The Guardian: Is Europe’s gas supply threatened by the Ukraine crisis?

Last December, Ukraine’s now-deposed, pro-Moscow president Viktor Yanukovych abandoned a trade deal with the European Union in favour of closer ties with Russia. One of the sweeteners in the $20bn support package that helped persuade him was a steep discount – around 30% – on the price that Russia’s gas giant, Gazprom, was then charging Ukraine for the natural gas on which it relies. This weekend, as relations between the two countries descended to an alarming new low, Moscow warned that the cut-price deal was unlikely to last much longer.

Gazprom, which controls nearly one-fifth of the world’s gas reserves and supplies more than half of the gas Ukraine uses each year, insisted the threatened price rise merely reflected cash-strapped Ukraine’s inability to meet its contractual obligations. The state-owned company said that Kiev owes it $1.55bn for gas supplied in 2013 and so far in 2014, and shows little evidence of paying up.

But this is not the first time Russia has used gas exports to put pressure on its neighbour – and “gas wars” between the two countries tend to be felt far beyond their borders. Russia, after all, still supplies around 30% of Europe’s gas.

In late 2005, Gazprom said it planned to hike the price it charged Ukraine for natural gas from $50 per 1,000 cubic metres, to $230. The company, so important to Russia that it used to be a ministry and was once headed by the former president (and current prime minister) Dmitry Medvedev, said it simply wanted a fair market price; the move had nothing to do with Ukraine’s increasingly strong ties with the European Union and Nato. Kiev, unsurprisingly, said it would not pay, and on 1 January 2006 – the two countries having spectacularly failed to reach an agreement –Gazprom turned off the taps.

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SOURCE: The Guardian, 2014

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