By Michael Bastasch Published: June 16, 2014
While world leaders were busy fretting over Iraq, Russia has moved to cut off natural gas supplies to Ukraine — a move western leaders were dreading just months ago.
The move could impact the rest of Europe if nothing is done to resolve the crisis. The continent gets about one-third of its natural from Russia — about 16 percent of the gas consumed by Europeans travels through Ukraine.
Ukraine says it has enough gas reserves to last until December, but after that it will be forced to come back to the negotiating table with Russia. The country has been ravaged by civil strife that has warped into rebellion in the pro-Russian eastern part of the country.
Russian officials have said this is a business negotiation, not a political one. Ukraine owes its former Soviet masters about $4.5 billion in past due payments for natural gas. Russia had previously sold Ukraine discounted gas, but after the country’s pro-Russian government was toppled earlier this year Russia began to demand the money it was owed.
Over the weekend, as news reports came out that Ukrainian rebels were being aided by Russian tanks and heavy weaponry, the two countries were unable to reach an agreement over natural gas payments. Gazprom, the Russian state-owned energy giant, is now demanding Ukraine pay upfront for its gas.
“Ukraine will get as much gas as it pays for,” Alexei Miller, the CEO of Gazprom, said Monday. “The risks to the (gas) transit are there and they’re significant.”
Russia has been trying to pummel Ukraine into submission by increasing the country’s energy costs and slapping sanctions on their exports. In March, Russia virtually doubled the price Ukraine pays for gas by getting rid of its energy discounts. This raised the price Ukraine pays for gas by 80 percent.
Ukraine gets about half its gas supply from Russia and about half the Russian gas flowing into Europe comes through Ukraine, meaning cutting off gas supplies could heavily impact the rest of continent if no deal is reached.
Russia also announced Monday that it would block imports of agricultural goods from Ukraine, a huge blow to the agrarian eastern European economy.
“We won’t subsidize Gazprom,” said Ukrainian Prime Minister Arseniy Yatsenyuk . “Ukrainians will not take $5 billion per year (out of their pockets) to let Russia spend this money on weapons, tanks and planes to bomb Ukrainian territory.”
European nations are worried about the economic fall out of a gas shut off in Ukraine, but many major economies have sufficient supplies to last for months. Nevertheless, the European Union is pushing the two countries to quickly reach a deal