Threatening to seize Gazprom’s assets, Ukraine raises the stakes for EU gas

EPA/PAVLO PALAMARCHUK/FILE PICTURE

A worker checks equipment at the Dashava gas storage near western Ukrainian town of Stryi.

However, Kiev needs the goodwill of European leaders while Moscow is also looking to improve both trade and political relations with the core EU states, Weafer tells New Europe


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As the gas dispute between Russia and Ukraine deepens, Kiev is reportedly planning to seize the Ukrainian assets of Russian gas monopoly Gazprom in the former Soviet republic. Moreover, Ukrainian diplomatic missions were reportedly instructed to locate the assets of Gazprom as Kiev embarked in a global search of the Russian company’s foreign assets.

“I think that neither from legal nor practical perspective the seizure of Gazprom’s assets – apart from inside Ukraine – is realistic whereas Ukraine/Naftogaz (Ukraine’s national oil and gas company) is damaging itself with such rhetoric,” Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, told New Europe on March 23.

As a result of the judgment handed down in separate cases brought before the Stockholm Arbitration Court, Gazprom owes Ukraine $2.6 billion, Chris Weafer, a partner at Macro-Advisory, a Moscow-based consultancy, told New Europe on March 23, reminding that they lost a case for $4.6 billion and won one for $2 billion.

“With the threat of asset confiscation, Ukraine is raising the stakes and hoping to either get payment or, at least, a negotiated solution,” Weafer said, recalling that Russia has an existing judgment, obtained in a London court, against the Ukraine government for the non-payment of the $3 billion it loaned Ukraine in December 2013.

“Ukraine is very likely taking advantage of the deterioration in political relations between Moscow and the US/EU as a result of sanctions escalation and the poisoning of the ex-spy in England in the hope it will get backing from the EU to force Russia into either paying or negotiating a broad debt settlement,” Weafer said.

Justin Urquhart-Stewart, founder of London’s Seven Investment Management, told New Europe on March 23 that Russia could “react extremely aggressively” against Ukraine and Western Europe if Gazprom’s assets were seized. The seizure of Gazprom’s assets “tied together to what Brussels has been saying supporting Britain with regards to the nerve gas attack in Salisbury, England, and the support from the EU … could make Russia angry to threaten or significantly constrict the amount of gas being shipped to Europe,” Urquhart-Stewart said.

Weafer said, however, it is most unlikely that Ukraine will take any action against Gazprom assets, in any jurisdiction that would risk cutting gas supplies to the EU. “Kiev needs the goodwill of European leaders, and the IMF (International Monetary Fund), if it is to avoid the risk of another financial crisis and to get the help it needs to grow the economy,” he said.

He explained that Moscow is also looking to improve both trade and political relations with the core EU states. “The political relationship with the US and UK continues to deteriorate but trade with Europe is growing and investment from EU states into Russia has also been recovering over the past two years,” Weafer said, adding that Moscow will also be careful not to be cast into the role of energy villain and damage hopes for an improved relationship with the major EU states.

“Both Kiev and Moscow have a lot to lose if either is seen to mishandle the dispute or refuses to look for a resolution. Kiev is making the first move and we now wait to see what will be Moscow’s response,” he added.

According to Weafer, this dispute, and the implied threat to EU gas deliveries, is improving the prospects for Nord Stream-2 gas pipeline from Russia to Germany. He reminded that Berlin reacted to the 2009 gas dispute with Nord Stream-1 in order to improve its energy security. “It has no issue with Moscow as a reliable energy partner but has concerns over the transit routes that cross other countries. Nord Stream-2 would almost eliminate the transit risk and make Germany almost energy secure,” Weafer said.

Yafimava said she doesn’t think the dispute will accelerate Nord Stream-2. She anticipates that the European Commission “will continue its attempts to if not prevent its construction, which it really cannot, then at least to limit its utilization, for example via the Gas Directive amendment.”

She opined that it is self-defeating on part of the European Commission “because it cannot really be sure it will be able to broker a post 2019 – or earlier if the tribunal decides to annul the contracts prior to their expiry – transit arrangement. In any event Gazprom will need to transit gas across Ukraine post 2019 even if Nord Stream-2 is built.”

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