Deep Dive - Moldova’s Gas History with Russia
How did we get to this crisis and what does everyone want?
Welcome back to “Deep Dives” at Moldova Matters! These subscriber only articles try to take a more in-depth look at some issue driving the news in Moldova.
***Update***
In the week following the publication of this Deep Dive new reporting has shown that the $709 million dollar gas debt that the Russian Federation is seeking to extract from Moldova is not in fact part of the $8 billion dollar contested Transnistria debt (probably). We cover the latest reporting on the origin of this debt in the Weekly Roundup. While this changes some of the information and perspective of this Deep Dive, the main outlines of the relationship between Moldova and Russia on Transnistria gas issues remain the same and instructive of the fraught geopolitical underpinnings of the negotiations and gas crisis more broadly. We’re sorry for any confusion based on incorrect early reporting, but information is changing quickly and as you’ll see from the Weekly Roundup no one really knows just what debt we are talking about.
This year in Moldova, as with much of the world, it feels like we are reeling from crisis to crisis without hardly a moment to breathe. Now, as winter approaches an energy crisis and possible catastrophic gas shortage looms large and is consuming all the oxygen in political and economic news. Today, in a Deep Dive article we’re going to take a look at just how this all happened with a specific lens on Moldova and the Moldova-Russia energy relationship. By no means will this be an exhaustive dive into such a massive topic. The hope is to establish some key context on an issue that is being spun and re-spun in the news every day.
Recap - What Gas Crisis?
As we discussed at length in the last Weekly Roundup, Moldova is currently struggling to secure a fixed price long term contract with GazProm, Russia’s state energy company. This contract is about both the price of natural gas, measured in cubic meters, and the volume of gas that GazProm will agree to supply to Moldova on a monthly basis. Moldova’s most recent such contract expired in October which has resulted in floating “market” rate prices from GazProm while they negotiate another contract. As things stand right now this has resulted in a worst of all worlds situation, gas prices have increased by nearly 5x and there are shortfalls in volume threatening the total failure of Moldova’s gas pipeline system due to lack of pressure. The government has declared a state of emergency and is working through various scenarios in order to have successful negotiations and to diversify energy suppliers as a hedge against disaster.
This week negotiations with Russia failed and the Russian side showed their hand. Russian negotiators told Russian state media that Moldova was being unreasonable. Moldova wanted a 50% discount from market rates but Russia would agree to a 25% discount… provided one condition: that Moldova immediately pay back 709 million US dollars of unpaid gas debt. The Russian side further said that floating contracts and gas supply could continue until December 1st. After this date, if Moldova did not pay off its debt, GazProm would cut off gas supplies entirely.
Ok… So Moldova just has to pay its debts?
Nope, not quite that simple. These debts that Russia is talking about are not from the Moldovan government, they are from Transnistria. The Moldovan government does not recognize its responsibility for buying the Transnestrians free gas. But to really understand this issue we need to dive into some of the history of this breakaway region and the key negotiating chips being used by Russia to keep this conflict “frozen” or to create a more pliable Moldova from it.
Basically, this is geopolitics not economics, and Russia feels it has a strong hand to get some concessions.
The Transnistria Issue
In order to understand the negotiating aims of the Russian Federation in this gas crisis, it’s key to first get some grounding in the Transnestrian conflict. This isn’t going to be a history of Transnistria or the 1992 war. What’s important is to get some basics down. Following the collapse of the USSR and independence of Moldova the region of Transnistria, on the left bank of the Nistru river, sandwiched between Moldova and Ukraine, itself declared independence. Moldova did not recognize the right of the region to secede and a diplomatic crisis followed by a short but bloody war followed. It ended when the Russian 14th Army, left in the region after the fall of the Soviet Union, intervened on the side of the Transnestrians. This has resulted in a “frozen” conflict whereby the river is the de facto border with 2 exceptions - a Moldovan pocket on the left bank in Dubasari and a Transnistria pocket on the right bank in Tighina (known now as Bender). River crossings are still guarded by the Russian 14th Army which has been rebranded as a “peacekeeping force.”