Russia's Energy Defeat

Today Russia and Ukraine agreed on a solution to the dispute over the cost of gas to Ukraine and the cost of using the pipelines through Ukraine with a ridiculous solution. Essentially, each country gets most of its demands by using an opaque company as an intermediary that pays Russia far higher than it gets from Ukraine for the gas by supplying Ukraine with cheaper Central Asian gas. The deal creates a Soviet-level opacity in the trasactions. While providing Russia with higher price for its gas, Russia comes out with the short stick because of the credibility it lost by cutting off gas supplies to Ukraine (and indirectly to Europe because 80 percent of Russian gas exports to the EU travel through Ukraine). It has also, I believe, increased the future battle over the pipeline project (headed by former German Chancellor Gerhard Schroeder) that would allow Russia to ship gas to Germany, while bypassing Poland. The Polish government had argued that the pipeline would allow Russia to cut off Poland without affecting the rest of the EU's gas supply. While the argument held little sway when it was made a few months ago, it now has increased relevance. The cutting off of gas through Ukraine has provided Poland with an example of why its fears are credible. A stupid move by Putin.