Comparative Analysis of Russian and Ukrainian Gas Transit Powers

With increasing demand for natural gas, pipeline infrastructure started playing even more important role in the Eurasian gas supply system. High degree of interdependence that pipelines entail may lead either to beneficial cooperation or generate conflict. Russia and Ukraine as major transit countries possess the (transit) power to gain leverage over other actors in the region. This presentation analyses economics, politics and power that underpin current international gas supply relations in the Eurasian energy sector by conducting a comparative analysis of Russian and Ukrainian gas transit powers using interdependence and cooperative game theory as the framework for assessment.

From the analysis of Russian and Ukrainian gas transit powers several conclusions were generated. First, the inherited Eurasian gas transit network infrastructure allowed Russia and Ukraine to use its transit leverage to either strengthen cooperation or generate short-term gas conflicts to promote its political and economic interests. Second, the gas transit strategy of both Ukraine and Russia has frequently been driven by political motivations and used as a foreign policy instrument against neighbouring countries. Third, the Eurasian gas supply network was characterized by high level of interdependence. Although energy dependence could lead to cooperation and high level of energy security, gas transit disruptions show that interdependence could not ensure stable and reliable supply of energy resources. Interdependence was just a barrier against long-term gas supply disruptions. Fourth, the higher transit power of the transit country is the more favourable transit tariff this country enjoyed. However, due to the complexity of relationships between gas producers and transit countries, sometimes actors received their “share” and bargaining power not in the form of economic revenues, but as political concessions on other issues. Fifth, Russia or Ukraine threatened to use their transit power to punish or reward political behaviour of other countries too frequently, which generated a reaction, countermeasure (for instance, investment in cost inefficient alternative pipeline projects bypass transit country) to render further use of that leverage ineffective. Due to frequent gas supply disruptions Russia decided to diversify its dependence on Ukraine as a transit country by choosing economically inefficient, but politically more secure options – Nord Stream pipeline and potentially South Stream pipeline. Moreover, Russia-Ukraine gas crises had a spill over affect on Russia-Central Asian energy relations allowing China to enter and take over the significant part of the Central Asian energy market. As a result, both Russian and Ukrainian gas transit powers have significantly decreased over the recent years. If Russia builds South Stream, Ukraine will completely lose the possibility to use its transit power. Russia’s attempt to restore its influence over the Central Asian natural gas producers may lead to a direct competition and conflict with China.