ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Russia's Gas War

War Geopolitics and finance underlie the Russia-Ukraine tussle over supply and transport of natural gas.

The recent spat between Russia and Ukraine over the supply of natural gas is the latest in a series of such incidents that go back to when the Soviet Union broke up in 1992. Ukraine has always enjoyed delivery of low-priced gas and M oscow has constantly been insisting that it pay full world m arket prices for a part of the gas that transits through Ukraine to the rest of Europe. Despite frequent disagreements, the disputes usually get resolved through brokered deals, as happened earlier this month.

The present crisis erupted when talks between Kiev and M oscow held in late December on pricing of gas collapsed. Russia had insisted that the price for gas supplied to Ukraine be more than doubled, while Kiev made it clear that it would only accept a small price rise and threatened to raise transit fees for Russian gas. Both parties were locked in a stalemate in their d ispute when Russia cut off its gas supplies to Ukraine on 1 January 2009 and gas exports to European countries via Ukraine a week later. According to Gazprom (the Russian stateowned gas monopoly), Ukraine owed more than $600 million in penalties for late payments. This time around the tension a ppeared more pronounced, the crisis badly hitting the E uropean customers of Russian gas at a time when they were facing f reezing midwinter temperatures. The initial reduction in gas flows affected six countries, but spread to 13 countries from the B alkans to the Baltic.

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