Adding Fuel to the Fire

How the American shale gas boom can weaken Russia's hand in Ukraine.

With every passing hour, Ukraine seems to move closer to the brink of disaster. The causes are multifaceted, but a key driver of the crisis has been Ukrainian -- and European -- dependence on Russian natural gas. In the short term, U.S. officials are understandably scrambling to keep events from spiraling out of control in Crimea, where Russian troops have taken control of much of the peninsula. In the long term, however, the United States may be able to tip the balance against President Vladimir Putin, using the American shale-gas boom to weaken Russia's geopolitical leverage in Ukraine.

Oil and natural gas are critical to the Russian economy, accounting for over half of federal budget revenues in 2012 and more than 70 percent of all exports. Ukraine, meanwhile, depends on Russia's Gazprom for two-thirds of its gas needs, an arrangement that has given Moscow considerable leverage in Kiev. Gazprom announced that it will raise prices for Ukraine beginning in April, citing the country's failure to pay debts. If the current standoff escalates, Russia could cut off supplies entirely, as it did over a pricing dispute in 2009. Although the impact of the loss of Russian supplies could be muted by current stockpiles -- Ukraine has four or five months of gas in storage after a mild winter -- a longer-term disruption would threaten the inventory cushion required for next winter.

And it's not just Ukraine that could be affected by the current crisis: More than half of the natural gas that Russia supplies to Europe flows through Ukraine. Natural gas prices in Britain, Holland, and Germany jumped around 8 to 10 percent on Monday due to the crisis, before easing slightly since then. And Europe is only growing more dependent on Russian gas. In 2013, the share of Europe's gas supplied by Gazprom reached a record level, and the International Energy Agency projects that it will continue to rise in the coming years. Russia has many long-term contracts in place to sell gas to Europe at prices linked to the high price of oil. And the global market for liquefied natural gas (LNG) is facing tight supplies in the medium-term.

Gas was a major factor in the fall of Ukrainian President Viktor Yanukovych. The protests that led to his ouster were prompted by his abandonment of plans for an association agreement with the European Union that would have opened the way for trade and financial assistance. That fateful decision in November followed a promise by Putin to provide Ukraine with a $15 billion bailout package and to slash natural-gas prices by a third. Even though Ukraine has cut its consumption of gas, which fell by more than 20 percent between 2005 and 2011 because of improved industrial efficiency and lower output, its heavy dependence on Russian gas made the offer of cheap energy too good to refuse.

But Ukrainian and European reliance on Russian gas can be reduced over time. As long-term contract volumes decline and E.U. imports rise, the growing gap can be filled by flexible, divertible LNG supplies from countries other than Russia, reducing the leverage Moscow can exert with its energy resources. Toward the end of the decade, global LNG supplies are projected to rise sharply with new supply from North America, Australia, and potentially East Africa and the Eastern Mediterranean. Recognizing the benefits that flexible LNG supplies can provide to its energy security, Ukraine has plans to develop an LNG import terminal on the Black Sea coast.

So how does the U.S. shale-gas boom enter into the equation? American LNG exports can help increase diversity of supply and encourage competition in Europe and globally, ultimately driving down prices. The Obama administration has already approved six export applications that will allow shipments to countries with which the United States does not have free trade agreements. These include some of the world's largest LNG consumers like Japan and India. Still, the market remains uncertain about whether more export terminals will be approved. To date, the public debate about American LNG exports has mostly focused on the extent to which exports might push up domestic natural-gas prices. As the administration considers whether to continue approving export applications, it should take into account the geostrategic and security benefits of supplying more LNG to the global market.

In addition to diversifying its import options with LNG, Ukraine can increase its energy security by developing its own natural-gas supplies. According to the U.S. Energy Information Administration, Ukraine has the third-largest shale gas reserves in Europe, behind France and Poland. Exploration activity in Ukraine has been minimal, however, and significant legal, regulatory, and technical challenges exist. Countries like Ukraine seeking to develop shale resources can learn from the U.S. experience, which is why the State Department launched a program to help countries do so safely and economically. U.S. officials can also support countries by working to expand access for American firms with experience and expertise in developing shale resources.

By bringing both U.S. natural gas and U.S. technology and expertise to the global market, the American shale-gas boom can help diversify global natural gas supplies and undermine the ability of traditional gas suppliers like Russia to use monopoly positions as weapons. This will not happen overnight, but even as officials work to avoid immediate conflict in Ukraine, they should not lose sight of the potential long-term geopolitical benefits of the U.S. energy revolution.

