Russian Gas Supplies Through Ukraine Turned Off

The apparent strong-arm tactic may actually indicate Russian weakness.

In a letter to leadership in European countries receiving Russian gas that first transits Ukraine, Russian President Vladimir Putin warned that unless immediate steps are taken to ensure Ukrainian national gas company Naftogaz pays in advance for supply, Gazprom could close the valves.

The letter states:

“…in the event of further violation of the conditions of payment, will completely or partially cease gas deliveries”. As reported by the Financial Times, who reportedly obtained a copy of the letter.

Above-average natural gas storage levels and decreased seasonal heating demand lessen the immediate urgency for European customers, but the letter underscores Europe’s precarious reliance on Russian natural gas. At the same time however, Gazprom is also reliant on Europe as its largest gas market. Until Gazprom and China’s CNPC close a deal – which has been hung up on pricing disputes for a decade but could be finalized next month – Russia has few other places to send its gas.

It also appears likely that Gazprom will receive a lower price from CNPC than it gets from its European customers and once a deal closes pipelines will need to be constructed, so shifting sales from Europe to China is a longer-term proposition. As such, the move to pressure European leadership on Ukrainian financial support could suggest the shaky Russian economy urgently needs the money.

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