Russia Plays Ukraine Gas Card—Again

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Russia appears to be backing down slightly over Ukraine, with President Vladimir Putin saying that military force would be a last resort amid the threat of U.S. sanctions, but Moscow is playing the gas card as expected — again. Speaking in a live televised address on RT News, Putin said Russia would employ military force in Ukraine as a last resort, but still reserved the right to use all options in Ukraine to protect from the threat of “terror.”

“As for bringing in forces, for now, there is no such need but such a possibility exists,” he said. “What could serve as a reason to use military force? It would naturally be the last resort, absolutely the last.” Moscow views recent events in Ukraine as no less than a coup that led to the ousting of pro-Russian Ukrainian President Viktor Yanukovych.

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U.S. officials have threatened to impose sanctions on Russia over the crisis in Ukraine, while Putin commented that such a move would be counterproductive. Putin noted in his public address that Moscow did not believe there was a political future for Yanukovych and was concerned only for “humanitarian reasons.”

The ousting of Yanukovych was the culmination of months of street protests in Kiev. The latest crisis is in response to Russia’s seizing of Ukraine’s Crimea region, where Russia houses its Black Sea Fleet, which has led to an ongoing military standoff between Ukrainian troops and pro-Russian forces at the Belbek airbase.

After a day of panic on Monday, Putin’s comments today sparked a lift in the Russian bond markets. Putin’s comments come as U.S. Secretary of State John Kerry arrived in the Ukrainian capital Kiev, bringing with him news of an economic package and technical assistance for the country. Coupled with the looming threat of a Russian incursion into parts of eastern and southern Ukraine, Russia is also trying to raise the pressure on Ukraine by predictably playing the gas card.

Russian gas giant Gazprom has threatened to remove a gas price discount in April. However, according to Robert Bensh, the majority shareholder in Cub Energy in Ukraine, Gazprom’s move could actually bolster the new government in Kiev.

“This move by Gazprom was not unexpected — especially since the discount in question was a deal made under Yanukovych late last year. So this is an obvious reprisal for his ouster,” Bensh told Oilprice.com today.

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“But what’s interesting is that the new administration in Kiev could take advantage of this and play the Russian aggression card when it has to implement an increase in domestic gas prices in order to satisfy the IMF [International Monetary Fund],” Bensh said. “This will make it much easier for the new administration to convince the public of the need for a gas price increase, so unwittingly, Moscow, through Gazprom, may be helping to prop up the new government in Kiev.”

The U.S. is also considering a Congressional push to approve $1 billion in loan guarantees to help ease the sting of proposed energy subsidy cuts.

Originally written for OilPrice.com, a website that focuses on news and analysis on topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.
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