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Crisis deepens as Russia-Ukraine gas deal unravels

The dispute threatens to paralyze economic relations.

By Correspondent / January 13, 2009


After nearly a week of shutdowns that left 18 European countries facing severe energy shortages in a mid-winter cold snap, gas briefly began flowing again on Tuesday through the 4,000-kilometer pipeline (about 2,500 miles) that connects Russian gas fields with Europe via Ukraine.

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But the tentative deal began unraveling almost immediately amid an escalating war of words between Moscow and Kiev. By Tuesday evening the gas flow had been blocked somewhere in Ukraine, to the consternation of European observers sent to monitor deliveries, and both sides were back to blaming the other.

The perennial dispute between the two former-Soviet states over prices and terms of transit is now boiling over into a crisis that threatens to paralyze economic relations and plunge Russia and the West deeper into diplomatic crisis.

Moscow maintains it’s simply a matter of weaning Ukraine from the Soviet-era subsidies that saw it paying less than half the global market price for its gas as recently as last year. Mired in economic troubles, Ukraine’s ability to pay the $450 per thousand cubic meters that Russia is now demanding seems uncertain. Ukraine relies on Russia for 75 percent of its gas needs, and the fuel is essential to power the steel and chemical industries that are the economic backbone of the former Soviet country of 50 million.
But as observers’ heads spin over the on again, off again flow of Russian gas, which accounts for a quarter of Europe’s total supply, there are growing suspicions that hidden concerns over Ukraine’s geopolitical choices and high-level corruption in both Russia and Ukraine may be the real factors driving this dispute.

“There are so many things about this conflict that are neither logical nor transparent, and it is the subject of many intrigues,” says Dmitry Vydrin, a deputy of Ukraine’s parliament, the Rada. “Nobody can say when or how it’s going to end. We all have many more questions than answers at this point.”

Russia has repeatedly accused Ukraine of sabotaging Europe-bound deliveries by illegally siphoning off gas that it’s unwilling to pay market rates for. Alexander Medvedev, deputy CEO of the Russian state gas monopoly Gazprom, added a fresh stick of dynamite to that charge Tuesday, suggesting that “a completely different country” may be orchestrating Kiev’s behavior. That’s a likely reference to the United States, which last month signed a “strategic partnership” with Kiev, which Moscow reads as support for Kiev’s bid to join NATO.

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