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The Cold War returns

The Gorbachev years seem very distant, not that his mission of liberalisation and freedom from the strictures of the Soviet nuclear falloutUnion went unchallenged but the reversion of Russia under Putin to a totalitarian, territorial regime finds a bedfellow in post war Soviet Union almost as if glasnost never happened.

This ‘new’ Cold War however isn’t being fought with a nuclear arms development race but a more mundane use of energy. Simply turning off the gas.

Whilst Russia has visibly reduce its military presence in Ukraine following the ceasefire of September 5th, the Ukranian conflict drags on and Arseny Yatseniuk, Kiev’s Prime Minister has warned:

“They [Russia] want us to freeze. This is the aim and this is another trump card in Russian hands. So, except military offense, except military operation against Ukraine, they have another trump card, which is energy.

“The ultimate goal of Russia is to organise, to orchestrate another frozen conflict in Ukraine.”

Western Europe, this time without American nuclear arms, are coming to the rescue of the former Eastern bloc countries with the EU Energy Commissioner Guenther Oettinger pursuing a price agreement for shipments of gas to Ukraine a move that was described as “helpful for us” by Yatseniuk.

The move by the EU isn’t altruistic, they know there is a very real threat to reliable supply of gas to western Europe over this coming winter should an agreement not be reached.

EU commission spokeswoman Helene Banner said:

“The message from the commission is very clear. We expect all member states to facilitate reverse flows as agreed by the European council in the interest of a shared energy security”

But the nations riding to the rescue of Ukraine have been diminished by one. Hungary, following a meeting between Gazprom chief executive Alexei Miller and Hungary’s premier Viktor Orbán, have stopped supplying gas to Ukraine through their “reverse flow” pipeline “for technical reasons” until further notice.

Justifying his move Orbán claimed:

“Hungary cannot get into a situation in which, due to the Russian-Ukrainian conflict, it cannot access its required supply of energy.

“In the next period we will need large quantities of gas … We will receive this, I agreed this with Alexei Miller”

Orbán’s statement followed a less than subtle warning from Moscow, via Gazprom, that it would deem any country helping Ukraine as an ‘aggressor’ and could choose to cut off their own supply.

As Europe’s biggest gas supplier, and with Hungary one of 12 eastern and central EU member states that rely on Russia for more than three-quarters of their gas supply, the threat found a ready target.

Until the Gazprom intervention, Hungary, along with Slovakia and Poland, had been re-exporting their gas to Ukraine by reversing the flow into the country.

This has enabled Moscow to claim this additional volume (which needs to be back filled by Moscow to meet those nation’s on-going demand levels) was potentially causing shortages given the energy sanctions Russia is facing.

Gazprom for its part has claimed it is intended to fulfil the supply of contracted amounts of gas to western European countries, but was unable and unwilling to meet demands for “extra” volumes (that used to reverse flow into Ukraine) as it needed to fill storage facilities before the onset of winter.

Already Poland and Slovakia had reported constraints in their supplies as Russia looked to limit their ability to re-export to Ukraine.

The threat took a real and discernible turn for the worse with Naftogaz, the Ukranian energy company, who operate contracts with western European companies to supply gas to Kiev via Hungary, reporting that FGSZ, Hungary’s gas pipeline network operator, had stopped providing their usual transit services to the western European companies.

A spokesman for Naftogaz said:

“Naftogaz deeply regrets this decision of FGSZ and calls on its Hungarian partners to respect their contractual obligations and EU legislation.

“Such a decision goes against the core principles of the EU single energy market”.

Adding that the decision to do so was as “unexpected and unexplained”.

For their part FGSZ blamed “technical reasons” for their indefinite suspension of supplies to Ukraine.

Gazprom’s role in the conflict has become ever more prominent over recent months not least by the recognition of the US that economic sanctions need to be placed upon the former Russian energy ministry.

The latest sanctions not only block Gazprom’s and other state-owned Russian groups from accessing essential western capital markets, they have also focussed on making the on-going operation of some of Russia’s largest energy projects as difficult as possible. Those projects are a key engine of Russia’s future economic growth amid an economy that is already unhealthily reliant on energy for its health.

A US spokesman explained:

“It [the new sanctions] will affect contracts that are already in place – it will require them to wind down and terminate that work.

“We are focused on delivering the most powerful blow possible [to Russia], with as little impact here”.

Andrew Weiss, vice-president for studies at the Carnegie Endowment for International Peace welcomed the new targeted sanctions saying:

“It sends a message that any Russian firm is now conceivably a fair target instead of solely targeting firms that are state-owned or owned by people believed to be associated with President Putin”

In response Putin has claimed he is focusing on retaliatory sanctions that would focus on maximising the hurt to western countries and to deliver “better conditions” for Russia.

One thing is clear, there are no winners in this conflict bar Putin’s tough guy dictator image that plays so well with some of his countrymen.

Whether that image and his power survives a faltering economy and sanctions sucking the life out of their critical energy industry remains to be seen. For now though the people of Ukraine, the former eastern bloc countries, the western nations dependent on Moscow for energy supply and the Russian people themselves will suffer the consequences of Putin’s on-going posturing.

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