Page last updated at 11:02 GMT, Thursday, 8 January 2009

The rifts behind Europe's gas row

By Gabriel Gatehouse
BBC News, Kiev

Ukrainian Prime Minister Yulia Tymoshenko and President Viktor Yushchenko - photo 25 December 2008
Moscow says Ukraine's political splits are standing in the way of a deal

Russian and Ukrainian officials have met to try to resolve the latest round of their dispute over payments for Russian gas, but the rhetoric still remains bitter and trenchant, in public at least, as Moscow blames Kiev, and Kiev blames Moscow.

The Russians say that they had no alternative but to turn off the taps to Ukraine because Kiev was "stealing" gas and blocking the network of pipelines that crosses the country.

Hryhoriy Nemyria, the Ukrainian deputy prime minister, who is leading his country's delegation to the EU called those allegations "lies".

Speaking to the BBC before leaving for Brussels, he said there was nothing his country could do to restart supplies of gas.

"If there is something to transit, of course Ukraine was and is committed to ensure the uninterrupted transit of Russian gas to Europe," he said.

What shape an eventual deal takes may well depend on who blinks first under EU pressure

"But if there is no gas at all, then that speaks for itself."

Both sides have said they want independent monitors to come in to verify their claims.

But beyond the argument over who is to blame there are a number of fundamental issues that are unlikely to be fully resolved in the long term, even if the gas supply to other European countries is restored for now.

Poor relations

First of all there is the question of price. The current crisis was triggered largely by the failure of Kiev and Moscow to agree on how much Ukraine should pay for the gas it gets from Russia in 2009.

Gas pipeline in Bosnia
South-east Europe has been badly affected by the cut in supplies
Last year, Kiev paid $179.50 (119.80) per 1,000 cubic metres of gas, well below what other European countries pay. Moscow says it wants Kiev to pay the market price. The trouble is, no-one really knows what the real market price is.

Gazprom says it is around $450 per 1,000 cubic metres. But the issue is complicated by the price Ukraine charges Russia for transporting the gas Russia sells to Europe. Some argue that Ukraine should be entitled to cheaper gas, in return for Russia's use of its pipelines.

But this is not just a commercial dispute. There is politics involved as well.

Relations between Kiev and the Kremlin nosedived in 2004, after popular protests brought to power a pro-Western Ukrainian President, Viktor Yushchenko, defeating the candidate favoured by Moscow.

Many in Ukraine and beyond believe that Moscow has periodically used its vast energy resources to bully its smaller, dependent neighbour.

But Moscow argues instead that it is internal squabbling amongst Ukraine's political elite that is to blame for the deadlock.

EU pressure

President Yushchenko is locked in a bitter fight with his former ally, Prime Minister Yulia Tymoshenko. Some have argued that it is that rivalry that prevented the two sides reaching a deal in time to avert a crisis.

Graph showing EU's gas supplies
As usual, the truth of the matter probably lies somewhere in between.

The EU has so far avoided taking sides, but will be putting strong pressure on both parties to resolve their dispute, so that supplies can resume.

But for the moment, Ukraine is better equipped to deal with the switch off than many other eastern European countries.

Since Russia turned off the taps briefly in 2006 - under similar circumstances - Ukraine has built up large reserves of natural gas. These could last for several months, depending on the severity of the winter.

But the long-term fall-out could be more damaging. Ukraine has made no secret of its desire for closer integration with the EU. The government wants eventual membership.

But if current EU members suffer prolonged energy shortages as a result of perceived Ukrainian intransigence, Brussels may be less keen to bring Kiev into its embrace.

Russia, though, needs European markets just as much as Europe needs Russian gas. And Moscow does not want to be seen as an unreliable supplier.

What shape an eventual deal takes may well depend on who blinks first under EU pressure. But after gas supplies to Europe have resumed, there are likely to remain fundamental differences between Russia and Ukraine.

And that means that this crisis could well repeat itself in a year's time.

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