Ukraine to Replace Barter System with Dollar-Based Energy Deals with Russia

Strategic Insights -

Ukraine, heavily dependent on Russia for energy supplies, is seeking to shift from a corrupt barter system to a dollar-based transaction system for gas purchases from Russia's state-owned Gazprom. This decision aims to increase economic transparency and curb corruption, aligning with the promises of newly elected President Viktor Yushchenko. The move also seeks to improve relations with Russia, while Ukraine pursues closer ties with the European Union, its direct neighbor.

Key Takeaways:

  • Ukraine plans to replace its barter system for gas purchases from Gazprom with dollar-based transactions to increase transparency and curb corruption.
  • The decision aims to put relations with Russia on a more pragmatic basis, as both sides have grown tired of the political approach.
  • Ukraine is seeking to improve its ties with the European Union, its direct neighbor, while maintaining close relations with Russia.
  • The EU has repeatedly criticized corruption in Ukraine's economy and wants assurances that Ukraine can guarantee secure transport of gas.
  • Germany depends on Russian gas for 32 percent of its domestic consumption, making the issue a top priority for the EU and Germany.
  • Gazprom is eager to reassure European clients that it can guarantee stable gas supplies, as over 80 percent of Ukraine's energy needs are supplied by Russia and 85 percent of Gazprom's exports to Europe transit through Ukraine.
  • The new system would initially be costly for both sides, with Gazprom charging Ukraine $80 per 1,000 cubic meters, an increase of around $30 from the current rate.
  • If corruption in the energy sector is reduced, it could make up for the extra amounts of gas Ukraine had to import in the past due to theft.
  • Ukraine could earn more from transit costs and invest in the transit gas pipeline, which needs upgrading.
  • Gazprom could sell more to Europe, while Ukraine could gain more from having extra capacity in the existing pipeline.

Statistics:

  • Ukraine needs to import over 80 percent of its energy from Russia.
  • Gazprom's exports to Europe transit through Ukraine at a rate of 85 percent.
  • Germany depends on Russian gas for 32 percent of its domestic consumption.
  • Gazprom plans to charge Ukraine $80 per 1,000 cubic meters for gas, an increase of around $30 from the current rate.
  • Ukraine has accumulated $1.4 billion in debts through the barter system.
  • Building the North European Gas Pipeline would cost between $8 billion and $10 billion.
  • The pipeline would have limited capacity due to technical reasons.

Sources:

  • Judy Dempsey, BERLIN: -- "Ukraine's New President Aims to End Barter System for Russian Gas", published on an unspecified date.
  • Agata Loskot, Russian expert at the Center for Eastern Studies in Warsaw, "Security of Russian Gas Supplies to the EU", published on an unspecified date.
  • Ivan Poltavets, energy analyst at Kiev's Institute for Economic Research and Policy Consulting.
  • Andrew Neff, senior energy analyst at Global Insight, an independent consultancy in Washington.
  • Agata Loskot, Russian expert at the Center for Eastern Studies in Warsaw.
  • Judy Dempsey, BERLIN: --