Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0782
    -0.0012 (-0.11%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2626
    +0.0004 (+0.03%)
     
  • USD/JPY

    151.3500
    -0.0220 (-0.01%)
     
  • Bitcoin USD

    69,965.85
    -635.27 (-0.90%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,369.44
    +201.37 (+0.50%)
     

Why Ukraine leans toward Russia for natural gas instead of Europe

Why could Ukraine's natural gas tension drive urea prices down? (Part 6 of 9)

(Continued from Part 5)

Russia’s potential offer

Russia may offer discounted natural gas prices if Ukraine grants better terms for the Russian naval fleet in Ukraine’s Crimea, according to a senior Russian official quoted by Reuters on December 11. Loans would also be provided if they were secured by manufacturing facilities important to Russia’s defense.

Impact of exports

Currently, Ukraine exports $17 billion of goods to Europe and $16 billion to Russia. If Ukraine signs a deal with the EU, trade with Russia could disappear, which Russia estimates would cost Ukraine 35 billion euros. This is much larger than the potential savings of 487 million euros a year if it signs a free trade agreement with Europe, eliminating about 95% of customs duties. Of course, Russia could be exaggerating, but it’s rather a significant threat. In order to comply with new trade standards, Ukraine would also be required to adopt 350 laws, which is both time-consuming and costly.

Away from Europe—for now

On December 15, the European Union suspended talks after Ukraine failed to show clear commitment to signing the deal. A few hours later, Ukrainian Prime Minister Mykola Azarov said Sunday in a late-night interview on Ukraine’s national broadcaster, “Ukraine and Russia plan to approve a road map to improved trade relations on Tuesday,” according to CNN. However, Azarov rejected claims that Ukraine will be joining Russia and other former Soviet members’ Customs Union.

A third way out?

There may be a third way out for Ukraine: to stay in the middle. Threats from Russia would be minimized if Ukraine doesn’t sign a deal with the EU. Ukraine may not need to join Russia’s Customs Union by leveraging its position as a major transporter of natural gas to the rest of Europe. Should natural gas prices in Ukraine fall, this may negatively affect nitrogenous fertilizers. Gazprom, once the darling of Russia and one of the largest companies in the world by valuation, has fallen out of influence. The next part of this series will discuss this in more detail.

Continue to Part 7

Browse this series on Market Realist:

Advertisement