Ukraine's Naftogaz Already Making Nice With The Russians

Kiev may be starting to clue in that they better change their behavior now that a US president is coming in who favors détente with Moscow

Mon, Nov 28, 2016
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Vladimir Putin waves as he arrives with Angela Merkel during a four-way leaders’ summit in Berlin on Oct. 19.

Well, isn’t this interesting? Ukraine is already starting to make nice with the Russians.

Not too long ago, like say a year ago, the word was that the Russians would be rolling tanks into the Donbass region and soon marching all the way to Kiev to raise the red, white and blue striped flag of the Russian Federation. Maybe they’d even put a picture of a smiling Vladimir Putin surrounded by laurel leaves in the middle.

But now there are signs that the biggest company doing business with the Russians is willing to get back to business. This is very good news. Any normalization of relations between Russia and Ukraine is a positive as it would likely lead to a normalization trend for relations with Europe as well, Russia’s most important trading partner.

On Friday, Ukraine natural gas importer Naftogaz said it was “ready to consider gas supplies from Russia”. The consideration is based on rules set in a previous deal made with European Commission mediators last year. A few weeks ago, Naftogaz press releases were full of anti-Gazprom bravado. That the company is admitting its willingness to get back in the game with the Russians should not be taken likely. This is a milestone.

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The Vice-President of the European Commission, Maroš Šefčovič, met with Russian Energy Minister Aleksandr Novak recently to discuss the transit of Gazprom natural gas into Europe via Ukraine. Naftogaz is the largest transit provider delivering Russian gas to the European market. Both Gazprom and Naftogaz have been at the center of the ongoing political crisis between Kiev and Moscow which began in 2013 following a renegged European trade deal in favor of cheaper Russian natural gas. The move led to public protest that ultimately led to the ousting of pro-Kremlin president Viktor Yanukovych and replaced him with a pro-Western government. To this day, Ukraine has been at the forefront of the Western narrative that Russian aggression is back like it’s the Cuban Missile Crisis of 1962.

Naftogaz has been importing gas from other markets like Slovakia as spot prices there were cheaper than Gazprom contracts.

Friday marks the one year anniversary since Naftogaz stopped importing gas from Russia. This dependence on Russian gas forced Ukraine into political and economic concessions with the Kremlin.

Naftogaz is seen as one of the more open and transparent Ukrainian firms, looking to take a more Western approach to running the company and its subsidiaries along the oil and gas supply chain.

A series of corporate reforms have enabled Naftogaz to invest in its own gas production. Naftogaz has become more self-sufficient and ceased to be a burden on the state budget, the company said in a statement today.

Friday’s statement by the company does not mean that Naftogaz will return to treating Russia as its sole supplier. Those days are done. However, given the fact that Naftogaz and Gazprom’s bitter rivalry has caused a rift between the two countries, better relations could conceivably ease tensions in the eastern part of Ukraine where Russian-backed separatists have been fighting the government in favor of segregation or independence from Kiev. Once that is cleared up, Europe may be forced to remove its sectoral sanctions on the Russian economy if it is to abide by the Minsk agreement signed last year. More needs to be done however, including elections in that part of the country which are likely to vote for political autonomy from Kiev if elections were held today. An easing of tensions, and some political persuasion from Moscow, could temper that desire to go rogue in eastern cities like Luhansk and in regions like the Donbass where pro-Russia sentiment is high.

 
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