When Moscow tried to avoid Kyiv's 'EU-turn', it made two offers: financial aid and cheap gas. Indeed, Ukraine's politics and economy are gas-powered. And so are its relations with Russia.

It comes therefore as no surprise that gas is at the heart of the current escalation between Moscow and Kyiv. On 1 March, Russia threatened to withdraw the price discount agreed in December 2013. Back then, Gazprom had vowed to reduce the price for Ukraine by one third, from US$400 to US$268.50 per 1,000 cubic metres. Officially, the Russian state company changed its mind due to Kyiv's outstanding gas debt of US$1.55 billion for the 2013 and 2014 deliveries. "The gas discount agreement assumed full and timely gas payment," Gazprom spokesman Sergei Kupriyanov told Reuters.

In reaction to financial troublex and a mild winter, Ukraine's Naftogaz announced last week a drop in daily imports from 147 to only 28 million cubic meters (MCM).


As tensions grow between Moscow and Kyiv, the European Union fears a new gas dispute, similar to the spats in 2006 and 2009.

In 2009, Gazprom halted gas exports to Ukraine altogether due to its debts. The conflict resulted in a complete cut-off in Russian supplies to the EU over several days. Supplies were restored after Russia's Prime Minister Vladimir Putin and his Ukrainian counterpart, Yulia Tymoshenko, agreed on a new gas contract. Under the contract, Ukraine has paid until recently US$400 per 1,000 cubic metres.

Because of the contract, Tymoshenko was sentenced to seven years in prison. Now outsted President Viktor Yaunkovych engaged in efforts to diversify imports. Ukraine started importing gas from the neighboring EU countries, drafted a plan for a Black Sea terminal for imports of liquefied natural gas (LNG), and handed out licenses for shale gas exploration.

The past three months saw Tymoshenko released and Russia and Ukraine's gas relations again overhauled.

"The price discount completely changed the landscape," Dmytro Naumenko, energy analyst at the Kyiv-based Institute for Economic Research and Policy Consulting, told Europolitics. As a result, Yanukovych's administration seemed to have stopped gas imports from Poland and Hungary and lost interest in the project of reverse flow with Slovakia launched last year with funding from Brussels.


As political instability increases and the discount comes into question, Kyiv again rethinks its energy policy. Naumenko expects...

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