EVENTS

Date:	Tuesday, February 3, 2009
Time:	4:30 PM -- 6:30 PM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

WASHINGTON, FEBRUARY 4, 2009--Energy security is an increasingly vital concern for Europe, as demonstrated in January's gas conflict between Russia and Ukraine. The clash over gas prices led to the two-week cessation of gas flows to Europe during a time of extremely cold temperatures. As Kiev and Moscow exchanged accusations and wrangled over details, residents in Eastern and Central Europe shivered. Though an agreement on prices was reached on January 19 and gas flows were restarted, there is little certainty that it will prevent future similar conflicts. Experts at a February 3 AEI event discussed the causes of the gas crisis for Russia, Ukraine, and the European Union and what is likely to happen in the future.

Anders Åslund of the Peterson Institute for International Economics explained that the dispute was not commercial, but political. The difference in the price that Russia asked and the price Ukraine offered was only twenty dollars per thousand cubic meters--"not much to argue about." The real issue was the intermediary company, RusUkrEnergo, which is connected to top Kremlin and Gazprom officials, including Gazprom's export director Alexander Medvedev, and top Ukrainian legislators in the pro-Kremlin Party of Regions. It is the main financier of Ukrainian politics and has funded members of President Viktor Yushchenko's party. According to Åslund, RusUkrEnergo's main function is to siphon money off from Ukraine's gas company, Naftogaz, and from Gazprom. The January 19 agreement between prime ministers Vladimir Putin of Russia and Yulia Tymoshenko of Ukraine removed RusUkrEnergo from the Russian-Ukrainian gas trade. This was "a complete victory for Tymoshenko," Åslund argued, since she alone did not benefit from the intermediary's involvement.

Former U.S. ambassador to Ukraine Steven Pifer agreed that the dispute was political. He pointed out that commercially, both Naftogaz and Gazprom depended on one another. Russia started a fight it could not win for political reasons: to discredit Ukraine as a partner for the European Union (EU) and NATO, increase support for Russia's Nord and South Stream pipeline routes that bypass Ukraine, and punish Ukraine for its interest in EU and NATO membership and support for Georgia in 2008. Ukraine responded with posturing intended to paint Moscow as a bully and replicate the sympathy it received from the West during its 2006 gas conflict with Russia. Ukraine's actions also reflected the internal jockeying in Kiev and a lack of concern about the hardships the gas shutoff would impose on its neighbors downstream. While Ukraine achieved more of its objectives than Russia did, both countries now face the risk that Europeans will find a solution to their energy concerns that bypasses Russia and Ukraine completely.

Angelos Pangratis, deputy head of the EU delegation to the United States, declared this the most serious energy crisis that the EU has ever faced. He offered two lessons from the conflict: the EU must implement a comprehensive energy strategy with integrated markets and intensify efforts to diversify both sources and routes. Improving its crisis response capacity and reacting in unison in the short term, Pangratis added, will allow the EU to integrate energy markets, establish an energy security plan, improve cooperation with Russia and Ukraine, explore Caspian Sea development, and develop alternate source and transit options, such as the Nabucco pipeline project that will connect southern Europe to the Caspian via the Caucasus and Turkey.

AEI's Gary J. Schmitt identified the EU's biggest obstacle to energy security: the specific dependence of individual countries. He recommended that, in the short term, the EU focus on building storage capacity, reserves, and pipeline connectors to protect against future crises. Diversification of supplies and an integrated market should be the EU's most important priorities. The Nabucco pipeline is only a valid option if the EU can secure Turkmenistan's interest in supplying it before Russia interferes, Schmitt said. Other alternatives the EU should consider are liquid natural gas and nuclear power. While the EU has identified important steps toward energy security, it remains to be seen if it has the political will to implement them successfully.

--KARA FLOOK