Spencer Platt/Getty Images


Eastern Promises

How two small, post-Soviet states could wind up the real winners in the Ukraine crisis.

In 2005, in a now-famous television broadcast, Vladimir Putin described the demise of the Soviet Union as "the greatest geopolitical catastrophe of the century." But the Russian president seemed to take some consolation from the fact that, in his view, the former Soviet republics were bound by a "shared historical destiny."

The frontier of this perceived destiny does not end at Ukraine, where Russia is now flexing its muscles in the name of nationalism. Rather, it veers south.

While Russia and Ukraine face off in Crimea, foreign eyes are already migrating toward Moldova and Georgia -- the two countries that initialed association agreements with the European Union in November, at the same time that Ukrainian President Viktor Yanukovych refused to sign his own such document and turned his back on Europe. Both Moldova and Georgia, like Ukraine, emerged from the rubble of the Soviet sphere. Both countries, like Ukraine, have made advances in recent years toward the EU. Both, like Ukraine, have born the brunt of varied Russian aggressions, from trade sanctions to military interventions. And both countries, like Ukraine, have much to lose if Putin's dreams of a Moscow-dominated "Eurasian Union" to counter the EU are realized. (He has said he plans to unveil the union in 2015.)

But, unlike Ukraine, might Moldova and Georgia come out of the current crisis as geopolitical winners?

"It's a good point," says John Herbst, the former U.S. ambassador to Ukraine. "It's possible that as a result of this crisis... Europe and the United States will wind up taking firm steps against Russia that would make them more favorably disposed to helping Georgians and Moldovans [with] their Russia problem."

Indeed, Russia's invasion of Crimea has revealed the extent to which Putin will physically pursue his revanchist claims. By extension, the invasion has inspired renewed American and European commitments to other former Soviet states.

Take the case of Georgia: In the last year of George W. Bush's presidency, Herbst explains, EU leaders like Germany and France acted skittish about extending the EU and NATO's reach to Tbilisi. "Not because Georgia wasn't ready, though some made that argument," Herbst says, "but more because they didn't want to upset the Kremlin." That rationale "would probably be weaker as a result of what is happening with Ukraine." The Kremlin is already plenty upset, so bringing Georgia more closely into the fold of Western institutions could now be more likely.

Already, it is clear that Western leaders are paying close attention to Chisinau and Tbilisi. It was all smiles on Monday in Washington, for instance, when U.S. Secretary of State John Kerry met with Moldovan Prime Minister Iurie Leanca. Before a throng of reporters, Kerry gushed that he was "very, very excited" about Leanca's leadership abilities -- and lamented "that Russia... has put pressure on Moldova." At the same time, Kerry announced that Washington would boost aid funding to Moldova: from $4.7 million to $7.5 million.

The high-level meeting was one of many that have taken place between with Moldovan and Georgian officials since the Ukraine crisis began in late 2013. Leaders from both countries were recently invited to Washington. And at a meeting last month, EU foreign ministers discussed various means of increasing contact with the two states. A "restricted distribution" paper, written by Sweden and signed by a dozen other countries in the lead-up to the February meeting, outlined plans for a p.r. offensive in the former Soviet sphere, "to respond to disinformation" and educate citizens about the benefits of trade with Europe. (The EU predicts that Deep and Comprehensive Free Trade Agreements, which would open the union's trade borders to both countries, could boost Georgia's GDP by 4.3 percent and Moldova's by 5.4 percent.)

At the same time, European leaders have pushed to accelerate Moldova and Georgia's European integration process. Last December, the two countries were put on fast track to EU association. (Association agreements set up broad frameworks for cooperation -- political, economic, and social -- between the EU and third parties, and they may or may not be used as a basis for later EU accession.)Events in Ukraine, the European Council president noted at the time, reveals "a yearning for a better future [that] is shared also by the people of Georgia and of Moldova."

Later, in February, the European Parliament voted to lift visa requirements for Moldova. Around that time, calls mounted for NATO to open its arms to Georgia.

Moldova and Georgia have long asked for help from Europe and the United States. And in welcoming recent developments, the countries' leaders have also asked for more of the same. On Feb. 25, for example, Georgia's prime minister asked Europe to formulate "a master plan for the Europeanization of our country."

