Russia-Ukraine 'gas war' escalates
Russia accuses Ukraine of diverting gas intended for Europe

language=JavaScript type=text/javascript> </SCRIPT> Monday, January 2, 2006; Posted: 12:07 p.m. EST (17:07 GMT)

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Yushchenko, right, talks at a meeting on the
 gas crisis in Ukraine's capital Kiev on Sunday.

 
    

 
MOSCOW, Russia (CNN) -- A move by Russia's state-owned natural gas monopoly Gazprom to suspend supplies to Ukraine has sparked a war of words between the two countries and disrupted gas flows to other parts of Europe.

Ukrainian President Viktor Yushchenko has called the supply cut -- prompted by a pricing dispute -- "unacceptable" and the Foreign Ministry said it amounted to economic "blackmail."

Russia has responded by accusing Ukraine of diverting about 100 million cubic meters of gas -- valued at $25 million -- intended for European customers, the Interfax news agency reported.

Gazprom said Monday it would increase the amount of gas being shipped to European customers through Ukraine to make up for the shortfall, The Associated Press reported.

Ukraine has denied it has been siphoning off European-bound gas.

Gazprom said it suspended the flow of gas to Ukraine on Sunday after Ukrainian officials refused to sign a new gas-price agreement proposed by Russian President Vladimir Putin, the Russian news agency Interfax reported. (Read about the background to the dispute)

"This is not a subject for discussion," Ukrainian President Viktor Yushchenko told a reporter. "It (the new contract) is unacceptable, not because the price is so high but because it is unfounded economically."

Gazprom, which supplies around one third of Ukraine's natural gas, wanted to increased the price of gas from around $50 per 1,000 cubic meters of natural gas to $230 per 1,000 cubic meters of gas -- a four-fold increase.

Ukrainian officials claim the price hike is an attempt by Russia to penalize the former Soviet republic for its Western-leaning foreign policy.

"A scenario aimed at creating economic pressure and blackmail has started. It aims in the end at destabilizing Ukraine's economy and disrupting Russian gas supplies to consumers in Europe," the Ukrainian Foreign Ministry said in a statement late Sunday.

Western Europe is watching the Ukraine-Russia battle anxiously because the same pipelines that take Russia's gas to Ukraine go on to Western Europe, supplying it with more than a quarter of its natural gas needs.

The fear is that there could be a disruption in European gas supplies because of the dispute. The European Commission will meet this week to discuss contingency plans.

Already, natural gas shortfalls are being felt in France, Hungary, Austria, Italy, Poland, Slovakia and Croatia. (Full story)

Last week, Putin offered a last minute compromise that called for gas prices to be frozen at the old level for the first quarter of 2006 if Ukraine agreed to price increases after that.

Gazprom officials said they were told by Ukraine that they would not sign the compromise agreement. That offer expired at the start of the new year.

A spokesman for Naftogaz, Ukraine's natural gas company, said Sunday there was enough gas for the immediate future to heat homes and power its industry.

"Gas is not flowing at all through some transit routes, which can lead to a fall in pressure in all the pipelines and limit the overall supply of gas to Ukraine and Europe," AP quoted Eduard Zaniuk as saying.
Market pricing

Meanwhile, U.S. State Department spokesman Sean McCormack said Washington "regrets" the move by Gazprom.

"Such an abrupt step creates insecurity in the energy sector in the region and raises serious questions about the use of energy to exert political pressure," McCormack said in a written statement.

"As we have told both Russia and Ukraine, we support a move toward market pricing for energy but believe that such a change should be introduced over time rather than suddenly and unilaterally."

One reason for Russia's push to increase prices is Ukraine's 2004-05 "Orange Revolution," which forced its pro-Russian government out of power, replacing it with Yushchenko's pro-Western leadership which seeks NATO and European Union membership.

But Dmitry Trenin, an analyst at the Carnegie Moscow Center, said Ukraine "cannot have (its) cake and eat it."

"If the Ukrainian government has decided that the future of Ukraine lies with the West, then they have to know that the basis for their relations with Russia will be different," he said.

CNN's Ryan Chilcote contributed to this report

http://www.cnn.com/2006/WORLD/europe/01/02/russia.ukraine.gas/index.html