Despite the war, Ukraine and Russia are still connected by pipelines

Ukrainian officials have called on their Western partners to impose tougher sanctions and cut off almost all economic ties with Russia, saying “more needs to be done” to disarm Moscow. But as surreal as it may seem, Ukraine insists that it has no choice but to keep its own businesses and has asked to keep them, saying that they give an advantage to the Kremlin and help pressure the Russian military to shoot down aircraft.

Oleksiy Chernyshov, the head of the Ukrainian energy company Naftogaz, admitted that Ukraine’s surprising view is still doing business with Russia. “For me, it’s impossible, as a citizen of Ukraine – it’s my first act,” said Chernyshov, adding that this was a personal and emotional response.

But Naftogaz – and the main political leaders – insist that Ukraine cannot and should not close the pipelines, both to pay the remaining amount (although the amount Moscow is paying, if any, is not known to the public) and because some of Kyiv’s supporters in Europe are. they still depend on Russian oil and gas.

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Russia’s continued gains, and Kyiv’s frustrations, were recently seen in US intelligence documents released on the Discord messaging platform, which said Ukrainian President Volodymyr Zelensky had decided to blow up an oil pipeline in Druzhba earlier this year.

According to the document, which was obtained by The Washington Post, US officials questioned the seriousness of the threats, which may have upset Hungarian Prime Minister Viktor Orban, who has spoken pro-Kremlin and insisted that he not be removed. of the European Union to try to stop buying Russian oil.

Moscow sent around 300,000 barrels of oil a day last year through the Druzhba – or “Friendship” pipeline, which runs through Ukraine. Russia is also required to pump 40 billion cubic meters of gas annually through the Ukrainian gas pipeline as a result of supply agreements that are in place before a full-scale attack in February 2022.

Ukrainian officials say they are in trouble. Russian hydrocarbons crossing their territory earn the Kremlin millions of dollars and help pay for its military machine. But Kyiv also needs income from travel and wants to be a reliable economic partner for European countries, some of which could face disruptive price increases if Russia’s electricity supply suddenly goes out.

Chernyshov said Kyiv must comply with its obligations under the agreements, and the decision to end the supply rests with recipient countries, such as Hungary, which need Russian oil and gas for heating in the winter. “This river has not been stopped in order not to make other countries that are helping Ukraine freeze,” he said.

The Kremlin has used energy as a weapon, including in the 2000s when it cut off Europe twice.

But Kyiv has also insisted that Russian air should continue to flow, despite Moscow’s illegal annexation of Crimea in 2014 and the start of a separatist war in eastern Donbas. Ukraine has insisted it needs to improve its role as a transit country, and wants countries like Germany to stop helping Russia build new pipelines – which critics call a scam. Now, Ukraine says all its allies must reduce or eliminate the use of Russian force.

The working group on Russian sanctions, led by Andriy Yermak, the head of the Ukrainian presidential office, and Michael McFaul, the former US ambassador to Russia, published a “plan” last month that outlined some measures that should be taken to punish them. Russia – but the plan called for the preservation of Russian power through Ukraine.

It also called for the suspension of “all Russian-controlled pipelines” to transport Russian gas to the European market, as well as the TurkStream pipeline through Turkey. “Stop the direct supply of Russian gas to the European Union, except through Ukraine,” the plan said.

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Anders Aslund, an economist who focuses on the former Soviet Union, which was part of the sanctions, said that the decision to continue to flow through Ukraine was clear: Gas goes to European markets regardless, because the EU has included several, or “drawings. ” ,” to his ban on countries like Hungary.

In addition, Russia has committed to pay Ukraine $7 billion in a five-year deal signed in 2019, the so-called “pump or pay” deal, which requires Moscow to pay if it exports gas. “Then why don’t you take the money?” Aslund said. “Contractors agreed with the European Union on these drawings.”

The goal of the sanctions is not to “restrict trade with Russia,” Aslund said, but to “destroy Russia without harming Ukraine more than necessary.”

On May 10, EU representatives met in Brussels to discuss new sanctions against Russia, the 11th so far. Previous efforts have targeted individuals, businesses and sectors of the Russian economy, restricting imports and exports.

The President of the European Commission Ursula von der Leyen, at a press conference with Zelensky in Kyiv the day before, said that the EU “will continue to do everything” in its power “to destroy Putin’s military equipment and his money.” Zelensky praised the EU’s proposal, which he said would affect Russia’s nuclear power sector. But he and other officials say this is not enough.

Under its gas agreement with Kyiv, Russia must pay Ukraine about $1 billion to $1.5 billion a year. After the war, Kyiv closed the Russian gas port in the populated eastern part, saying that Ukrainian engineers could not work there. Ukrainian officials have insisted that there is a possibility of sending all Russian oil through another route. However, Russia significantly reduced the amount of natural gas it exported to Ukraine.

In September, Naftogaz filed a lawsuit at the International Court of Justice in Paris, claiming that “money was not paid” by the Russian state gas company Gazprom “not on time or in full” according to the contract. Naftogaz declined to say how much money is missing from payments.

“We will pay Gazprom,” said Yuriy Vitrenko, head of Naftogaz at the time. In response, Gazprom said there were no “reasonable grounds” to pursue the case and threatened to impose financial sanctions on Naftogaz.

Gas has been at the center of Russia’s tense relationship with Ukraine for years. At one time, Russia exported more than 80 percent of Ukraine’s natural gas to European countries.

Russia hopes to bypass Ukraine by opening two gas pipelines across the North Sea to Germany. While the second, called Nord Stream 2, is being built, Ukrainian officials have said that some Russian gas will continue to pass through Ukraine as a way to avoid a major war. Nord Stream 2 was built but never used. The war still happened.

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However, Nataliia Shapoval, vice-president of the Kyiv School of Economics, said that the use of Russian pipelines in Ukraine “creates some security” and appears to reduce air strikes on Moscow. “During the campaign against the energy sector this winter, gas management and storage were not their main goals,” Shapoval said.

The Druzhba pipeline was also left untouched, halting operations for “several days, when they had no power to run the pumps,” said Matthew Sagers, an energy analyst at S&P Global Commodity Insights in London.

Sagers said Druzhba transported about 80 percent of oil to Hungary’s largest oil company, MOL, last year and is expected to transport between 50 and 55 percent this year.

In addition to Hungary, the Czech Republic and Slovakia depend on oil imported through Druzhba. In addition, Ukraine earned about $180 million in prices from Druzhba last year, Sagers said. “Money is money.”

In the end, Sager said, the Ukrainians “don’t need to blow up pipelines — they can just stop doing business if they want to.”