Ukraine to pay 80% more for Russian gas

As of next week, Ukraine will pay nearly 80% more for Russian gas.

This means Moscow might charge Ukraine "close to $500 for 1,000 cubic meters of gas," according to the New York Times.

Ukraine uses gas for about 40% of its energy needs, and more than half of that supply comes from Russia.

Earlier this month Russia said it would no longer provide Ukraine with discounted gas. Under the agreement signed in 2010, Russian gas flowed cheaply into Ukraine and, in exchange, Russia was allowed to extend its lease on a military base in Sevastopol, Crimea. Now that Russia controls Crimea, it doesn't need the gas deal.

"Russia, because it committed armed robbery of Ukraine, and in this way in fact destroyed our bilateral agreement, wants to raise the price of gas for Ukraine,” Ukrainian Prime Minister Arseny Yatseniuk told reporters, as reported by the New York Times.

Ukraine has since secured $27 billion financing deal with the International Monetary Fund (IMF) to help stabilize the economy.

Russia Is Slowly Turning The NatGas Tap Off To Europe

While Naftogaz (Ukraine's gas pipeline operator) states that all gas transportation from Russia to Europe is running normally, Bloomberg reports that Russian natgas exports to Europe are declining. Shipments are down over 4% from the prior week and also lower to Ukraine. This 'adjustment' follows increased sanctions by the West as Medvedev's notable statement this morning that Ukraine owes Russia $16bn.

NatGas output is tumbling

The good news:

Gazprom today said natgas transit to Europe via Ukraine, supplies for Ukrainian consumption  

But Pay Up...

Ukraine owes Russia $11b after collapse of 2010 deal, Russian Prime Minsiter Dmitry Medvedev says to President Vladimir Putin at Security Council meeting, according to transcript on Kremlin website.

Medvedev adds $3b Ukraine bonds bought in Dec., ~$2b debt to Gazprom for natgas supplies

NOTE: In 2010, Russia agreed to sell natgas at discount in exchange for extending lease to Black Sea naval port of Sevastopol in Crimea to 2042 from 2017

Or Else...

Russian natgas exports to Europe and Turkey, excl. former Soviet Union, declined to 405.3mcm as of March 22,  according to Bloomberg calculations based on preliminary data from Energy Ministry’s CDU-TEK unit.

Avg daily exports to region were ~457mcm in March, lower than yr earlier: calculations based on CDU-TEK data

Shipments March 16-22 were 3.04bcm, 4% decrease vs level in week ended March 15

Russia is now asking close to $500 for 1,000 cubic meters of gas, the standard unit for gas trade in Europe, which is a price about a third higher than what Russia’s gas company, Gazprom, charges clients elsewhere.

Russia says the increase is justified because it seized control of the Crimean Peninsula, where its Black Sea naval fleet is stationed, ending the need to pay rent for the Sevastopol base. The base rent had been paid in the form of a $100 per 1,000 cubic meter discount on natural gas for Ukraine’s national energy company, Naftogaz.

And if that's not clear enough...

Would America Go To War With Russia?

Would America Go To War With Russia?

Vice President Biden was in Warsaw last week to reassure our eastern NATO allies that they have the support of a “steadfast ally.” But if Russia moved against Poland or the Baltic States, would the United States really go to war? Or would we do nothing and effectively destroy the NATO alliance?

President Obama has ruled out a “military excursion” in Ukraine. America is not obligated legally to take action against Russia for annexing Crimea. We would not go to war if Russia mounted a large-scale invasion of Ukraine to restore the ousted, pro-Moscow government of Viktor Yanukovych, currently under U.S. sanctions. And we would not even send troops if Ukraine was partitioned, or absorbed by Russia. Americans have no interest in such a conflict, and no stomach for it.

NATO allies are a different matter. The North Atlantic Treaty is a mutual-defense pact, and Article 5 says that an armed attack against one member state “shall be considered an attack against them all.” This is a clear red line. The only time Article 5 has been invoked was in the wake of the September 11, 2001 terrorist attacks, and most NATO allies sent troops to support the efforts in Afghanistan and Iraq.

