Tit For Tat: Ukraine Blocks Crimea Water Supply With Russia Set To Halt Ukraine Gas

Tyler Durden's picture

With a diplomatic solution to the Ukraine crisis now officially out of the window as an option to de-escalate the second Cold War, and yet with both sides still leery of engaging in an overt military campaign, there is one last trump card both sides can play - natural resources. Specifically, gas for Russia, and water for Ukraine. Not surprisingly both are in play now.

Moments ago, Russia casually hinted that Ukraine should use part of the IMF aid (which has been promised in virtually all increments between $1 billion up to $18 billion, but at last check not one penny has been wired) to repay Gazprom's debt, which is anywhere between the $2.2 billion Gazprom has said Ukraine is delinquent on for 2014 gas supplies, and an additional $11.4 billion which is what Gazprom said Ukraine's state-owned energy firm Naftogaz owes for unused take-or-pay arrangements in 2013.

And here Russia has laid a rather unpleasant, for the interim Kiev government, covenant-trapping Easter egg. As the WSJ explained previously, the additional cash demand adds pressure on Ukraine's already battered economy and finances, "because its ballooning debt gives Moscow the right to demand an early repayment of a loan. That could theoretically cause a domino effect on about $20 billion of Ukraine sovereign and quasi-sovereign debt."

Specifically, Moscow provided Ukraine with a $3 billion loan in late December when it bought the country's Eurobonds. The bond prospectus stated that the volume of total state debt and state-guaranteed debt should not at any time exceed 60% of Ukraine's annual nominal gross domestic product.

If Ukraine fails to meet this condition, Moscow may demand an early redemption. So far the ratio is below the 60% threshold, but Russia's finance ministry said it is monitoring the figures closely. The latest figures from Ukraine put state debt at 804 billion hryvnia ($70 billion), or 52.7% of the GDP. However, if Gazprom's demand is met, the ratio would rise above the 60% threshold.

At that point Russia will clearly demand early payment or else hold Ukraine in default, which in turn will force the IMF to scramble to provide even more funding (more than just promises - actual wire transfers), pushing public opinion in IMF countries which certainly have expansive needs for domestic use of taxpayer funding (think Detroit) away from Ukraine and in Russia's corner.

In keeping with this vein, Russia’s energy minister Alexander Novak, Gazprom CEO Alexei Miller held talks in Moscow on gas transit via Ukraine with officials from Moldova, Bosnia- Herzegovina, Macedonia, Russian ministry’s spokeswoman Olga Golant says via text message. Golant said that participants “expressed concern” over Ukraine’s growing debt to Gazprom for natgas supplies, possible problems with filling Ukrainian underground gas storage facilities before heating season, which may lead to disruptions of gas shipments to Europe.

Which as we reported previously, is a very loud hint to Europe, that if Ukraine doesn't pay its debt to Russia, and if the IMF doesn provide enough funding to allow the broke country to pay its debt, then Europe gas will, so very sorry, be shut off.

Sure enough, Bloomberg reported that Russia 'hopes' EU will soon take measures to extend financial assistance to Ukraine, including for Russian gas payments to avoid “unsanctioned gas pumping from transit volumes to Ukraine and assist in further enhancing the European energy security."

Again - hint, hint.

So what does a desperate Ukraine do, realizing that all of its leverage is gone, and that its western "allies" are about to let it hang? It used the nuclear option (not very nuclear but it really doesn't have much if any leverage), and stopped the flow of the bulk of water to now Russian Crimea.

Itar-Tass reports:

Ukraine had closed sluices of the North Crimean Canal, halting water supply from the Dnieper River to the peninsula, Ukraine's UNIAN news agency reported on Saturday.

 

Crimea received 85% of fresh water through the canal, which was built in 1961-1971. It streches from the Khakhovka Reservoir to Kerch.

Alas, this plan to put Russians in Crimea in an untenable position, may have already failed. Voice of Russia reports that "Crimea will be supplied with water according to a fallback plan, there is currently no lack of fresh water in the region, the interim head of the Republic of Crimea Sergei Aksyonov wrote in his Twitter account Saturday. "Crimea will not be left without water! We have fallback plans. There are no problems with fresh water. Agricultural producers will receive compensations for the losses," Aksyonov wrote.

