New Ukraine-Russia gas crisis unlikely, say experts

With winter fast approaching, tensions are rising over a possible fresh gas crisis between Ukraine and Russia as Moscow threatens to cut off natural-gas supplies to Ukraine if Kiev doesn’t pay the fees it's demanding.

Moscow’s shutoff last winter left millions of Europeans without heat in the bitter cold, but observers say they doubt there will be a repeat this year.

Russian Prime Minister Vladimir Putin has directed some of his ire at the European Union. On Nov. 2, he questioned Ukraine’s ability to pay for natural gas and said the EU should lend Ukraine at least $1 billion to ensure uninterrupted flows of natural gas.

“Why are they being so stingy?” he said. “They have money, too. Let them open their wallets.”

A few days after Putin’s remarks, on Nov. 6, Ukrainian Prime Minister Yulia Timoshenko said that Kiev-based Naftogaz had transferred $500 million to pay for Russian natural-gas imports for October. However, Gazprom spokesman Sergei Kupriyanov could not confirm the payment when contacted by Bloomberg.

Europe depends on Russia for a quarter of its gas, most of which crosses Ukraine. When Moscow cut off supplies to Kiev during a price dispute last winter, deliveries to other countries were disrupted as well. The spat was resolved after both countries signed 10-year gas-shipment and transit contracts, under which Ukraine, which relies on Russia for about 70 percent of its energy needs, has to pay for gas within the first days of each month for supplies received.

Political rivalry

In previous months, Ukraine’s Naftogaz energy company relied on central-bank credits to finance its payments to Moscow. Critics say the bank’s practice of printing money to come up with the cash risked inflation. But when Ukranian President Victor Yushchenko, who controls the National Bank of Ukraine, put a stop to the scheme this month, Putin lashed out.

“Yushchenko is obstructing the normal cooperation between [Ukraine’s] central bank, which has control over gold and currency reserves, and the Ukrainian government, and is blocking the transfer of funds,” Putin said, according to Radio Free Europe/Radio Liberty.

The government and Naftogaz are overseen by Yushchenko’s bitter rival, Ukrainian Prime Minister Tymoshenko. Putin said it was Tymoshenko who warned him of Yushchenko’s “obstruction” in a telephone call.

Putin’s criticism prompted accusations in Kiev that Moscow was meddling in Ukraine’s internal affairs. Yushchenko’s first deputy administration chief, Oleksandr Shlapak, hit back Oct. 30, saying Yushchenko had proposed only to come up with a better way to pay for Ukraine’s gas.

Most analysts say Kiev will probably avert a standoff with Moscow this month by coming up with a way to pay its gas bill. But there is another potential problem: Yushchenko wants to revisit Kiev’s gas contract with Russia, arguing the global financial crisis has caused Ukraine’s gas demand to fall below the level that Kiev is obliged to buy next year.

Tymoshenko said Nov. 3 that both sides had worked out a preliminary new contract. But if a final deal is not reached by the end of the year, another crisis would coincide with next year’s presidential election.

Volodymyr Fesenko of Kiev’s Penta Center for Applied Political Studies says he is optimistic that will not happen. “I believe the majority of politicians in Ukraine and Russia are not interested in another such crisis,” he said.

In the presidential election scheduled for January, Tymoshenko is running against Yushchenko, her former Orange Revolution ally.

Once the subject of an arrest warrant in Russia, Tymoshenko has been forging closer ties with Moscow as her relationship with Yushchenko has deteriorated. Some believe Putin supports her candidacy against his bitter foe Yushchenko.

But Fesenko says Putin’s criticism of Yushchenko probably is not meant to influence the election. He says the Russian prime minister is interested chiefly in ensuring Kiev comes up with the money to pay Moscow – and in tarnishing Ukraine’s image in the West.

“If Ukraine is seen as a weak link in the supply of gas, then Putin may be hinting that Europe should back [projects to develop] alternative routes,” he said.

Vladimir Pribylovsky of Moscow’s Panorama political research group agrees. He said while Putin has trouble containing his intense dislike for Yushchenko, targeting him now makes little sense because Yushchenko already has “no chance” of winning January’s election.

“Of course the Kremlin would like to influence the situation in Ukraine,” Pribylovsky said. “But it hasn’t yet figured out what it actually wants from Kiev.”