Gazprom Humor in Ukraine

Gazprom's latest turn as the heavy in Russian geopolitics may be high comedy or low tragedy, depending on who is talking. Perhaps it's simply chutzpah? Because who apart from Gazprom would try to persuade the world that debts it effectively owes to itself justify severing natural gas to Europe?

The issue has attracted attention because Russia supplies more than a third of Europe's gas (some European nations rely on Russia for 90% of their supply), and 80% of that supply transits Ukraine. Russia has been accused--with some merit-- of using the leverage of that supply to get its way on European political and economic matters.

Today the Financial Times reports that Ukraine seems for now to have defused a row in which -- just as a pro-Moscow slate of parliamentary candidates coincidentally seemed headed for possible defeat in Ukraine elections -- Gazprom threatened to cut natural gas to its neighbor.

But the issue of the $1.3 billion debt persists. While Gazprom seems to have much of Europe running in circles to discover the root of this suddenly vital debt, there is really no mystery.

It's a simple matter of an opaque deal involving Gazprom, its insiders and friends.

The key player to look at is a middleman company called Rosukrenergo, which is half owned by Gazprom and a Ukrainian businessman named Dmitry Firtash (for background, google the work of Glenn Simpson, my former colleague at The Wall Street Journal).

Rosukrenergo is the middleman for Turkmen gas exports to Ukraine. In other words, Gazprom -- the biggest natural gas company in the world -- itself has been incapable of shipping this natural gas, so has contracted out the work to a non-transparent middleman. As of now there is not a public list of who is getting rich from this deal apart from Firtash.

However, we now know that a $1.3 billion debt for this gas has appparently accumulated since June. Rosukrenergo perhaps has failed to collect it from Ukrainian users. But since the entire matter is cloaked in darkness, we have only Gazprom's word for it.

The bottom line, however, is that the debt is the middleman's -- Rosukrenergo owes this money to Gazprom proper.

Gazprom is such a card.