Dr Charles Tannock

Member of the European Parliament for London

Russia's gas diplomacy underlines the need for an EU external energy security policy

Conservative Home - January 10th 2009

Russia's use of gas as a diplomatic weapon by totally and unilaterally interrupting its gas flow to Ukraine has once again proved why we need a common EU external energy security policy. Also why we need to diversify our own energy sources both geographically and the mix, as we currently only import less than 5% of our gas currently from Russia compared to the EU average of 25%, but this is predicted to grow. Whenever the words 'common' and 'EU' are mentioned in the same sentence they tend to provoke apoplexy among many Eurosceptics. However, David Cameron is in favour of such an EU policy, not only for its obvious benefits of minimising our exposure to Russian strong-arm tactics but for the impetus that it will provide to the green agenda - and, dare I say it, to a potential renaissance of nuclear energy in the UK which has the added advantage of meeting our Kyoto targets.

I had the privilege of a ringside seat during the heady days of Ukraine's Orange Revolution, when people power thwarted efforts by the pro-Russian presidential candidate Viktor Yanukovich to steal the election. It was clear to me then, as it is now, that Ukraine is determined to emerge from Russia's shadow to force its own future as part of the Euroatlantic structures. Shortly after my most recent visit to Ukraine in October last year I posted an article that provoked some interesting debate and prompted a few contributors to dismiss Ukraine as entirely irrelevant. The events of the past two weeks are proof alone of how misguided and myopic that view is. Ukraine is a large and strategic European country which Russia would be delighted to get back under its sphere of influence.

There is no doubt in my mind that Russia although also motivated by getting a better financial deal for its gas to Ukraine is bullying Ukraine and trying to destabilise the government ahead of the presidential election next year. President Yushchenko in turn has not been keen for Prime Minister Tymoshenko to close a deal with the Russians and take credit for it as she is running against him for the Presidency. The difference this time from the previous occasion on which Russia partly turned off the taps for a few days is that much of southern and eastern Europe has also been cut off as the flow has been reduced to nil creating a national crisis in countries like Bulgaria and Slovakia totally dependent on Gazprom supplies and unlike Ukraine itself with only limited reserve storage capacities to tide them over. Matters are exacerbated by both Russia and Ukraine feeling the credit crunch and in the case of Russia because of the unexpected collapse in oil prices it is desperate with its dwindling foreign exchange reserves to get the best long term deal. The EU has therefore reluctanctly been dragged into this row not as an external observer, although initially it had foolishly said it was a bilateral Russia-Ukraine spat, but as a collateral victim of the Kremlin's gas diplomacy. The Czech Prime Minister has had to fly to Moscow to knock heads together as the EU is Russia´s biggest commercial customer and finalise a deal to turn supplies of gas back on again.

Indeed, the timing of Russia's move is interesting: not because of the cold weather, which is hardly unusual in eastern Europe during the depths of winter, but because of the change in the rotating presidency of the EU from France to the Czech Republic. Turning off the taps would undoubtedly have caused less concern to Nicolas Sarkozy, whom Putin seems to admire and respect. Also, this would have been less of a domestic political issue in France because of the country's admirable safety net of nuclear power stations, a lesson we would do well to learn from. But the Czech Republic is different: it's heavily dependent on imported Russian gas. I can't help feeling that Putin, who has doggedly pursued a revanchist foreign policy, enjoys creating a crisis for the first former Soviet satellite to assume the EU presidency.

Although Russia is undoubtedly firing a shot across Ukraine's bows, I think the Kremlin is aiming to unsettle the EU as much as Ukraine. Last October during the meeting of the EU-Ukraine Parliamentary Cooperation Council in Kiev, Prime Minister Yulia Tymoshenko travelled to Moscow for a meeting to discuss fixing the price at which Ukraine would buy its gas from Russia for the next few years. By all accounts this meeting went well and suggested that at last Russia and Ukraine could settle their differences through face-to-face contacts and dialogue. Ukraine now claims Russia has reneged on this deal. I am therefore sceptical as to why this issue should suddenly have flared up again, particulalrly as gas prices are ultimately linked to oil prices which have fallen right back in the last six months making the demands by the Kremlin for Ukraine to pay in the longer term the German price of around 500 dollars per 1000CM now probably somewhat unrealistic.

Russia accuses Ukraine of siphoning off gas intended for transit to third countries and therefore justified the total interruption of flow. Ukraine is possibly guilty as charged, although the extent and level of organisation of this pilfering is debatable and Mrs Tymoshenko was immediately prepared to disprove this and deploy EU technical observers at the Russian border to meter the incomimg supplies and reconcile this with what is leaving Ukraine for the EU. But when it is seen in the light of how Russia exports gas to Ukraine, it is perhaps understandable. Currently, a company called RusUkrEnergo acts as a middleman between Moscow and Kiev, creaming off an estimated US$500m a year in commission from Ukraine. Where does the money go? According to Ukraine's Deputy Prime Minister Hryhoriy Nemyria, who addressed an emergency meeting in the European Parliament last week, it goes into the pockets of 'corrupt politicians'. Apparently this arrangement will end in three years, but given that Ukraine's gas debt to Russia is US$2bn, at least three quarters of it could have been paid off by cutting out the middleman forthwith.

As this post goes online it looks as though a deal has been struck with Ukraine having to pay around 250 dollars per 1000CM but with higher transit fees so the citizens of Bulgaria will no longer freeze and the Ukrainian government has also generously offered to bail them out with its own substantial reserves till the supply reaches adequate pressures again.

The EU has been dragged somewhat reluctantly into this latest battle of wills, but we need to resist any attempt to drive a wedge between Ukraine and its future with the west and in particular EU membership. The best way to ensure that Russia can no longer bully Ukraine, or use Ukraine to bully the EU, or even provoke the EU into bullying Ukraine, is to champion a common EU external energy security policy.

This does not mean the EU collaring our oil and gas reserves or deciding our UK domestic mix ie fossil fuels, versus nuclear and renewables-other than the issue of ensuring Kyoto targets, which have been already agreed at EU level. This means a co-ordinated and sustained effort to show solidarity with our European partners in the question of energy security. This means via intergovernmental co-operation helping examine together and possibly build new gas pipelines such as Nabucco, the Transaharan and Whitestream projects which require massive joint funding and which bypass Russia. We also need to build more joint storage facilities where necessary and new LNG terminals,  and better integrate the European electricity grid so we can trade freely with each other when one country is short, as currently the Baltic states are isolated from the other member states. It also means we can talk tough with one voice if Russia or in future possibly a bellicose Iran try and pressurise us individually or collectively on energy supplies, as Russia has done in the past with Georgia, Moldova and Lithuania. This is not an erosion of sovereignty as claimed by UKIP but plain common sense between close friends and allies.