Putin Holds Europe's Gas Hostage, BP Will Use Their Influence in Russia to Help Situation

Russian President Vladimir Putin told Europe if they do not help Ukraine pay off the $17 billion debt their gas and energy supplies could be in jeopardy. British Petroleum (BP) offered to use their influence in Russia to help relations between the Kremlin and the West.

Besides the protests in Ukraine, oil and gas have been a hot topic between Russia and the West. Russia supplies almost half of Europe’s natural gas and the majority of the pipelines run through Ukraine. After the new government in Kyiv ousted Russia-backed president Viktor Yanukovych, Russia’s state owned gas company Gazprom began to cut ties to Ukraine. First they threatened to cut off the gas and then decided to scrap a discount cost to Ukraine and almost double the price. Ukraine owes Gazprom $1.9-$2.2 billion.

Putin wrote a letter to 18 European leaders and told them “Ukraine owes Russia $17 billion in gas discounts and potentially another $18.4 billion as a minimal take-or-pay-fine under their 2009 contract.” Russia holds $3 billion in Ukrainian government bonds and the debt grows by the billions every week. He pointed out the gas dispute between Russia and Ukraine could affect gas to Europe.

Putin warned that Ukraine's mounting debt is forcing Moscow to demand advance payments for further gas supplies. He said if Ukraine failed to make such payments, Russia's state-controlled gas giant Gazprom will "completely or partially cease gas deliveries."

Putin told the leaders that a shutdown of Russian gas supplies will increase the risk of Ukraine siphoning off gas intended for the rest of Europe and will make it difficult to accumulate sufficient reserves for next winter. He urged quick talks between Russia and European consumers of Russian gas.

Serbia and Bulgaria receive 90% of their gas from Russia and they were included in the letter.

In 2009 and 2006, Russia stopped all gas flow through Ukraine in winter and many cities were left in the cold. Gaprom did build a pipeline outside of Ukraine into Europe, but it would still limit availability to Europe. The threats from Gazprom are so severe that ambassadors from Slovakia, Czech Republic, Hungary and Poland asked the US to export more natural gas to Europe.

Out of all the international gas companies, BP has the largest presence in Russia with 20% invested in Russia’s Rosneft. The company said they will use this to try to ease tensions between Russia and the West.

"We will seek to pursue our business activities mindful that the mutual dependency between Russia as an energy supplier and Europe as an energy consumer has been an important source of security and engagement for both parties for many decades," [Chief Executive Bob] Dudley said at the company's annual shareholders' meeting.

"That has got to continue and I think we play an important role as a bridge."

Russia provides BP with over a quarter of their “oil output worldwide and more than a third of its oil and reserves.”

However, this could be complicated if the West decides to expand on sanctions in Russia. After Moscow officially annexed Crimea from Ukraine, President Obama passed sanctions against those in Putin’s inner circle. He did not touch the energy sector, but warned if Russia’s aggression towards Ukraine continues, he will sanction it. A company that has a large existence in the US, such as BP, can face sanctions if they do business with anyone on the Russian sanction list.


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