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Economic, political wrestling behind Russia-Ukraine gas row
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Russia's suspension of gas supplies to Ukraine has entered the third day with no settlement in sight. Some European countries have begun to be affected by a gas shortfall.

On Friday, Russia's state gas monopoly Gazprom accused Ukraine of "stealing" gas in transit. Ukrainian officials denied the accusation, saying that they are withdrawing only enough gas to operate pumping stations serving the pipelines.

The arrow of a pressure gauge points to zero at a Ukrainian gas compressor station in the village of Boyarka near the capital Kiev January 3, 2009. [Xinhua/Reuters] 

Meanwhile, gas importers in Romania, Hungary and Poland said pressure on their pipelines had dropped. But other EU member states like Germany, Turkey, Italy and the Czech Republic said they had not yet been affected by the dispute.

The EU rotating presidency the Czech Republic called for an immediate resumption of full gas deliveries to its member states. "Existing commitments to supply and transit have to be honored under all circumstances," the Czech government said in a statement.

Around a quarter of the gas used in the union -- more than 40 percent of the bloc's imports -- comes from Russia, and Ukraine sits on the main transit route for gas exports, accounting for 80 percent of the continent's gas supply from Russia.

Unable to reach a deal on gas pricing and transit fees for a 2009 contract, Gazprom opened the new year with a cut-off on gas export to its neighbor Ukraine, the second time in three years since 2006.

The gas row raised fears among EU countries that the cut-off could lead to a repetition of a similar gas crisis in 2006, though both Moscow and Kiev had promised not to affect the gas flow to Europe.

Disputes have centered on the price Kiev is asked to pay for its gas supplies this year and a 2-billion-US-dollar debt that Ukraine owes to Russia.

Gazprom insisted that Ukraine pay 418 dollars per 1,000 cubic meters of gas in 2009, compared to the 179.50 dollars last year, but Ukraine agreed to pay 201 dollars per 1,000 cubic meters and wants to raise gas transit fees.

The energy giant on Wednesday offered Ukraine a reduced price of 250 dollars, but Ukrainian officials said that was still too high, as economic recession has made it much harder for Kiev to accept the price.

Russia is also faced with economic woes. Both countries are likely to fall into recessions in 2009 after years of rapid growth driven by surging energy prices during recent years. Last year, world economies are flailing on an oil-price roller coaster. Countries such as Russia and Ukraine, where oil exports have served as a major contributor to economic growth, have suffered a great deal.

Gazprom fears Russia's state budget is about to shrink, and is worried about its ability to raise enough cash to find more gas.

However, the price row is more about politics than about money. The dispute illustrates tensions in the relations between two former Soviet republics after Ukraine's 2004 Orange Revolution brought a pro-Western government to power, analysts said.

Ukraine's leaning toward the West, culminated in its bid to join the NATO, has angered the Kremlin. Their bilateral ties were further strained when Ukraine supported Georgia during its war with Russia last August.

Conflict also involved the leasing term for Russia's Black Sea fleet in the Ukrainian city Sevastopol, as Ukraine is reluctant to host the Russian fleet.

Russia again took a tough stance on international issues by its gas cut-off. Analysts said the Russian move is aimed at exerting pressures on Ukraine, worsening a year-long row between Yushchenkoand Tymoshenko, the two main figures in the Orange Revolution.

In Ukraine, the latest dispute could distract attention to relations with Russia and the EU from domestic economic recession and the tumbling hryvnia currency. Both President Viktor Yushchenko and Prime Minister Yulia Tymoshenko were under mounting pressure to tackle the urgent economic crisis.

It is generally believed that conflicts between the two neighbors may be avoided only if Kiev modifies its pro-Western stand. Confrontations on the gas issue could only aggravate the conflict, further complicating their bilateral ties.

Unlike 2006, both Moscow and Kiev seemed very tough and hurried to hand the hot potato to the European Union.

Analysts said Ukraine has enough gas in storage facilities to weather the Russian cut-off, noting that Ukraine's financial woes have pared down its energy needs through the winter months.

Ukraine has accumulated in the underground storage facilities around 30 billion cubic meters of gas, with about half belonging to the country. Data show that Ukraine's annual consumption is no more than 74 billion cubic meters.

The global economic crisis has also sharply reduced Ukraine's industrial energy consumption as the country's metallurgical, chemical and building material industries are already suffering from semistagnation. Experts said Russia's threats could hardly scare Ukraine since it has stored at least two or three months of gas reserve.

Russia is also seeking other ways to free itself from the gas dispute. For instance, the energy giant Gazprom is investing a pipeline under the Baltic to bypass Ukraine.

Vladimir Kornilov, political analyst and head of the CIS (Commonwealth of Independent States) Institute in Ukraine, said the two countries are interdependent on energy issues, noting the dispute is no good for the economic interest of both sides and may hurt their international images.

Ukrainian President Viktor Yushchenko said in a statement on Thursday that gas dispute with Russia will be settled by January 7.

But analysts said the row can only be settled for good when both countries make compromises in their deep-rooted economic and political conflicts.

(Xinhua News Agency January 4, 2009)

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