There has been much speculation of late about a possible Russian intervention in Ukraine. After Russia ordered large-scale military exercises on Ukraine’s border earlier this week, for example, U.S. Secretary of State John Kerry warned that “any kind of military intervention that would violate the sovereign territorial integrity of Ukraine would be a huge, a grave mistake." And NATO Secretary General Anders Fogh Rasmussen tweeted today, “I urge Russia not to take any action that can escalate tension or create misunderstanding.” It seems that Western policymakers are most worried about two possible scenarios: First, that Russia would embargo gas to Ukraine, and second, that it would invade Ukraine’s Crimean peninsula. Is either of these two really likely?
Russia has used natural gas as a weapon against Ukraine twice before. In January 2006 and 2009, its state-controlled Gazprom corporation shut off pipeline deliveries to Ukraine in response to pricing disputes. Most Russian gas sales to Europe transit through Ukraine, so Russia’s move left some EU member states facing significant heating-fuel shortfalls in the dead of winter. These countries could have looked for a new provider, but they did not. They bought into Russia’s narrative that Kiev, not Moscow, was responsible for the pipeline shutoff. Today, EU members still purchase about a third of their natural gas from Russia, with contracts that run through 2020. Some nations have even increased their buys from Russia, since Gazprom offers the cheapest gas around.
That might be interpreted as evidence that Russia could again embargo gas to Ukraine with impunity. But things are different now. The European Union’s new eastern member states -- those that are the most dependent on Russian gas and hence suffered the most in earlier crises -- have prioritized new infrastructure projects to facilitate imports of liquid natural gas (LNG) from western Europe and elsewhere. They are also exploring natural-gas alternatives for electricity generation. These projects are not yet cost competitive and will take years to come fully online.
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