Ukraine gas dispute with Russia raises supply fear

By Aussiegirl

There has been an ongoing dispute between Russia and Ukraine regarding gas supplies. For years Russia supplied gas at reduced rates in barter for use of Ukraine's pipelines which deliver the gas to not only Ukraine but to Western Europe. This year, probably in retaliation for the increasing turn by Ukraine towards the EU and NATO, Vladimir Putin has threatened to suddenly quintuple the price of gas, a move which would potentially crippling effects on the Ukrainian economy. With the upcoming elections it is in Putin's interest to make Yushchenko as unpopular as possible. Ukraine does however, have a few aces up its sleeve and it's likely that an eleventh hour agreement will be reached. Ukraine can demand market rates for the rentals on the seaports in Crimea that it currently shares with the Russian navy. Democracy is a crime against the Russian state the Putin cannot forgive.

FT.com / International Economy / Oil - Ukraine gas dispute with Russia raises supply fear

Ukraine and Russia have had many disputes over natural gas, but have never come as close as now to reducing supplies to Europe.

Even through the break-up of the Soviet Union and crises that followed, Russia's gas exports to Europe, 80 per cent of which transit Ukraine, have always been reliable.

But unless Ukraine agrees to pay much more for the gas it takes from the pipeline for its own use – Moscow first asked for roughly a four-fold increase, but now suggests it should be more than five-fold – Russia has said it will cut out Ukraine's portion from the gas going into the pipe.

If Ukraine keeps taking gas, which Moscow says would be stealing, supplies to Europe could be cut by about 20 per cent.

Both sides have huge incentives to make a deal. Russia has no other way to get its gas to Europe, while Ukraine, which currently receives 30 per cent of its gas from Russia in a barter deal in lieu of transit fees, has no alternative source.

Yet both sides claim the other is refusing to negotiate seriously. Viktor Yushchenko, Ukraine's president, this week called Russia's position “irresponsible, unprofessional and naive”.

He accused Moscow of trying to punish Kiev for its turn towards democracy in last year's Orange Revolution and of operating “double standards” by demanding that Ukraine pay roughly twice as much for gas as the south Caucasus and Baltic states pay.