Oil prices rose by $2 a barrel yesterday amid concerns that a gas dispute between Ukraine and Russia could threaten Europe's future energy supplies, writes Jamie Smyth in Brussels
The row prompted the EU to schedule an emergency meeting today to discuss the stand-off, which has already disrupted natural gas imports to several European states.
However, yesterday Russia's gas deliveries to Europe returned to normal and Moscow energy officials opened talks with former ally Ukraine. Russian energy officials met Ukrainian counterparts, though neither side signalled any softening in the tense stand-off between two states which formed the industrial axis of the old Soviet Union.
Yesterday there was a growing sense that Russia had overplayed its hand. The International Energy Agency, the consuming nations' watchdog, said Russia had damaged its reputation as a reliable supplier.
The hike in oil prices occurred despite a pledge yesterday by Russia to resume gas supplies to the EU over pipelines that cross Ukraine - a decision that removed the immediate threat to Europe's gas supplies. But oil traders warned that the dispute between neighbouring states was heightening consumer and industry fears over energy supply.
"Whilst the immediate impact on European energy prices has been negligible, the dispute has served to emphasize the dependence of Western Europe on Russian gas supplies and the issue has the potential to keep European gas consumers on edge for some time," said Kevin Norrish of the investment company Barclays Capital.
The EU currently imports about 25 per cent of its gas from Russia, which has a strained relationship with its neighbour Ukraine - a key transit state for Russian gas.
US crude rose $2.16 to $63.20 in early trading after the New Year holiday, building on a three-day rally that lifted prices 5 per cent at the end of last year. Wholesale gas prices in Britain, Europe's only big, freely traded gas market, also rose by 8 per cent due to the increased uncertainties over supplies.
Moscow and Kiev have fallen out over plans by Russia to quadruple the price of natural gas exports to its former ally to about $230.
Russia's state dominated gas company, Gazprom, insists the proposed price changes are purely commercial. However, most analysts believe the dispute has its roots in the tense political relationship between the states following the Orange revolution that swept the pro-EU Viktor Yushchenko into power against a pro-Russian candidate.
Russia shut off gas supplies to Ukraine on Monday when Mr Yushchenko's government refused to accept the new price set by Gazprom.
Yesterday five EU countries, Germany, Austria, Poland, Hungary, and Slovakia, all reported a sharp drop in supplies of natural gas. Russia said this occurred because Ukraine was stealing gas from the pipelines that cross its territory before delivering gas to the EU. Officials in Ukraine denied this.
Delegates from Naftogaz, the Ukrainian gas company, were expected to meet in Moscow last night with their counterparts from Gazprom. Earlier, Javier Solana, the EU's foreign policy representative, had urged the two sides to return to the negotiating table.
EU Energy Commissioner Andris Piebalgs said he was confident that Russia and Ukraine would resolve the dispute but issued a warning about the EU's dependence on foreign energy supplies. "The situation has shown how vulnerable the Union is to shortages of gas supply," added Mr Piebalgs.
