian gas supplies to Europe), and the construction of the Nord Stream 2 pipeline, which is due to begin this year , faces numerous difficulties .

• But Ukraine has already run out of Russian gas. The country expected to start receiving it again after the decision of the Stockholm arbitration, but yesterday Gazprom actually refused supplies, returning the prepayment to Naftogaz. Formally, due to the lack of an additional agreement to the contract for the purchase of gas in accordance with the arbitration decision. Ukrainian authorities today recommended that local schools and universities close until March 6, and then review the temperature regime in order to reduce consumption.

What's in it for me?

Combined with yesterday’s speech by Vladimir Putin about the latest nuclear weapons (both in Europe and in the United States today, of course, he was condemned ), the start of a new gas war, in which the Europeans could become hostages, will definitely not add “points” to Russia. There were few hopes for a warming up with the West on the eve of Vladimir Putin’s next presidential term, but there are more and more reasons for worsening relations.

Artem Gubenko, Irina Malkova