Earlier the Chairman of Crimean Standing Commission of the State Council in the economic, fiscal and investment policies Vitaly Nahlupin said that republic's authorities had offered payment in advance for the water from Dnepr, but Kiev sabotaged negotiations and only five per cent of the necessary amount of water currently comes through the North-Crimean channel. Crimea, formerly a part of Ukraine, held a referendum on reunification with Russia on March 16 in reaction to dangerous nationalist rhetoric from the new leadership in Kiev.

The Crimean authorities transfer rivers of the peninsula to the North Crimean Canal bed after Ukraine ceased completely Dnieper water supplies to Crimea, Crimean First Deputy Prime Minister Rustam Temirgaliyev said. Water supplies to Crimea via the North Crimean Canal have been stopped completely, Ukrainian mass media outlets reported on Saturday. In the past weeks the volume of water coming to Crimea via the canal was decreased significantly.

If Ukraine is hoping this move will soften Russia's stance on gas, it is wrong - all it will do is force Russia to accelerate the implementation of infrastructure improvements in Crimea which will make it even less dependent on Ukraine. It will, however, assure that Russian exports of gas to Kiev are finished.

The only question is how much "collateral damage" Europe proper, such as Germany, suffers as a result. Ironically, such "damage" may just be the exogenous deflationary factor the ECB needs to unleash the much talked about, if very much unwanted contrary to all the jawboning, QE. After all it will be "Putin's fault" Draghi is forced to monetize debt, in order to offset a deflationary recession that would "surely result" if and when Putin pulls the plug on European gas deliveries.

Yes - in yet another New Normal paradox, Gazpromia halting gas to Europe may be one of the most "bullish" developments (only for stocks, of course) to hit Europe in a long time.

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spinone's picture

Yes, but can they defend the sluce gates?  This will prompt escalation.

Ignatius's picture

"This will prompt escalation."

Understatement of the year though absolutely true.

unrulian's picture

I would be crossing that bridge sparingly

kliguy38's picture

fools......WE DON'T NEED NO STINKIN' WATER......we need WODKA!....now THAT would hurt

palmereldritch's picture

 In Russia...water dams you!

C'mon Boris, where are you?  You are much missed on these threads.

Pinto Currency's picture

 

The central bankers and their owners need a war.

The house of cards is coming down and they need a story other than their own actions to explain what took us over the edge.

Vampyroteuthis infernalis's picture

.........will receive compensations for the losses.

Isn't that a promise from darth vader to the bounty hunter in Empire Strikes Back?

max2205's picture

Like playing chess with 4 pieces each...your move Q4 K7

Keyser's picture

 with 4 pieces each and a Kalashnikoff at your head. The Ukraine is fucked and so is the EU... Putin holds the cards, either Gazprom gets paid or 30% of the EU's gas stops flowing. The good people of the EU will not be looking favorably at EU leadership, NATO ineptitude and US interference. This is round one of the push to preserve the petro-dollar and the USD. 

derek_vineyard's picture

nuclear option:  russia, ukraine and all iron curtain countries ban their women from the western and eastern worlds.

Headbanger's picture

Ya know what..   I'm Putin's age and I look better than that!

But I'll admit he's got a LOT more money than I'll ever have, is better at martial arts..

However.. I'll out shoot and out drink that KGB puke any day with his own guns and own booze!

Game on Vlad!  Invite me over!!

 

tiwimon's picture

<sarcasm>Yeah, but what you don't have is your very own Steven Seagal... Putin does - top that... </sarcasm>

 

http://www.rawstory.com/rs/2014/03/29/steven-seagal-favors-putin-over-ob...

 

Tengri Temujin's picture

The water in the Sea of Azov has very low salinity, it would be super easy and very low energy requirement to make it into drinkable water.

http://azov-capital.info/page9.php?post=3ed

ead more at http://www.redorbit.com/education/reference_library/earth/geography/1112826188/sea-of-azov/#4ZZPLfcEkiXxYIGc.99

The Sea of Azov, known is Classical Antiquity as Lake Maeotis, is a sea towards the south of Eastern Europe. It’s linked by the narrow Strait of Kerch to the Black Sea towards the south and is bordered in the north by mainland Ukraine, in the east by Russia, and in the west by the Ukraine’s Crimean Peninsula. The Kuban and Don are the major rivers that flow into the Sea of Azov. This sea is the shallowest in the world with the depth varying between 2 ft 11 inch and 46 ft. There’s a constant outflow of water into the Black Sea from this Sea of Azov.

