Flashpoint Russia: Imperial Energy Strategy?
It looks like the big story for 2009 is going to come out of Moscow. Already the Russians are making headlines in their attempts to gain leverage over energy prices.
Russia’s Gazprom, one of the largest energy producers in the world, cut off supplies to the Ukraine on Thursday delivering a mighty blow that is being closely watched by leaders around the world.
Gazprom said the decision comes after talks broke down over Ukraine's payments for past shipments and a new price contract for 2009.
However, it’s more likely the move reflects the deep political split between Moscow and Kiev, the capital of Ukraine. Ukrainian President Viktor Yushchenko has angered the Kremlin through his efforts to build ties to Western Europe and his support of Georgia in its August war with Russia.
Ripple Through Europe
The cutoff could spark consequences for the European Union, which depends on Russia for about a quarter of its gas — with some 80 percent of that delivered through pipelines controlled by Ukraine.
It’s worth noting that during a similar dispute in 2006, several European countries experienced shortages.
Since the 2006 crisis, European countries have built up their gas reserves and would be unlikely to see any disruption for several weeks, says Chris Weafer, chief strategist at Uralsib bank.
However, the crisis might be over before it’s started. "I believe we are close to accepting a compromise solution," Yushchenko said in a statement Thursday.
Could all the fuss be a mere tempest in a teapot? Possibly not, according to JJ Kinahan chief options strategist at Think or Swim.
During his apperance on CNBC's Closing Bell he tells us, it could be a sign of bigger trouble to come because, “the government is fragile and wildly entangled with the energy industry.”
With the huge slide in energy prices he worries that Russia, under financial distress, could become more imperial and more aggressive toward some of the countries on its borders. “There’s oil and land that’s worth money in some of those border countries,” he says.
And he thinks Moscow feels a sense of entitlement to control some of those nations. We’ll be watching.
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