Russia Poised to Use Energy as a Hammer, Again

There's hardly been a honeymoon with the new, Sochi 2014-inspired Russia.  Events in Ukraine have brought back an old Russia that we know very well, using military force to maintain influence and ignore sovereignty rights.

But perhaps even more than the soldiers that Moscow sends into the Crimea, it is the flow of natural gas to the Ukraine republic that might deliver an even more stunning blow. 

That's because Russia is a major supplier of natural gas, not only to Ukraine, but also to Europe, with the largest pipeline for that gas running through Ukraine itself. Recent history has shown Russia as willing to use the iron fist of energy to achieve its political aims as it is willing to use its military might. 

One need only look at the Cyprus bank bailout to see the influence of Russian gas. While Westerners looked on in dismay, the IMF made bankrupted Cypriot banks that contained much of the hidden wealth of Russian commodity oligarchs solvent in early 2013. It was natural gas flows that forced the Europeans' hand then. With new pipelines to the Black Sea carrying Russian gas supplies for Greece and Italy running through Cyprus in the balance, the EU had little choice. In Europe, as elsewhere in the world, morality usually takes a back seat to keeping warm. 

And Russia is using its natural gas supplies in Ukraine today just as handily.  Gazprom, the largest Russian gas company with contracts in Ukraine, threatened to end its discounting and demand an immediate payment of the $1.55 billion it is already owed for fuel  As the financial crisis was a major cause of the disruptions in the west of the country, an immediate payment is not only difficult, it is impossible. But it is the implied cutoff of supplies without payments that is actually threatened. Ukraine gets half of its natural gas from Russia and Gazprom. This is a weapon of even greater force than the Russian army. 

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