This sea is essentially affected by the inflow of a number of rivers, which bring sand, shells, and silt, creating numerous bays, limans, and narrow sandbanks called spits. Due to these deposits, the sea bottom is comparatively smooth and flat with the depth gradually increasing towards the center of the sea. Also, because of the river inflow, water in the sea has a low salinity rate and high content of biological matter.

Read more at http://www.redorbit.com/education/reference_library/earth/geography/1112826188/sea-of-azov/#4ZZPLfcEkiXxYIGc.99

Headbanger's picture

So Seagal is a Soviet loving homo.

Let Vlad have em betwen the sheets!

I'l still out drink and out shoot both those fuck tards!

Shit..  Where's my passport?  And do I have to bring my own ammo too!?

ALSO!!

I DON'T NEED A SCOPE THAT FUCKING BIG TO SMACK A TARGET AT 500 METERS (YARDS, WHATEVER)!!

I'LL DO IT WITH MY FUCKING MOSIN 91-30 OR MAUSER GEW WITH IRON FUCKING SIGHTS!

Bananamerican's picture

Oh yeah? Well I will dive 5000 FEET into a block of CEMENT! With my HEAD!!!

ptolemy_newit's picture

HB is a child of long term programing, it is Hollywood!

death to nation from within

who owns hollywood!

Arius's picture

"Yes - in yet another New Normal paradox, Gazpromia halting gas to Europe may be one of the most "bullish" developments (only for stocks, of course) to hit Europe in a long time."

 

possible ... got to keep the lights straight into deer's eyes ....otherwise he might run away .... not that he has a chance anyway .... i am sure someone else waiting with the gun down the road just in case the deer tries to escape ...

 

Martin armstrong was talking about people trying "to get off the grid" ... he talks about millioners ... well not enough real stuff to accomodate these kind of millions .... we might be close to the end game

NumNutt's picture

WHAT?!?!?!  No more raunchy smoking hot Russian chicks doing porn!  Holy crap! That is just ....I mean.... this shit needs to stop here and now! Dammit!

Seer's picture

"The good people of the EU will not be looking favorably at EU leadership, NATO ineptitude and US interference."

I suspect that some of the slow-brew going on was for buying time to get together a propaganda campaign to dsitract from this (looking internally).  People will look at their gas bills and blame the suppliers, seems always to be the case...

Looney's picture

Boris is in Slavyansk right now. Did you hear 'bout a blown-up Ukrainian chopper? Yep, twas Boris! I think? ;-)

Looney

palmereldritch's picture

Lol...Amazing that he can fit all that in with the obligations of his copper plumbing mining operations...

Looney's picture

Boris can kick quite a few asses with his HEAVY Russian accent alone. ;-)

Looney

crazzziecanuck's picture

Very true.  Why?

Isn't there a UN treaty that says people have a right to water?

Seer's picture

No, if you look closely it doesn't apply to Palestinians. (water is one thing that Israel and the West will NOT talk about)

fockewulf190's picture

Honestly, I´m surprised that the new Ukrainian head bean counter, whoever that may be, hasn´t called a press conference and pubicly presented a bill for all the assets lost to the Russians. It is probably the only thing the Ukrainian government could do to counteract the Gazprom debt without having to go into more debt with the IMF. Ships, buildings, equipment, land...that could easily add up to tens of billions if not much more.  Of course, the Russians would file 13 that bill in no time flat and denounce the measure as a desperate stunt to avoid payment, but the media would have something to blab about.

El Crusty's picture

exactly. i'm pretty sure the value of just the natural gas deposits off the coast of the crimea far exceed what was owed to gazprom.

if i were the ukrainians i would be threatening to turn the water back on and begin sending pieces of the old chernobyl plant down the canal. now THAT would be a way to say go fuck yourselves that could not be ignored nor planned for.

SumTing Wong's picture

If they really wanted escalation, the tw oof them would stop this tango and get down to it. Neither side wants to fight, yet both want to win. We'll see how this all shakes out, but I'm betting on Putin. Nobody else seems to have the cajones that this man has...

beefman's picture

he has two little eggs that why he is acting like this, Stop being impressed by a little man who wants to feel important. You are embarrassing yourself. grow up.

