While Ukraine has long since ceased being a customer of Gazprom (for the simple reason being that it can't afford to pay for historical gas purchases let alone future ones, and with a long cold winter just 3 months ahead, Kiev is praying that its brand new Western "allies" will give it the loans it needs to buy Europe-sourced gas), the bulk of Russia-sourced gas into Europe still transits through Ukraine.
Not surprisingly, Ukraine correctly understands this is the last trump card it has in any negotiation with the west, or the east. It is this trump card that went into play moments ago when Ukraine's Prime Minister who recently resigned and whose resignation was not accepted, said that Ukraine is considering banning the transit of all Russian "energy resources", i.e. European gas.
Ukraine ready to impose sanctions against any transit via its territory, including air flights and gas supplies to Europe, Prime Minister Arseniy Yatsenyuk said Friday. Ukraine's Parliament will vote on the sanctions on Tuesday. Kiev has also prepared a list of 172 Russian citizens and 65 companies predominantly Russian to put under sanctions for “sponsoring terrorism, supporting the annexation of Crimea, and violating the territorial integrity of Ukraine,” Yatsenyuk said at a briefing on Friday.
Proposed sanctions include asset freezes, bans on certain enterprises, bans on privatizing state property, refusing to issue licenses, and a complete or partial ban on transit- both aviation and gas.
“We simply have no other choice,” the Prime Minister said, adding that Ukraine will use part of the $17 billion IMF aid to achieve energy independence, and may go to the World Bank for help.
Ukraine wants to “put a stop” to its gas dependence on Russia, its main source for energy to heat homes and buildings, but understands it will not be an “easy” process, Yatsenyuk told reporters.
The Prime Minister estimates Ukraine could stand to lose $7 billion as a result of imposing sectorial sanctions against Russia, its biggest trading partner after the European Union.
“There is no doubt that Russia will continue its course in Ukraine it began a decade ago- banning Ukrainian goods, decreasing cooperation, pressure, and blackmail,” Yatsenyuk said.
On Monday the Ukrainian government said it plans to mirror Western sanctions and target Russia’s financial, energy, and military sectors.
Ukraine imports nearly 50 percent of its natural gas from Russia, which in 2013 totaled 27.7 billion cubic meters of natural gas.
If approved, a halt to Russian gas transit would hit Europe as the continent gets 15 percent of the energy it needs from Russia. In June Gazprom, Russia’s national gas company announced it was stopping deliveries to Ukraine, but would continue to ship 180 billion cubic meters of gas to Europe.
So in summary, Ukraine will destroy its economy, incurring $7 billion in costs, just to spite Gazprom and force Europe as leverage and to escalate the conflict, because without Russian gas Europe is powerless.
Who wins here? Clearly not the Ukraine people, who are looking at not only soaring inflation as Kiev will have no choice but to inflate away this $7 billion loss through "printing", not to mention have a cold winter to look forward to. The answer: Burisma Holdings, where Joe Biden's son is a director and which will promptly commence shale gas exploration as an "alternative" to Russian gas, over the objections of the local people - after all can't let a crisis go to waste.
And who funds all of this? Why you dear US taxpayer, via IMF loans, which will be used to pay for young Master Biden's Christmas bonus!
The only question is whether Europe will merely stand there and wait as 15% of its energy is suddenly cut off (hint: no).
Or Russia for that matter. However, it is here that that other wildcard comes in the play: the South Stream pipeline which bypasses Ukraine entirely, and enters Austria by way of Bulgaria, Serbia and Hungary.
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However there is a big unknown: the Bulgarian government, which has been on the fence whether to support Russia, or Europe's bureaucrats (if not corporations) who want South Stream halted for now as that would mean their entire "investment" in Ukraine has been for nothing. Although should Ukraine truly proceed with cutting off Russian gas transit, Europe will have no choice but to give its blessing to the South Stream. In the process Ukraine will shoot itself in the foot and commit leverage suicide.
And it doesn't even have to be the South Stream. As RIA reports, Russia delivers about 14 million tons of oil to European consumers via the Druzhba pipeline laid through Ukraine. “We can easily divert these supplies to Druzhba’s northern leg in Belarus,” Transneft spokesman Igor Dyomin said. “Ukraine’s sanctions will be directed against Hungary, Slovakia and Czech Republic.”
Lots of moving pieces in the months ahead, and one can be certain that with John Kerry running the show on behalf of the US, things are about to get far worse than they are right now.