The received wisdom is that Europe cannot offend Russia because it depends so much on Russian natural gas. We have this backwards. It should be: Russia cannot offend Europe because it depends too much on sales of natural gas sales to Europe.
Russia’s dependence on the Ukrainian natural gas market (despite current complaints of nonpayments) has gone largely unnoticed. In the past, Gazprom sales to Ukraine have equaled about 20% of sales to Europe, making Ukraine a trading partner roughly equal to Germany. As the accompanying chart shows, Gazprom’s Ukraine gas market would disappear if Ukraine reformed its energy market to eliminate the waste that makes it one of the world’s least efficient energy users. It appears that reform of its energy market stands high on the to-do list of the new Ukrainian government.
As a Russian energy analyst (V. Milov) summarizes the Gazprom report: “Taking into consideration the current economic reality, this is not the best news for our ruling elite.”