 

intric8's picture

Great move, Ukraine. Trade gas deprivation for water deprivation. We all know how expensive water is compared to gas, that'll teach those insolent four flushing crimeans right? lol! This has to be out of obozo's own 'economic sanctions' manual. Will someone tell him gas costs much more than water? and that crimea is now a part of russia?

post turtle saver's picture

if Crimea is part of Russia, Ukraine isn't obligated to provide water services to it... maybe Putin can hand out Russian passports to Ukrainian fresh water resources then attempt to "protect" them lol

crazzziecanuck's picture

I agree there.  The Crimeans had to have expected this.

socalbeach's picture

The Russians certainly did. Notice the date below.

.

Construction of desalination plant being developed for fresh water in Crimea - Russian PM

31 March 2014

"Russian Prime Minister Dmitry Medvedev said on Monday that a desalination plant could be built to provide Crimea with fresh water. "A variant of building a desalination plant is being investigated," Medvedev said during a meeting in Crimea. He said that all of the different possibilities would be anaylzed and the optimal one would be chosen..."

ObamaDepression's picture

Yeah Russia is running things so well.

Have you read the NYT story on Crimea?

http://www.nytimes.com/2014/04/22/world/europe/under-russia-life-in-crim...

Russians can't run a fucking post office in Crimea correctly. Food imports have stopped and nothing works right now. EVen the courts have stopped working because there is nobody to administrate Russian law

I wonder if the "majority" who voted to join Russia in "fair elections" are having second thoughts?

socalbeach's picture

Thanks for the link. Problem I have with the NYT is they've shown in the past they are not always "fair and balanced", to put it mildly, and the media in general can paint whatever picture they want in an article of that type.

.

New York Times Admits It Pushed Fabricated Evidence about Iraq, Syria and Ukraine

"The New York Times pushed fabricated evidence in the run up to the Iraq war.   A year later, the newspaper apologized for its inaccurate, one-sided coverage.

The U.S. and the New York Times pretended that Syria’s government was responsible for the chemical weapons attack … but that claim was debunked, and even the New York Times was forced to retract it several months later.  (The alternative media, including Pulitzer prize winning reporter Seymour Hersh, has also pointed out that it was the Syrians rebels – with the help of the Turkish government – did it).

Then the U.S. and the New York Times pretended that they had proof that Russian soldiers were the mysterious “masked men” seizing government buildings in Ukraine.  But a couple of days later, they were forced ..."

Socratic Dog's picture

Gas costs more than water?  Not where I come from.  Bottled water is way over gas.

SumTing Wong's picture

Sounds like he has two eggs more than you. 

When you have expansionism in sight, you have to have chutpah or bravado or cajones. Whatever you want to call it, Putin has what it takes. 

So you downvoted me. I have great shame. What about the many more downvotes you have? Wait...are you from the OCSE? We around here are all grown. When you get your bunny jammies off and come upstairs from your mom's basement, then we can sit at the big kids' table and explain all this to you. 

Seer's picture

I don't know whether Putin and Russia is being driven by expansionism more than say defense from the constant pressures/intrusions that the West has been engaging in.  To me it's a push-back more than a "take."  But, like any negotiated deal, Crimeria had to offer something for becoming an additional drain on exportable/revenue-producing gas/oil exports, and that's access to sea ports.

Yen Cross's picture

  You're "politely" describing a Turf War .  I'd hate to see you when you're mad Seer

j0nx's picture

Putin has pea balls. He acts the way he does because quite simply he and everyone else know that Barry has LESS than zero balls and will do nothing to stop him so in comparison his balls are huge. Putin and everyone else know that Barry and Co. are much too busy here at home trampling on the rights of Americans to be bothered with confronting anyone else. Quite frankly I'm surprised that NK and China have not moved on their plans yet. Anything that a liberal manages turns to shit. It's been proven over and over again yet a liberal will fight that truth until they are blue in the face.

Socratic Dog's picture

17-andcounting down arrows?  Hmm.  Trolls out in force today.

Buckaroo Banzai's picture

Come for the Bundy, stay for the Ukraine!

ObamaDepression's picture

Our Russian "comrades" are busy on these posts.

JoeSexPack's picture

1 mysterious car bomb tonight will do it.

 

Problem solved.

Wahooo's picture

About 100 pissed off Crimean farmers should be all it takes.

post turtle saver's picture

there's no problem with water, but we'll compensate you for losses...

wait I thought there was no problem lol

Anusocracy's picture

That was for the farmers. Like in California where the drought mainly affected the farmers.