Fears Of New Cold War As Russia Threatens To Switch Off The Gas

Fears of new cold war as Russia threatens to switch off the gas

http://www.timesonline.co.uk/article...963017,00.html

From Jeremy Page in Moscow
12/29/2005

PICTURE the families shivering in apartments without heating, factories grinding to a halt, frozen water pipes bursting in the depths of winter. Welcome to the new Cold War.

At 10am on Sunday, Russia is threatening to unleash the most powerful weapon in its post-Soviet arsenal: unless Ukraine agrees to a fourfold increase in the price it pays for gas, Russia will simply turn off the tap.

Nor is it just Ukraine under threat - the EU imports about half of its gas from Russia and 80 per cent of that comes through Ukrainian pipelines.

So when President Putin met Ivan Plachkov, the Ukrainian Energy Minister, in Moscow yesterday, there was more at stake than relations between the neighbouring states. Analysts fear the dispute could provide a foretaste of how Russia will use its massive oil and gas reserves as a foreign policy tool in future disputes with the West.

"Energy co-operation has replaced military might as the mainstay of Russia's international credibility," Chris Weafer, chief strategist at Alfa Bank in Moscow, said. "It is using its importance as an energy partner to pursue its geopolitical and foreign policy agenda."

The dispute began when Russia, which supplies a third of Ukraine's gas, demanded that Kiev agree to pay $220-$230 (£128-£133) per 1,000 cubic metres, compared with the $50 it had previously paid instead of transit fees for gas heading to Western Europe.

Gazprom, the Russian state gas monopoly, said it was simply phasing out subsidies that Ukraine no longer needed since the Orange Revolution last year set it on the path towards integration with the EU. The only possible compromise, it said, was for Ukraine to sell part of its pipeline network to Russia.

Ukraine said that it was willing to accept a smaller price increase, phased in over five years, but ruled out selling its pipelines, which it sees as a strategic asset.

Then things started to get nasty. Aleksandr Medvedev, Gazprom's deputy head, threatened to cut off Ukraine's gas supplies at 10am on January 1 if Kiev did not back down.

Ukrainian officials then suggested that its neighbour should pay more for rental of the Black Sea port of Sevastopol, where the Russian Southern Fleet is based. Sergei Ivanov, the Russian Defence Minister, said that would be fatal. Yuriy Yekhanurov, the Ukrainian Prime Minister, fuelled the fire this week by saying that Kiev had the right to take 15 per cent of Russian gas shipments to Europe as a transit fee. Gazprom said that would be theft.

President Putin proposed a compromise yesterday, offering to lend Ukraine up to $3.6 billion to ease the transition to the higher price. He scolded negotiators on both sides for failing to reach a deal. "You created a crisis not only in the energy sphere. It looks very much like a crisis in interstate relations,"� he said. "That is very bad."�

But Ukraine rejected his offer. Its officials accuse the Kremlin of trying to punish Viktor Yushchenko, their President, for turning his back on Russia and pursuing membership of the EU and Nato. They also suspect that Moscow is helping Mr Yushchenko's pro-Russian rival, Viktor Yanukovych, to stage a comeback in parliamentary elections in March.

Gazprom, they point out, has raised gas prices for other former Soviet republics, such as Georgia and Armenia, to $110 - and it has agreed to sell gas to Belarus, a staunch ally, for a mere $46.68.

But analysts say the reform is not just about Ukraine: it is part of the Kremlin's broader strategy to gain control of Russia's energy reserves and export routes and to use them to reclaim its world power status.

A year ago, the state oil company, Rosneft, swallowed up most of Russia's biggest private oil company, Yukos. Then in October Gazprom bought the fifth-largest oil firm, Sibneft. The net result is that the Kremlin now controls 30 per cent of Russia's oil reserves, and all of its gas supplies and pipelines.

Within the next ten years, Russia aims to be at the centre of a spider's web of oil and gas pipelines feeding all the major world markets. That would be welcomed by countries anxious to meet the growing demand for gas and to reduce their reliance on the volatile Middle East.

But it leaves the EU dangerously dependent on a country with a history of political instability and aspirations to reclaim its superpower status.

Mr Putin has promised the EU that Russia will not use oil and gas supplies to blackmail other countries. But Mr Yushchenko says that the current dispute proves otherwise, and the EU is under pressure from several members to intervene.

Ukraine has enough gas to last the winter - when temperatures can drop as low as -20C (-4F) - if Russia does turn off the tap.

"Not one Ukrainian family will be cold in the winter," Mr Yushchenko told NTN television yesterday. But Ukrainian officials have urged people to conserve energy, just in case.

Russia set to cut off Ukraine gas

http://news.bbc.co.uk/2/hi/europe/4572712.stm

12/31/2005

Russian gas supplies to Ukraine will be cut at 0700 GMT on Sunday, state-owned firm Gazprom announced after last-ditch talks failed to settle a price dispute.

The row erupted after Ukraine rejected Russian plans for a 460% price rise.

Earlier on Saturday, Russia's President Vladimir Putin offered a three-month price freeze as long as Kiev agreed to pay the higher price after that.

But after fresh talks, Gazprom said the offer had been rejected by Kiev and supplies would end as planned.

Ukraine currently pays $50 per 1,000 cubic metres of gas. Gazprom wants to increase the price to what it says is the market rate of $230.

Russian gas supplies account for about 30% of Ukraine's total consumption.

The loss of those supplies will be a real problem in winter, says the BBC's Economics correspondent Andrew Walker.

Ukrainian gas industry officials say heating needs can be met from other supplies, but industrial customers might face reduced supplies, he says.

The crisis has also sparked fears that Russian exports to Western Europe could also be hit, as most of the gas is channelled through Ukrainian pipelines, but Moscow insists there will be no disruption.

EU governments are convening a meeting of their gas industry experts in Brussels on 4 January to discuss the crisis.

Putin offer
The Russian offer of a stay of execution was made by President Putin at a meeting of his powerful Security Council attended by Gazprom head Alexei Miller.

Ukrainian Prime Minister Yuri Yekhanurov's spokesman said in response that Kiev did not object to market prices but "the exact figures must be negotiated".

Hours later, a Gazprom spokesman announced that Ukraine had refused its final offer.

"The official response has been received: Ukraine has turned down our offer," Sergei Kupriyanov said.

Ukraine insists that the planned price rise is politically motivated, in the wake of Kiev's Orange Revolution and the election of its pro-Western President, Viktor Yushchenko.

Other countries which remain in Russia's sphere of influence continue to receive gas at below-market prices.

Mr Yushchenko has said Ukraine is currently prepared to pay no more than $80 per 1,000 cubic metres of gas.