Russia cut gas supplies to Ukraine yesterday after Kiev refused to pay a quadruple price increase, triggering fears of disruption to west European supplies, writes Chris Stephen in Moscow
The move came just as Moscow took over the leadership of the G8 group of industrialised nations, promising to make "energy security" its key agenda item.
Last night Poland was reporting its supplies had been reduced by 14 per cent, while Hungary said its supply was down by over 25 per cent. Russia has accused Ukraine of siphoning off supplies destined for western Europe. The main European importers of Russian gas are Germany, Italy and France, who would have to use reserves or seek new supplies if there was a major supply disruption.
Russian president Vladimir Putin made a final compromise offer to Ukraine on Saturday night, offering to delay the price increase for three months providing Kiev began making payments from then on.
Kiev refused the offer, insisting it be given several years to adjust to the higher prices. The taps were turned off at 10am yesterday.
Ukraine's Naftogaz energy company said Russia was jeopardising gas supplies and trade relations across Europe. The fact that the compromise offer came from Mr Putin, rather than from Gazprom officials in Russia, has heightened speculation in Ukraine that the price rise is a political move designed to punish Kiev for forging ties with the West and turning its back on Moscow.
Russia insists it simply wants Ukraine to pay market prices for its gas, currently $230 per 1,000 cubic metres, ending a subsidy agreement made five years ago where it pays $50. However, Gazprom continues to offer subsidised gas to other countries, including the Baltic states and Belarus.
Ukrainian president Victor Yushchenko said over the weekend that Ukraine would pay $80 immediately for the gas, and would be willing to phase in the full increase over a period of years.
The mechanics of the cut-off operation mean that a protracted crisis is likely. Gazprom cannot cut the supply because its deliveries to western Europe pass along the same pipeline. Instead it has cut the amount of gas going down this line by a quarter, the equivalent of the amount normally sold to Ukraine.
However, there is nothing to physically prevent Kiev from continuing to siphon gas from the pipeline. It may already have begun to do this, with neighbouring Hungary reporting a 5 per cent fall in the amount of gas arriving there.
Gazprom says that such action by Ukraine will be treated as theft.
Germany, Italy and France all rely on Russian gas for 25 per cent of their imports, and are already facing price rises because of the worldwide rise in demand for gas.