Deal or No Deal

As many of you know, there has been an on-going war between Russia and Ukraine over determining its shared borders and allowing Ukraine to join the West. Although the military battle has recently ceased due to numerous nations imposing economic sanctions against Russia, the Kremlin has discovered an alternative way to inflict damage upon Ukraine.

Rather than imposing military pressure on Kiev, Russia has stimulated another conflict – now related to natural gas. Last year, Ukraine received approximately 50 billion cubic meters of gas from Russia and was primarily dependent on Gazprom, the Russian state-owned gas provider and largest extractor of natural gas in the world. However, as the war behind Ukraine and Russia augmented, Russia nearly doubled Ukraine’s gas price, creating numerous economic tensions on the nation. Naturally, as these prices doubled, Ukraine struggled to pay its bills, and now owes nearly $5.3 billion to the extractor. To make matters worse, Gazprom has terminated all gas deliveries to Ukraine, leaving Kiev without the necessary energy to manage its economy and heat its homes this upcoming winter.

Struggling to stay warm, Ukraine has a significant decision to make. The Kremlin is demanding Ukraine to pay $3.1 billion in debt by the end of the year in return for natural gas for the winter. However, Gazprom has decided that it will only distribute five billion cubic meters of gas, approximately 10% of Ukraine’s annual consumption, at a rate that is estimated to be 40% higher than what Ukraine has previously paid.

If Ukraine denies the offer, the nation will need to essentially rely on domestic flows and storage for the winter. However, this amount will create a substantial dent in lifestyles as households will live in freezing temperatures and lack access to hot water.

While it seems that Ukraine has no other logical choice than sign this deal, it certainly has a huge decision to make. It seems that Kiev definitely does not want to continue any business with the Kremlin, but at the same time, if it chooses not to, I wonder how the nation will operate and survive. Analysts have already estimated that the Ukrainian economy is going to contract by 7% this year – without Russia, 7% can easily become a double-digit number.

-Neil Shah