The risk of Russian military intervention in Ukraine ratcheted up a notch over the weekend as pro-Russian protesters clashed with Ukrainian security forces in eastern Ukraine, resulting in several fatalities, according IHS Energy report released on Tuesday.
Ukrainian acting President Oleksandr Turchynov said that the government had launched an ‘anti-terrorist operation’ against pro-Russian masked gunmen who last week took control of government buildings in Donetsk, as well as in other eastern cities and towns.
The weekend clashes followed a stern warning from Russian President Vladimir Putin last week that Gazprom could be forced to invoke a pre-payment clause in its contract with Naftogaz Ukrainy for gas supplies unless the Ukrainian firm makes a prompt payment of its arrears, adding that failure to pay could result in a partial reduction or full halt to Russian gas shipments to Ukraine.
Putin’s letter to the heads of government of 18 European countries that import Russian gas signaled a real risk of disruption in Russian gas exports to Europe from the ongoing gas dispute between Russia and Ukraine.
The threat of a ‘gas war’ may prompt the European Union to step in to help Ukraine pay at least part of its debts, which Putin said amount to USD2.2 billion in overdue bills, more than USD18 billion in take-or-pay fines, and another USD17 billon in aggregated price discounts dating to 2009 for which Russia is now claiming are not valid.
The EU is working with the World Bank and the IMF to enable Ukraine to pay its overdue gas bills through an expected financial aid package. However, Ukrainian Energy and Coal Industry Minister Yury Prodan said that the government is looking to take Gazprom to arbitration over the recent gas price hike, as well as potentially seek a ruling on the validity of the 2009 gas supply deal between Gazprom and Naftogaz.
But the dispute over gas import prices and the possibility of a disruption in Russian gas supplies to Ukraine – which will almost certainly lead to an interruption in Russian gas exports to Europe via Ukraine – is rapidly being overshadowed by unfolding events in eastern Ukraine, as the Ukrainian government’s offensive against pro-Russian rebels could elicit a military response from Russia itself.
Approximately 40,000 Russian soldiers are believed to be massed in Russia near the border with Ukraine. Following Russia’s annexation of the Crimean peninsula after a controversial referendum last month, there are fears that violence in eastern Ukraine could serve as a pretext for a Russian invasion and a repeat of the Crimea scenario.