RUSSIA AND UKRAINE: GAS ISSUES WILL RESURFACE

On January 4 a settlement was reached to end the recent gas feud between Russia and Ukraine. Months of tense negotiations had culminated in a supply cut to Ukraine on January 1, which quickly precipitated an agreement that favors Russian interests. Placing the recent settlement in the context of the gas trade among Ukraine, Russia, and Turkmenistan, this CERA Decision Brief draws several conclusions. First, for the most part, Russia won this most recent gas battle with Ukraine, which will now pay higher prices and cash for Russian gas; nevertheless, the Russian side was unable to gain control over the Ukrainian pipeline system. Second, the agreement is not stable because it puts the Ukrainians under severe financial and economic strain. Third, Russia is once again standing between Turkmenistan and Ukraine by mediating Turkmen exports to Ukraine through RusUkrEnergo, a partly Gazprom-owned transit agent.

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