The Russian-Ukrainian Gas Dispute in 2005/2006
Controversies surrounding the delivery of natural gas by Russia and its transfer to Europe over the Ukrainian pipeline network have been a constant feature of Russian-Ukrainian relations. In 2009, the conflict saw a major crisis when Europe was cut off from its essential Russian gas supplies. However, an analysis of the 2005/2006 gas dispute shows how this controversy already foreshadowed many of the problems that later caused the 2009 crisis (cf. Westphal). Therefore, the following discussion will be focused on the events in 2005/2006 presenting the main actors, their interests and mutual interactions. The role of institutions, outcomes of the gas dispute, and implications for the future will also be outlined.
What happened in 2005/2006?
The gas crisis in 2005/2006 can only be understood in consideration of the shift in the Ukrainian political system through the “Orange Revolution” in 2004/2005 (cf. Stern; Westphal). The country’s relation to its long-term partner Russia experienced severe deterioration, while at the same time oil and gas prices had been rising. The state-owned Russian company Gazprom wanted to change its trading system from former Soviet trading terms to a market-based trade. Until that time, Ukraine and its state-owned company Naftogaz benefited from a barter trade with Gazprom, keeping some of the gas it transported through its pipeline network to Europe for a subsidized price as a compensation for this service. A contract from 2002, which affirmed this practice, was extended in 2004 with a rider (“Additional Clause 4”) that determined a fixed gas price for Gazprom’s gas supply to Ukraine until the end of 2009. Yet in 2005, Gazprom saw this rider as suspended as long as the overall yearly gas contract between the two countries was not signed again. The company was aiming at a higher, market-based price for its natural gas and was willing to increase its payment for the Ukrainian transit service concurrently. After Ukraine opposed any price increase, “Orange Revolution” President Victor Yushchenko agreed to a deal to increase the price step by step. In response, Gazprom requested a lower price than originally demanded, but still insisted on a direct price shift. Then Russian President Vladimir Putin offered a loan of 3.6 Million US-Dollars for Ukraine to accomplish the change to market prices. Nevertheless, Ukraine rejected each of these offers. In what later came to be known as Russia’s final offer, Putin proposed a halt to the price increase for three months, which was also rejected by Ukraine.
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- Institution / Hochschule
- University of California, San Diego – Department of Political Science
- russia ukraine europe gas oil price halt election soviet union supply transfer orange revolution naftogaz gazprom yushchenko putin rosukrenergo geo-economic