Putin has Europe over a barrel. Again.

Western Europe is going to find itself very dependent on Russia as an energy supplier in the coming years, and as Eastern Europe already knows, that is an uncomfortable position to be in.

The dispute between Russia and the Ukraine over gas transit is not new. The Ukraine has been helping itself to gas for many years, and much of Ukrainian politics is based on jockeying for control of gas revenues.

The political theatre of a Russia/Ukraine standoff, when it flares up, holds Western Europe over a barrel, and always seems to do so when weather in Europe is particularly cold, so as to emphasize the importance of energy supply control.

So much for the Orange Revolution being about democracy. Vladimir Soldatkin and Henning Gloystein for Reuters:

Gazprom says unable to meet greater Europe gas demand

European countries had reported that Gazprom, which responsible for around a quarter of European Union’s natural gas imports, reduced supplies to them due to a biting cold front, while they also requested more fuel for heating.

Gazprom has been saying it had not breeched any contractual obligations. But on Saturday its chief financial officer, Andrey Kruglov, told Putin the company had cut gas supplies to Europe by up to 10 percent for a few days before returning them to normal levels.

However, the company cannot supply more gas, he said. “We see that they are requesting more… But Gazprom at the moment cannot supply the extra volumes our West European partners are asking for,” Kruglov told Putin.

The shortfall in supplies was a reminder of the Russian gas supply halts to Europe at the height of winter in 2006 and 2009 due to a spat betweenRussia and Ukraine, which stands on the gas transit route to the EU, over pricing.

Ukraine has been asking Russia again to lower its gas prices, threatening a similar standoff. On Friday a Gazprom official said that Ukraine must be taking more gas than its contracted share.

Russia enjoys holding the reins of power in the energy sphere. Energy supply at below market prices was the glue that bound the old Eastern bloc together, and a major reason why Eatern European countries did not want to give up their aging reactors after the fall of the Soviet Union. That would have left them dependent on Russian gas instead, and they wanted whatever independence they could carve out.

Russia will be in an even stronger position of mastery of Western Europe once it is able to send supplies either west or east to China. With an additional customer, and one with deep pockets at that, a price floor is likely to be established at a much higher level than would otherwise have been the case. Failure to outbid China could result in much reduced supply for Western Europe, and the likelihood of Europe in the grip of financial crisis being able to outbid China is not high.

Western European energy reserves are very heavily depleted. Maintaining Europe’s current level of socioeconomic complexity will be critically dependent on energy imports at a time when purchasing power will be collapsing with the existential threat to the single currency. The power this will confer upon the energy supplier will be very significant, and Russia will enjoy yanking Europe’s chain from time to time in order to make sure that power is well understood..