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Energy Wars: Russia and Ukraine Settle Gas Dispute

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The Russian energy giant Gazprom has agreed to sell natural gas to Ukraine for a period of five years, ending an energy crisis between the two countries. Russia had cut off natural gas supplies to Ukraine on January 1, 2006 after its ex-Soviet neighbor refused to accept a four-fold price increase.

Most nations in Europe were hit hard by the energy supply crunch, and oil prices rose through the world. In response to the deal, however, oil prices gave back a little way in London on Wednesday. London Brent Crude fell at least 62 cents after rising $2.37 a barrel on Tuesday.

The energy shock has brought home many fears of the impending global energy crisis. Oil prices have risen significantly over the last year, and prognosis is not good for the near future.

oil

Naftogaz, Ukraine’s energy company, will pay $95 per 1,000 cubic meters for natural gas supplies for the next five years, up from $50 under a previous arrangement with Gazprom. Russian gas will be mixed with cheaper gas supplies from Central Asia to arrive at the pricing level agreed by the two countries. Gazprom will sell gas to a joint venture between itself and Austria’s Raiffeisen Zentralbank Oesterreich AG for $230 per 1,000 cubic meters. RosUkrEnergo AG, will in turn sell the fuel to Ukraine for $95 per 1,000 cubic meters.

What was probably overlooked in the battle of the giants was that Gazprom cut off supplies to smaller Moldova as well, demanding a price of $150 per 1000 cubic meters from it. In 2004, Gazprom cut supplies by a day to Belarus, affecting Poland and Germany. Russia may have damaged its reputation as an energy supplier and a fair player in the global community, but in a seller’s market, it may be the short-term winner.

Thus everyone is satisfied, in principle, but the rise in gas prices will doubtless have a ripple, or perhaps, tsunami effect on the rest of the world.

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  • http://www.roblogpolitics.blogspot.com RJ Elliott

    Russia holds the cards in this dispute. They’ve got the resources, and Europe has the demand for these resources. Therefore, Russia wins.

  • http://www.templestark.com Temple Stark

    um, except for the pipeline runs through Ukraine. A lot of people would want to attack Ukraine to press the point.

    Not out of the realm of possibility, true, but they don’t have ALL the cards.

  • http://www.diablog.us Dave Nalle

    Ukraine does have nuclear weapons. Seems like a bad idea to attack them.

    Dave

  • http://selfaudit.blogspot.com Aaman

    Dave, think again – Ukraine returned all CBN weapons to Russia – numerous references available – NTI Ukraine profile

    Ukraine inherited a considerable number of nuclear warheads, missiles, and missile production facilities when the Soviet Union collapsed. In its first decade of independence, Ukraine transferred all nuclear warheads to Russia and eliminated missiles, missile silos, and strategic bombers on its territory. All chemical weapons were returned to Russia for elimination by January 1992. Ukraine possesses no biological weapons and is cooperating with the United States on measures to upgrade security at biological institutes that house dangerous microbes.

    Ukraine has also joined the NPT in 1994.

  • http://alienboysworld.blogspot.com/ Christopher Rose

    As Ukraine is such a vast and strategically important country, I welcome it’s moves towards Europe and look forward to being able to drive from Andalucia to Kiev without ever leaving the safety of the Union.

  • http://www.diablog.us Dave Nalle

    Didn’t realize that, Aaman. Interesting move on their part. Probably saved them from a lot of long-term headaches as those weapons deteriorated.

    Dave