If Ukraine closed its borders to Russia, would Russia soon be bankrupt?

We know little about the Ukraine, yet its importance to Russia is not just military. Indeed, while Gazprom, the Russian gas producer and exporter, claims it is owed $1.5 billion, you might look at it quite differently. Ukraine is critical to Russia's economic future if not capable of making Russia's economy totally collapse.

Europe seems very far from Ukraine and the Black Sea. While easy to drive between almost all European countries in a day, driving through Ukraine east to west is farther than any European country other than Russia. And speaking of Russia and Ukraine in the same breath as Europe seems a bit removed from reality.

But this is how these countries are classified. As a continent stretching from the far East of Iceland (maybe Greenland if you counted it) and the eastern portion of Russia, whose feet are in both Europe and Asia.

The map below from East European Gas Analysis shows the importance of Russia's gas pipelines through Ukraine. In fact, the map emphasizes how important Ukraine is to both Russia and Europe.  

Without Ukraine, there would be no gas or oil going to Europe without much greater Russian costs. Russian energy represents a huge portion of that needed by Europe, especially in Germany, Poland and the other East European states. So this is a two-way street economically. 

The precise leverage here is clear. Without Ukraine pipelines, Russia and Europe are facing economic disaster. 

With control, either Ukraine or Russia are in the driver's seat relative to costs and profits. And over the past twenty years, numerous negotiations have occurred concerning the pricing of Russian oil and gas in Ukraine and over the pipelines. 

As the U.S. Energy Information Administration stated in its report on Russia amended in November 2013:

Russia is a major producer and exporter of oil and natural gas, and its economy largely depends on energy exports. Russia's economic growth continues to be driven by energy exports, given its high oil and gas production and the elevated prices for those commodities. Oil and gas revenues accounted for 52% of federal budget revenues and over 70% of total exports in 2012, according to PFC Energy.

So, if Ukraine stopped all pipeline operations, an act obviously unlikely to happen but one that might have been detected by Russia by some "ultranationalists," one can understand far better why occupation of all of Ukraine might occur. And the most likely trigger could be an act of terrorism against the pipelines. But even without an act, an EU leaning Ukrainian government has to be very scary indeed for Russia. 

The situation could have been much worse. The Gazprom website states the following risk factors.

Liberalization policy also provides for separation of gas production assets from transportation networks within EU. Lack of exemption from the above provision means that the Group is not able to own or exercise control over transport business that will impede the implementation of the investments projects in EU.

If Ukraine had become a part of the EU, this would have provided leverage for Ukraine not only to side with Europe politically, but to require the divestiture of the pipelines in Ukraine.

Talk about an incentive to require Ukraine to stay out of the EU and under at least quasi-Russian rule.

The fact is that there is a history of substantial disputes between Ukraine and Russia, particularly over 2005 and 2006 that resulted in Russia cutting off all gas supplies through Ukraine.

It appears that this would no longer be an option for Russia. Is this why we may see eventual Ukraine occupation by Russia? Almost certainly it is at the front of EU and Russian considerations. And almost certainly, a deal involving these points might end up being at least part of the result, especially assuming full occupation never occurs.