Could the current crisis expand to touch NATO? The developing situation in Ukraine has been compared to Germany’s absorption of Austria in 1938, or the subsequent partition and dismemberment of Czechoslovakia. Hillary Clinton compared Russian president Vladimir Putin to Adolf Hitler, which by extension puts President Obama in the role of British prime minister Neville Chamberlain, who famously failed to achieve “peace in our time” at Munich.

Push the analogy further. The Second World War was sparked by Warsaw’s resistance to Berlin’s demand to annex the Polish Corridor, a small stretch of land—smaller than Crimea—separating the German provinces of Pomerania and East Prussia. Hitler responded by invading Poland and partitioning it with the Soviet Union. Britain and France had pledged to defend Polish independence, and two days after Germany invaded, they declared war. In his war message,Chamberlain explained that Hitler’s actions showed “there is no chance of expecting that this man will ever give up his practice of using force to gain his will. He can only be stopped by force.”

This may or may not describe Mr. Putin, as Mrs. Clinton alleged. But if similar circumstances arise in the near future, will the United States honor security guarantees made to Poland and the Baltic States when the Russian threat was only a theory?

Mr. Biden stood with Estonian president Toomas Ilves Tuesday to “reconfirm and reaffirm our shared commitment to collective self-defense, to Article 5.” He wanted to make it “absolutely clear what it means to the Estonian people” and that “President Obama and I view Article 5 of the NATO Treaty as an absolutely solemn commitment which we will honor—we will honor.” Shortly thereafter, Moscow “expressed concern” about the treatment of ethnic Russians in Estonia. Mr. Putin justified his actions in Crimea as “restoring unity” to Russian people. Estonia’s population is 25 percent ethnic Russian, compared to 17 percent in Ukraine, mostly in the north and east part of the country. Suppose anti-Russian riots “spontaneously” broke out in Estonia. What would the United States do if Moscow invoked a “responsibility to protect” these people and bring them “back” to the Motherland? Would President Obama take military action against Russia over a small, secluded piece of a tiny, distant country? Would it be like the Polish Corridor in 1939? This is highly doubtful—highly doubtful.

Aren’t we obligated by treaty to intervene? Mr. Biden mentioned the “absolutely solemn commitment which we will honor.” It was so important he said it twice. However, Article 5 says that NATO members pledge to come to the assistance of the attacked state using “such action as it deems necessary, including the use of armed force.” It doesn’t take a White House lawyer to see the gaping loophole—President Obama can simply deem that the use of U.S. force isn’t necessary. He can walk back the red line, as he did with Syria. Stern talk and minimal sanctions would follow, but Estonia would lose some, if not all of its territory. And in practical terms it would mean the end of NATO, which is one of Moscow’s longstanding strategic objectives. Mr. Putin’s chess game does not end in Crimea.

Showing Europe's Mutually Assured Economic Destruction As EU Plans More Sanctions

With senior German officials expecting discussions among leaders at the EU Summit to solely focused on a second round of sanctions against Russia (and warnings that they "must avoid a spiral of sanctions"), we thought it worth drilling down on just how mutually-dependent the two regions are. As Acting-Man's Pater Tenebrarum notes, the following infographics suggest tit-for-tat sanctions could be a really big problem for Europe and why the EU's leaders are probably quietly praying for the crisis to simply go away.

Trade between the EU and Russia (via RT)

Trade between Russia and Germany (via Der Spiegel) – Russia is Germany's 11th largest trading partner

A list of German companies with big exposure to Russia (also via Der Spiegel)

International exposure to Russian debt (via Reuters)

Here are details on selected bank exposures (via Reuters):

SOCIETE GENERALE:

France's second-biggest bank had exposure of 22.4 billion euros to Russia at the end of June, according to the European Banking Authority's (EBA) data. That equated to 15.7 billion euros in risk-weighted assets.

SG Russia, which includes Rosbank and other insurance and financial operations, made operating income of 239 million euros last year, almost double 2012 despite a 41 percent jump in losses from bad debts. The bank said it had 13.5 billion euros of outstanding loans in Russia and deposits of 8.5 billion in the country at the end of 2013.

