Threats and Siphons

Ukraine has a more imminent problem than its unresolved NATO status: crippled by the global financial crisis, it faces a burgeoning gas dispute with Russia that hearkens back to 2006, when Russia temporarily cut exports to Ukraine, disrupting supply over much of Europe. (Much of Ukrainian’s gas supply is controversially subsidized by the Russian state, ostensibly in return for using Ukraine’s gas pipeline network to reach European customers.) It seems Naftogas, the Ukrainian state oil and gas company, has failed to repay $550 million in back payments to Russia, causing Gazprom to threaten to more than double the price of gas shipments in 2009.

Naftogas says a steep drop in the value of the hryvnia from less than 5 to the dollar to its current rate of 7.24 is to blame:

“In terms of making payments on foreign contracts a rate of 5.05 hryvnias was set.”

“As a result of the decline in the hryvnia’s rate in October-November, the company has sustained unexpected losses of about 600 million hryvnias ($83 million).”

Russian Prime Minister Putin, meanwhile, said Russia would simply cut supplies if Ukraine tried to siphon Russian gas intended for European customers:

“We are proceeding from the assumption that we won’t have any problemswith transit of gas to Western Europe,” he said during anationally televised question-and-answer session. “But if our partnersdon’t fulfill the agreements or try to siphon gas from the transitpipelines as they did in past years, we will be forced to reducesupplies. What else can we do?”