A Warning From Ukraine’s Gas Fields: Corruption is Making a Comeback

A Warning From Ukraine’s Gas Fields: Corruption is Making a Comeback

As Congress considers more aid for Ukraine, it should assess the murky business developments playing out in the country and how they affect American businesses.


As Congress weighs the latest request from the White House for more aid to Ukraine, Congressmen should speak to Americans working with Ukraine’s gas industry, who have an ominous story to tell.

With estimated deposits of 1.09 trillion cubic meters, Ukraine is second only to Norway in European gas reserves. Some analysts believe that Ukraine’s reserves could eventually meet all of Europe’s natural gas needs, thereby breaking Russia’s longtime energy stranglehold on the continent. Moreover, according to a 2016 study by the Wilson Center, Ukraine could become energy independent in six years with a $20 billion investment in oil and gas production, pipeline infrastructure, and refining.


Leading the way is Ukraine’s largest company, state-owned Naftogaz, which employs more than 50,000 people and contributes more than 10 percent of the country’s tax revenue. The company has long been hamstrung by comparatively crude Russia-inspired techniques for natural gas development. But its CEO, Oleksiy Chernyshov, seems determined to modernize methods for natural gas development in Ukraine, primarily by bringing in overseas expertise from the US.

Chernyshov came to Washington in April to woo American oil giants ExxonMobil, Chevron, and Halliburton, as well as to seek political support from members of Congress for U.S. investment in Ukraine’s energy sector. He is particularly interested in oilfield services and technological expertise with onshore shale drilling. Chernyshov admits financing large-scale energy projects remains tricky during an ongoing war with Russia but adds, “We don’t wait. We go ahead.”

Naftogaz already has awarded significant contracts to U.S. firms for oil and gas equipment. One of these companies, Pennsylvania-based Vorex, has been supplying Naftogaz with drill pipe and casings since 2017 and is the largest overseas supplier of pipe and equipment to Ukraine.

The success of Vorex doesn’t sit well with Ukraine’s notoriously corrupt class of oligarchs, who are keen to keep the business to themselves. At the head of this list is Viktor Pinchuk, the billionaire owner of Ukraine’s Interpipe Inc., which doesn’t even produce the equipment Naftogaz needs but is happy to provide it by offering inferior, higher-priced material.

Though Vorex won the last three public tenders Naftogaz awarded on competitive bids, Interpipe has conspired to derail its American competitor by working the backroom levers of Ukraine’s Ministry of Economy. These rear-guard actions already have had the effect of stalling Naftagoz’s projects in the short term. It may be a cold winter in Kyiv.

Last month, Ukraine’s International Trade Commission held a closed-door hearing in response to Interpipe’s challenges to Vorex’s contracts. On August 10, the panel vowed to impose 52 percent tariffs on Vorex pipe, effectively crippling the company’s ability to compete on new bid solicitations.

The Commission’s ruling raised eyebrows in both Kyiv and Washington, in part because it appears to single out a single U.S. company for punishment. But it also makes no commercial sense: neither Interpipe nor any other Ukrainian company produces the oilfield equipment Naftogaz needs. Essentially, all the Commission’s ruling ensures is that Naftogaz—and the Ukrainian government by extension—will pay more for pipe.

Interpipe’s moves against Vorex haven’t gone unnoticed among officials in the U.S. State Department and Congress. They are troubled by this naked squeeze play—a local oligarch who brazenly manipulates the system for self-gain by unfairly targeting a foreign company. (It’s worth noting Interpipe itself was fined in 2021 for bid-rigging.) What makes this example even more troubling, however, is that not only does it play into the hands of Russia but it also raises the question of what America is fighting for when it spends billions in support for Ukraine.

Raising the price of U.S.-imported equipment will negatively affect a valuable U.S. commercial partner and, more importantly, the Ukrainian gas industry, which is counting on American know-how and investment to break free of Russian oppression. By using a rushed and opaque claims process to favor Interpipe, Ukraine’s government is sending an ominous warning to potential U.S. investors.

But the Commission’s action also sends a message to Congress. Washington hasn’t spent $76 billion on Ukraine over the past eighteen months just to see the country’s bureaucrats and power players game the system to disadvantage U.S. commercial interests.

Ukraine should draw at least two lessons from the tragedy of its ongoing war: pick your friends wisely and don’t screw America. Ukraine’s economic, political, and security futures all hinge on continued support from the United States.

Ambassador Adam Ereli was U.S. Ambassador to the Kingdom of Bahrain from 2007–2011 and Deputy State Department Spokesperson from 2003–2006.

Image: Shutterstock.