Putin Could Stop Selling Gas to Ukraine. Here is Why He Will Not
Comment of the Day

April 11 2014

Commentary by David Fuller

Putin Could Stop Selling Gas to Ukraine. Here is Why He Will Not

Here is the opening of this interesting article from Bloomberg Businessweek:

For a time this week, Vladimir Putin looked ready to turn off the gas. In an April 10 letter to 18 European heads of state, he warned that Russia could “completely or partially cease gas deliveries” to Ukraine, in turn threatening Western Europe, which gets about 15 percent of its natural gas from Russia via Ukrainian pipelines.

But on April 11, the Kremlin appeared to soften its stance, saying that Russia didn’t plan to cut off Ukraine’s supply and promising it would honor its contracts with European customers.

Russia has played hardball with Ukraine before, most recently in 2009 when it shut off gas flows for two weeks in the middle of winter, causing supply disruptions across southeastern Europe. So why is Putin hesitating now?

Partly, it’s a question of timing. Because of reserves accumulated during an unusually warm winter, Europe doesn’t urgently need fresh gas supplies right now. More important, though, is Russia’s economy, which is “more vulnerable than has been perceived,” says emerging-markets economist Neil Shearing of Capital Economics in London.

All told, oil and gas sales to Europe account for 10 percent of Russia’s gross domestic product, according to Capital Economics.

Plagued by sagging growth, a weakening currency, and rising capital flight, “Russia needs money from its energy exports more than ever,” Shearing says. And there’s no practical way for Moscow to cut off Ukraine’s supply without hurting European customers that get their deliveries through Ukrainian pipelines.

David Fuller's view

This is a logical argument.  The trouble is, a dictator under pressure will not necessarily follow a logical course.  Putin is a loose cannon and remains a potential source of uncertainty for investors. 

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