And to be sure, both countries need help -- economically dependent as they are on Russia. Moldova in particular relies almost entirely on Russian gas. (Russian Deputy Prime Minister Dmitri Rogozin eagerly reminded Chisinau of this last fall, as winter approached. "We hope," Rogozin told Moldovan officials, "that you will not freeze.") Russia is also an important market for Moldovan and Georgian goods. Last August, Russia proved that it is willing to use this reality against its small neighbors when it suddenly banned Moldovan wine (a key export), citing health and sanitation violations.

But the geopolitical threat that both countries face looms even larger than the economic one. Moldova and Georgia each possess their own Crimeas: autonomous, breakaway regions with sizeable ethnic Russian populations (Transnistria in Ukraine and South Ossetia and Abkhazia in Georgia). In light of events in Ukraine, some speculate that Moscow will move to consolidate its hold on these territories too -- or at least stoke ethnic tension inside the regions, thus laying the ground for a "protective" Russian intervention. Only six years ago, Georgia and Russia fought a short war over South Ossetia and Abkhazia, which ended effectively in a political stalemate. (Russia recognizes South Ossetia and Abkhazia's independence; Georgia does not.)

In the face of these looming challenges, there are demands for American and European leaders to help Moldova and Georgia correct their trade imbalances with Russia while also thawing the frozen conflicts in their disputed states. There has been some movement on the trade front: Last month, EU foreign ministers discussed a plan to "assist partner countries to improve energy efficiency and to reduce dependency." But on the breakaway regions, little has changed in Abkhazia, South Ossetia, and Transnistria for many years.

Importantly, one subject remains off the table everywhere: the expansion of the EU to admit Moldova and Georgia as full members. "In a way, with the Crimea intervention, it becomes a lot more complicated," says Michael Cecire, a fellow at the Foreign Policy Research Institute and a member of the Georgian Institute of Politics.

"There is a method to Putin's moves," Stephen Hadley and Damon Wilson of the Atlantic Council wrote in a recent op-ed. "The territorial disputes his actions create give Europeans pause in considering further integration of those countries into the European Union, NATO, and other Western institutions." Russian maneuvering, in other words, makes the domestic political scene within the ex-Soviet states messy, and Western institutions don't want instability in their own houses, nor do they want to risk getting dragged into military tangles. All this, in turn, helps Putin pressure states into joining his rival Eurasian Union.

Of course, Moldova and Georgia aren't the only countries in the region that are on edge. In recent months, observers in Estonia, the Czech Republic, Poland, and Lithuania have also expressed fear of an expanding Russian reach. In some cases, they have drawn parallels (however tenuous) to their own Russian invasions of decades past: the Baltics in the 1940s, Hungary in 1956, Czechoslovakia in 1968.

But while it might be tough for Russia to wreak havoc in these countries (all of them already in the EU), in Transnistria, Abkhazia, and South Ossetia, it wouldn't take much for Moscow to cause trouble. In January, Russia suddenly expanded its Olympic security zone into Abkhazia, leading the Georgian government to express "deep concern."  Meanwhile, Transnistria's sizeable Communist Party has turned against further integration with Europe. And Russian troops remain in all three regions.

At any time, argues Herbst, pro-Russian leaders within these territories might call for Moscow's "assistance." Such a possibility brings to mind the words of Polish Foreign Minister Radoslaw Sikorski, who reportedly once observed, "Russia has never actually invaded Poland -- instead it always ‘came to help.'"

The extent to which Europe and the United States will embrace Georgia and Moldova is not yet clear. Already, there are some signs of wavering after an initial burst of commitments: EU leaders like Germany, for one, remain cagey on the issue of whether or not to firmly sanction Russia for its actions in Crimea. Meanwhile, on Thursday, Crimean parliamentarians approved a resolution "to enter into the Russian Federation." And Russian Prime Minister Dmitri Medvedev has said that Moscow would make it easier for people living in the former Soviet Union to obtain Russian citizenship.

But much still rides on how Western leaders respond to developments in the coming days and weeks. And regardless of whether they emerge from the Ukraine crisis as geopolitical winners or losers, Moldova and Georgia are emblematic of intensifying, Iron Curtain-esque jostling over the fate of the former Soviet Union -- an East-West contest that seems unlikely to end anytime soon.