Ukraine’s leverage evaporates

Vladimir Putin has scored a massive political victory in the heart of the Eurozone, after Austria openly defied NATO and sided with Russia.

Russia has an alternative pathway for its gas, one which bypasses Ukraine entirely and as the current South Stream framework is set up, crosses the Black Sea and enters Bulgaria before passing Serbia and Hungary on the way to the Central European energy hub located in Baumgarten, Austria.

The latest development comes only one short month after Putin concluded a game-changing deal with Beijing.

As Itar-Tass reports, citing Gazprom CEO Alexei Miller, “Russia’s gas giant Gazprom does not rule out gas transit via Ukraine may be stopped completely.”

“What happened once is a tendency, nothing happens incidentally. In 2009, gas supplies were stopped completely — so, we know precedents,” Miller told a briefing on Friday.

Clearly, this is bad news for Ukraine: Gazprom is no longer interested in participation in Ukraine’s gas transportation system (GTS).

“That train has departed”, the CEO said.

“It seems it departed yesterday,” Miller said. “It belongs to no one. The GTS has no owner,” he said. “The GTS of Ukraine does not belong to Naftogaz but to the Ukrainian government. Before discussing things with someone regarding modernization and cooperation, it should appear on the balance sheet of this or that economic entity.”

“Property and legal issues should be resolved first,” Miller said.

In fact, the civil war torn country may soon lose all leverage it had with both Europe and Russia as a transit hub for natural gas, which also means that it is quite likely that Ukraine is about to be abandoned by its western allies who will no longer have any practical use for it.

The Gazprom chief added that “a dozen Ukrainian laws need to be changed to be able to do something with the GTS.”

Confirming that Ukraine’s leverage at least with Russia is now effectively zero, Gazprom’s CEO also said that “As for the continuation of negotiations with Ukraine, today there is no subject for talks. First, they must repay their debts.”

“The gas price for Ukraine is fair – this price is fixed in the contract,” he stressed.

There have been no requests on the part of Ukraine’s national oil and gas company Naftogaz Ukrainy on a change of the transit deal with Russia, Alexei Miller said.

NATO will now turn its attention to the countries which the South Stream pipeline passes through.

Bulgaria, has just suffered its worst bank run in 17 years, and one which has paved the way to early elections.

This may provide the US with a government which will be more focused on their interests, instead of the current regime, whose allegiance to the Kremlin is said to take precedence.

The South Stream countries – starting with Bulgaria, and going through Serbia, Hungary,  Slovenia, Italy and of course, Austria – will suffer scrutiny.

Finally, and perhaps most notably, is last week’s announcement by Gazprom CEO Miller that Gazprom is interested in discussing buying a stake in the Baumgarten gas hub.

“They do everything to disrupt this contract. There is nothing unusual here. This is an ordinary competitive struggle. In the course of this competition, political tools are also being used,” the Russian president said after holding talks with his Austrian counterpart, President Heinz Fischer, in Vienna.

Fischer defended the South Stream project, saying: “No one can explain to me – and I can’t explain to the Austrian people – why a pipeline that crosses EU and NATO countries can’t go 50 km into Austria.”

The mood turned jovial during Putin’s recent visit when the head of Austria’s chamber of commerce reminded Putin that part of Ukraine had belonged to Austria in 1914.

“What is that supposed to mean? What are you proposing?” Putin quipped, eliciting laughter from the business elite.

The one place which now matters most for Europe’s energy future is Austria.

Gazprom chief Alexei Miller said earlier he was in weekly if not daily contact with European Energy Commissioner Guenther Oettinger about winning approval for the South Stream project.