SocGen's equity in its Russian business accounted for 7.7 percent of its group total, Morgan Stanley analysts estimated.

UNICREDIT:

Italy's biggest bank by assets had exposure of 18.6 billion euros to Russia at the end of June, the EBA data showed.

The bank said its revenues from Russia were 372 million euros in the fourth quarter, up 80 percent from a year earlier.

UniCredit's equity in its Russian business accounted for 2.7 percent of its group total, Morgan Stanley estimated.

RAIFFEISEN BANK INTERNATIONAL:

The Austrian lender said it is Russia's 10th biggest bank, with a loan book of 10.2 billion euros, 2.5 million customers and 192 outlets. Its Russian assets represent 12 percent of the group total, and the Russian unit made 507 million euros in the first nine months of last year, most of the group's total.

The EBA data showed Raiffeisen had a 13.2 billion euro exposure to Russia at the end of June.

Raiffeisen's equity in its Russian business accounted for 15.6 percent of its group total, Morgan Stanley estimated.

OTP BANK:

The Hungarian bank's exposure to Russia was 4.4 billion euros at the end of June, the EBA data showed.

BANK OF CYPRUS:

Its exposure to Russia was 1.6 billion euros at the end of June, the EBA data showed.

But apart from that - should be fine?! And this on the heels of Ukraine appearing to fold on any further action suggests Western powers have put themselves in a red-line-crossing MAD box...

Crimea Wastes No Time - Mints New currency coin

With the ink still wet on the referendum vote slips and the Duma's agreement to accept Crimea into Mother Russia, the Crimean Mint has wasted no time in creating the new coinage for the nation. As Crimea transitions quickly to the Russian Ruble, they have created their own "Crimea-styled" currency... 

Crimea Names Ruble Currency; Applies To Join Russia, Expects To Become Russian Federation Region By Thursday

First, for those who have missed this weekend's developing story surrounding events in Crimea, here is the 30 second summary, courtesy of Bloomberg:

• U.S., EU warn Russia not to annex Crimea after 95.5% of voters backed leaving Ukraine to join Russia in referendum.
• Ukrainian govt, EU, U.S. consider vote illegal
• Russia said vote  “fully met international norms”
• Russia deployed about 60,000 troops along Ukrainian border, Ukrainian government said yday; Ukraine closed border crossings and will mobilize as many as 15,000 volunteers in next 15 days
• Obama spoke with Putin, said referendum would never be recognized by intl community; U.S. prepared to impose “additional costs” on Russia for its actions
• Putin told Obama Kiev regime unable to curb radical, ultra- nationalists groups that are destabilizing situation, terrorizing peaceful residents
• EU ministers meet today to discuss sanctions that target Russian individuals rather than businesses; EU leaders to meet March 20-21 in Brussels to discuss further measures
• “We are all reluctant to impose sanctions because Russia will probably respond and we’ll all suffer as a result,” Poland Foreign Minister Radoslaw Sikorski said on CNN. “But Russia is leaving us with no choice.”
• Russian lawmakers to consider bill on March 21 that would allow Russia to incorporate parts of countries where residents want to secede, says a Kremlin adviser
• Russia vetoed UN Security Council resolution declaring referendum illegal; China abstained from voting
• Crimeans celebrate vote

And here is the latest : just hours ago, Crimea's parliament officially applied to become part of Russia. The parliament "made a proposal to the Russian Federation to admit the Republic of Crimea as a new subject with the status of a republic," according to a statement on its website. A Crimean parliamentary delegation was expected to arrive in Moscow on Monday to discuss the procedures required for the Black Sea peninsula to become part of the Russian Federation.

"If everything’s signed we’ll become a fully fledged region of the Russian Federation Wednesday or Thursday,” First Deputy Prime Minister Rustam Termigaliyev says in interview at govt headquarters in Simferopol. Termigaliyev added that Crimea will promptly get $1b aid from Russia in near-term, and that Hryvnia reserves enough for 10 days, then Crimea will switch to ruble. April pensions “most likely” to be paid in rubles. Crimea can be self-sufficient in natural gas after today’s nationalization of Chernomoreneftegaz. Crimea risks 150,000 hectares being left without water if Ukraine shuts off supply, though that’s “not critical,”  says Termigaliyev.

