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You're reading: Stratfor: Russia’s Nord Stream pipeline weakens Ukraine’s position

Ukrainian Energy and Coal Industry Minister Yuri Boyko stated Sept. 7 that Ukraine opposes a merger between its state energy firm Naftogaz and Russian energy giant Gazprom, adding that Russia’s proposition for such a merger is “humiliating.” This is the latest in a string of developments indicating that tensions between Russia and Ukraine are increasing as the countries continue negotiating over Kiev’s request to revise a natural gas agreement.

Meanwhile, the debut of the Nord Stream natural gas pipeline — which began pumping on Sept. 6 — will significantly affect these negotiations, depriving Ukraine of leverage as a transit state and improving Russia’s position. Kiev is facing circumstances in which, if it does not become more compliant to Moscow’s demands, a new energy crisis will likely occur before year’s end — a crisis that would be isolated to Ukraine, rather than affecting the rest of Europe as previous energy crises have.

The rising tensions between Ukraine and Russia stem from Kiev’s desire to change an existing pricing agreement for Russia’s natural gas shipments to the country. This agreement, which was struck in 2009 between then-Ukrainian Prime Minister Yulia Timoshenko and Russian Prime Minister Vladimir Putin, called for Ukraine to pay $360 per thousand cubic meters (tcm) in 2009 and then tied the price of natural gas to the price of oil in subsequent years. Because of rising oil prices over the past year, the price Ukraine pays has risen considerably from $264 per tcm in the first quarter of 2011 to around $350 per tcm currently. This price is projected to reach $400 per tcm by 2011’s fourth quarter, which is more than many European states — including Germany — pay.

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