Ukraine Threatens Oil and Gas Cut-Off in Russia Sanctions
By Daria Marchak and Volodymyr Verbyany August 08, 2014
The list of possible sanctions includes a “complete or partial ban on the transit of all resources,” Prime Minister Arseniy Yatsenyuk told reporters in Kiev today in response to a question about halting gas flows. Photographer: Vincent Mundy/Bloomberg
Ukraine threatened to block Russian oil and gas supplies to Europe in new sanctions against Vladimir Putin’s government, which it blames for a separatist uprising that has ravaged the country’s east.
Ukraine, which no longer receives any gas from Russia but acts as a conduit for its neighbor’s European customers, is considering a “complete or partial ban on the transit of all resources” across its territory, Prime Minister Arseniy Yatsenyuk told reporters today in Kiev. It may also ban Russian planes from its airspace and cut defense-industry cooperation.
“There’s no doubt that Russia will continue its course -- started a decade ago -- aimed at banning imports of Ukrainian goods, limiting cooperation with Ukraine, pressure and blackmail,” Yatsenyuk said. “In the most negative scenario for Ukraine, losses during the first year may reach $7 billion, not only because of sanctions but also because of the Kremlin’s aggressive policy.”
Video: Will Russia’s Food Import Ban Back Fire?
Unrest in Ukraine
The threat may signal that the government in Kiev calculates it has little to lose. It comes a day after Russia banned food imports from Ukraine, the U.S., the European Union and other countries that blame it for stoking the worst geo-political crisis since the Cold War.
Gas prices in western Europe rose on the news of Ukraine’s sanctions plan, which would require parliamentary approval.
Less Dependent
Ukraine hasn’t received Russian gas since June 16, when OAO Gazprom cut its supplies in a debt and pricing dispute. The country will manage at least until the end of the year by using stored gas and reducing consumption, according to NAK Naftogaz Ukrainy Chief Executive Officer Andriy Kobolyev.
Ukraine transported 86.1 billion cubic meters of Russian natural gas and 15.6 million metric tons of oil last year, according to a February bond prospectus. That’s about half of Russia’s total gas exports, though less than 7 percent of oil shipments.
“That’s pretty significant, so I can see why prices are going crazy,” Trevor Sikorski, head of gas, coal and carbon at London-based consultants Energy Aspects Ltd., said by phone. “It is quite an extraordinary statement. Western European governments are not going to be happy with this.”
Winter gas in the U.K., Europe’s biggest market, jumped as much as 2.6 percent to 62 pence a therm ($10.42 per million British thermal units), the highest level since July 29 on the ICE Futures Europe exchange. Dutch gas for September rose as much as 2.8 percent to 18.60 euros ($24.91) a megawatt-hour on the Title Transfer Facility hub.
Other Routes
Gazprom stopped shipping gas through Ukraine for almost two weeks in 2009, leaving several EU states including Bulgaria and Slovakia without supplies. It has since worked on other transit routes, including opening Nord Stream, which pumps gas under the North Sea, in 2011. Gazprom also plans to complete the South Stream project with European utilities such as Italy’s Eni SpA (ENI) and France’s Electricite de France SA, by 2019.
Russia also has routes to ship oil that bypass Ukraine, and restrictions would have a bigger effect on Ukraine’s budget and EU countries, Igor Dyomin, a spokesman for Russia’s oil pipeline operator, OAO Transneft, said by phone. The Russian Energy Ministry and Gazprom declined to comment immediately.
Bond Losses
In Washington, the American Petroleum Institute lobbying group said Ukraine’s announcement underscored the need to speed the approval of natural gas exports, even if U.S. gas won’t replace Russian fuel in Europe anytime soon.
“If policy makers act now to allow free trade, U.S. energy exports can further reduce the impact of unrest overseas and limit the influence of foreign suppliers that dominate other markets,” John Felmy, API’s chief economist, said in a statement. The group’s members include Exxon Mobil Corp. (
XOM:US) and Chevron Corp. (
CVX:US)
Ukrainian government bonds extended losses, with the yield on the dollar note maturing in July 2017 climbing 10 basis points to 11.04 percent. The hryvnia also weakened even after the central bank intervened yesterday to stabilize the currency. Russian stocks gained after losses yesterday in the wake of the import ban. The Micex Index (INDEXCF) rose 1.1 percent in Moscow.
Ukrainian lawmakers will vote Aug. 12 on the sanctions bill, which was approved by the cabinet today. It would enable the government to use 26 types of penalties, including possible asset freezes and bans on participation in state asset sales.
The rest is here:
http://www.businessweek.com/news/2014-08-08/ukraine-says-it-s-tightening-encirclement-of-rebels
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