Saturday, October 18, 2014

Alexander Mercouris: Deadlock and Gas Talks in Milan

Dear friends,

It is a huge pleasure to announce today, specifically in response to the request of many of you, Alexander Mercouris has agreed to send me his his FaceBook analytical posts for posting here.  I have a huge respect for Alexander and I am delighted to welcome him here as a regular contributor.

The Saker
Alexander Mercouris: Deadlock and Gas Talks in Milan
by Alexander Mercouris

Deadlock in Milan
News from the Milan summit is still trickling through but it is clear that there has been no breakthrough and the Ukrainian crisis remains deadlocked. Poroshenko said that the "parameters" of a gas agreement have been agreed but it seems that nothing of the sort has happened.

The most fatuous comment of the day has come from van Rompuy, who called it "progress" because Putin is supposed to have said that he does not want a frozen conflict in Ukraine or for eastern Ukraine to become another Transdniestria. To see the absurdity of that comment just try to imagine Putin solemnly telling the Europeans the opposite: that he does want a frozen conflict in Ukraine and that he does want eastern Ukraine to become another Transdniestria!

Not for the first time Putin comes over as a man surrounded by dwarfs.

As I understand it the idea of a breakfast meeting between Putin and European leaders came from Merkel. With the German and European economies tanking in part because of the very sanctions policy she has imposed, Merkel needs this crisis to end. At the same time she remains utterly unwilling to take on the US and its European allies or the Atlanticists within Germany. She therefore looks to Putin to extricate her from the mess she has got herself into. However because she is not prepared to face up to the US and its allies or the Atlanticists she wants Putin to get her out of trouble by capitulating to all their demands. She tries to do this by applying "pressure" on Putin (that was what today's breakfast meeting was all about) and then looks sullenly angry and baffled when it doesn't work.

Accustomed to bullying other European leaders and getting her way, it's as if Merkel, when faced by an adversary her own size, doesn't know what to do. She reminds me of Obama who came away similarly baffled and angry after facing off with Putin two years ago at a summit when they discussed the Syrian crisis.

Meanwhile as the European and German economy tanks the Russian economy accelerates despite the falling oil price whilst the Ukraine's disintegration gathers pace. In politics and diplomacy as in war it is necessary to know when to retreat before the situation becomes a total rout. The Europeans show no such ability or understanding so we are looking at a rout.

The Gas Talks in Milan

More information is trickling out about the gas talks in Milan and they make for an ugly picture.

Ever since June the Russians have been saying that the contractual price of gas supplied to the Ukraine is $485/1000 but that they are prepared to offer on a temporary basis a $100/1000 discount, bringing the price of gas supplied to the Ukraine this winter down to $385/1000, on condition that Ukraine pays its outstanding arrears and prepays for all gas actually supplied.

The Russians have never wavered from this position. The Ukrainians have never wavered from rejecting it.

As I understand it the Ukrainian position is that the "proper" price for Russian gas is the $269/1000 Yanukovitch achieved through the discounts he negotiated with Putin last December. The Ukrainians insist that all gas arrears should be recalculated on the basis of this price and that only when that happens will they consider paying them. In the interim, under European pressure, they have said they would agree to pay a higher price on a temporary basis (apparently $320/1000) until the dispute is settled. However they insist that any payments they make during the period of this price should be treated as payment for gas supplied according to this price and not payment of arrears.

I am not going to discuss here in any detail the absurdity of the Ukrainian position, which treats a discounted price offered to Yanukovitch in return for conditions the Ukraine never fulfilled, as the "proper" price in substitution for the agreed contractual price. I don't think anyone apart from the Ukrainians believes in it. Certainly the Europeans don't.

Anyway, returning to what happened in Milan, one of the great mysteries for me about Ukrainian politicians is that though in public they compete with each other in being tough on Russia, the moment they actually have to deal with Putin face to face over gas issues they come immediately apart and turn out to be spectacularly bad negotiators. We saw this happen with Tymoshenko in 2009 and we have just seen it happen again with Poroshenko in Milan.

Briefly, earlier in the day Poroshenko said that the "parameters" of a gas deal with Russia had been agreed. This led to a brief flurry of hopeful claims and headlines including a statement from Hollande that the two sides had almost bridged their differences.

It then turned out as the day progressed that the "parameters" Poroshenko was saying had been agreed with Russia were the same as the original Russian offer. In other words Poroshenko capitulated, perhaps without understanding, to what Putin asked of him.

Putin even said that the only remaining outstanding issue was how the Ukraine would find the money to discharge the obligations it had just taken on. His suggestions amount to a proposal that the Europeans pay for the Ukraine's gas and arrears either directly or via a further IMF loan. This is something the Europeans by the way have always refused to do.

Anyway, when it finally seems to have dawned on Poroshenko that the "parameters" he had agreed to were simply what the Russians have been demanding all along, his response was to flounce out of what looks like a hurriedly arranged meeting with Putin to announce that there had been no agreement after all.

Putin for his part stuck to the Russian position and publicly declared that Russia would not supply the Ukraine with gas on credit (which is what the Ukrainian counter proposals amount to) and that "that was final".

It appears therefore that we have deadlock with no actual progress made despite some of the earlier headlines that appeared during the day. Along the way Poroshenko has been made to look a fool in front of all the leaders of Europe and Asia and the gas talks on 21st October 2014 have just been made more difficult.

Putin said just before he went to Milan that Russia would reduce the amount of gas pumped through the Ukraine if the Ukraine starts stealing gas destined for other customers. That is what Russia did in 2009 and I have no doubt it is what it will do again. Unless the Europeans now give Poroshenko an ultimatum to accept the Russian offer a total cut off looms.