In other news, the west continues dithering and considering just how best to telegraph to the world that it is completely helpless in stopping the annexation of Crimea, which is now a fact, and that it is praying that Putin does nothing to annex any of the other Pro-Russian cities in east Ukraine in the coming days, as once again, it has absolutely no stopping power with Putin continuing to hold all the chips.

Want to know more? then you will have to wait until tomorrow, when Putin will address a joint session of parliament on Crimea on Tuesday, the Kremlin's representative to the lower house said.

The Kremlin press service did not immediately confirm Putin would address the session of the State Duma lower house and the Federation Council upper chamber.

But Garry Minkh, the Kremlin's representative in the State Duma, told reporters the president would deliver a speech to the joint session following Sunday's referendum in which Ukraine's Crimea region voted to join Russia.

Putin Responds To US, European Sanctions: Signs Order Recognizing Crimea As Sovereign State

So much for de-escalating. From the Kremlin:

Vladimir Putin signed a decree "On the recognition of the Republic of Crimea." Full text of the Decree:

1. Given the will of the people of the Crimea on the referendum held on March 16, 2014, to recognize the Republic of Crimea, in which the city of Sevastopol has a special status, as a sovereign and independent state.

2. This Decree shall enter into force on the date of its signing.

Surely this will precede Putin's own executive order recognizing Crimea as the latest member of the Russian Federation.

One also wonders: how long until Russia freezes all assets of McDonalds restaurants operating in Russia.

Where The Russian Troops Are "Pre-Takeover" Infographic

Crimea is last week's story. Now it is all about east Ukraine. In that vein, moments ago John Kerry's latest stand up comedy routine hit the tape which contained, besides the usual laugh lines, this particular pearl:

• KERRY SAYS RUSSIA DOESN'T YET HAVE FORCES FOR UKRAINE TAKEOVER

Is that so? We provide this map showing the latest distribution of Russian military forces on the Ukraine borders so that readers can make up their own mind.

And here is another map compiled by Dmitry Tymchuk, a former Ukrainian military officer, who has established an organization, the Center of Military and Political Research on Kiev, to effectively collect and gather data about military-related facts.

Kerry concluded:

• KERRY SAYS `CONTINGENCIES' IF RUSSIA MOVED INTO EAST UKRAINE

We'll know just what those are by Sunday night. The only question: will Referendum Sunday be the new Lehman Sunday...

US Official Claims 6,000 Russian Troops In Complete Control Of Crimea - Crisis Map Update

While the images and local news have been suggesting that Russia is in control on the Crimean peninsula, US officials (according to Bloomberg) have confirmed this:

• *RUSSIAN FORCES IN COMPLETE CONTROL OF CRIMEA: U.S. OFFICIAL
• *RUSSIA HAS 6,000 TROOPS IN CRIMEA, U.S. OFFICIAL SAYS
• *KERRY TO REAFFIRM SUPPORT FOR UKRANIAN SOVEREIGNITY, PSAKI SAYS

Obama, Merkel, and Cameron are now on a conference call to discuss this "fact" and officials have just reported that US Secretary of State John Kerry will visit Kiev tomorrow (though we suspect not Sevastopol):

• U.S. IS FOCUSED ON ECONOMIC, POLITICAL AND DIPLOMATIC OPTIONS ON UKRAINE, NOT ON ANY POSSIBLE U.S. MILITARY INTERVENTION, U.S. OFFICIAL SAYS
• *U.S. CONSIDERING SANCTIONS ON RUSSIAN BANKS, OFFICIAL SAYS.

Russia vs Ukraine: The Infographic

Curious how Ukraine, which with its population of 44 million and size of 603,628 square km makes it the largest single country entirely in Europe, stacks up against Russia? The following infographic should answer some questions regarding the (im)balance of power.