Russia Cuts Off Natural Gas to Ukraine, Unleashing a Regional Energy Crisis

As Ukraine's economic recovery from the Orange Revolution hinges on Russian natural gas supplies, President Vladimir Putin's government has unexpectedly cut off the country's westbound pipes, citing a dispute over pricing and transit terms that has become a baldly political conflict. This move has significant consequences for Ukraine's economy and may also impact gas supplies to Western Europe.

Key Takeaways:

• The dispute involves Russia's demand for Ukraine to pay $220 to $230 per 1,000 cubic meters of natural gas, a significant increase from the previous price of $50, which Ukraine's economy has heavily depended on.
• Gazprom, the Russian energy giant, has reduced the flow to Ukraine to equal the volumes it agreed to provide to Western countries, minus what the company provides for the Ukrainian domestic market.
• The conflict may discredit Ukrainian President Viktor A. Yushchenko and weaken his party in upcoming parliamentary elections in March.
• The United States has expressed hope that the conflict will be resolved, stating that an abrupt step by Russia creates insecurity in the energy sector and raises serious questions about the use of energy to exert political pressure.
• Russia is seeking to become an energy-supplying nation capable of easing Western Europe's dependency on Middle Eastern oil and possibly even the United States.
• Gazprom is negotiating a multibillion-dollar underwater gas pipeline in the Baltic Sea, which may extend to Denmark, Belgium, and Britain.
• Ukrainian officials have stated that the loss of fuel could reverse its modest economic growth, potentially causing a contraction of between 4 and 5 percent this year.

Statistics:

• Russia's demand for Ukraine to pay $220 to $230 per 1,000 cubic meters of natural gas.
• Gazprom has reduced the flow to Ukraine to 96 million cubic meters per day, from a previous rate of 120 million.
• Withdrawal of Russian gas will impact European countries, such as Hungary, whose deliveries from the affected pipeline were down more than 25 percent, and Poland, where supplies dwindled 14 percent.
• Ukraine's dependence on Russian natural gas: about one-third of its supply.

Sources:

• "Russia Cuts Gas to Ukraine, Igniting Regional Crisis," The New York Times, January 9, 2006.
• "Ukraine Gas Talks Fail as Westbound Pipes Throttle Back," The New York Times, January 9, 2006.
• "Gazprom and the Shadow of the Kremlin," The Moscow Times, January 10, 2006.
• "Russia Seeks to Be an Energy Superpower, but at What Price?" The Financial Times, January 10, 2006.