Gazprom, the Russian gas monopoly, halted nearly its entire export of natural gas to Europe on Tuesday in a sharp escalation of a dispute over prices with neighboring Ukraine that also underscored Russia's increasingly confrontational stance toward the West, IHT reported.
Across Europe, supplies of Russian gas stopped in whole or in part. From France to Turkey, countries reported sharp drops in gas supplies, at the peak of the winter heating season in a bitterly cold January.
In one sign of the extent of the shutoff, Ukraine's president said Gazprom intended to halt all shipments that pass through his country, which account for about 80 percent of Russian gas exports to Europe. Gazprom said it was continuing to ship about a fifth of its typical exports across Ukraine, and still supplying via other routes.
Still, with temperatures plunging, European leaders expressed mounting concern.
A European Commission spokesman said the cut came "without prior warning and in clear contradiction of the reassurances given by the highest Russian and Ukrainian authorities," adding that "this situation is completely unacceptable."
While both sides blames the other for the scope of the shutoff, Russia's prime minister, Vladimir Putin, had personally ordered the gas shutoff on Monday evening on state television here. For a leader who has taken a personal interest in the energy business, the escalation was a gambit at a perilous time for Russia. Revenue from oil and gas that underpinned the country's resurgence are drying up.
Putin, a man some analysts of Russian politics thought might become more conciliatory as energy prices fell, has, instead, consistently taken a hard line, and the dispute with Ukraine proved no exception for a leader who has often blended the country's political and economic agendas.
Ukraine has angered Russia by seeking membership in the North Atlantic Treaty Organization, as has Georgia, a country Russia fought a brief war against in August.
"They're still playing hardball, when they have to realize the rules have changed," Marshall Goldman, a senior scholar for Russian studies at Harvard and the recent author of the book "Petrostate: Putin, Power, and the New Russia," said in a telephone interview. "It happened so quickly that I don't think they've had time to realize the implications."
Putin, under heavy domestic and budgetary pressure, is using the crisis with Ukraine to jack up natural gas prices that are critical for the Russian budget and economy.
Ukraine has paid lower-than-average European rates for natural gas, in unspoken exchange for charging less than it might as the near monopoly shipper of Russian energy to higher-paying customers in Europe.
Oil and gas exports make up about 60 percent of the budget. Oil prices, meanwhile, have fallen by about two-thirds since their peak last summer and the effects are rippling through the economy. The ruble is devaluing, Russian companies are facing bankruptcy and the budget will be in deficit next year if oil prices do not rebound.
At the same time, Russia's relations with the West skidded to post-Cold War lows after the war in Georgia in August and options are dwindling for attracting foreign investors to a country with a poor track record of property rights, at a time of tightening capital markets globally.
Gazprom is seeking to raise the price Ukraine pays for gas from $179.50 last year to $450, and to collect what it says are fines for late payments on previous shipments. Ukraine, in exchange, wants to raise tariffs for gas shipped across its territory.
As they have in the past, Gazprom executives blamed Ukraine. In his announcement, Putin and Gazprom's chief executive, Aleksei Miller, said they would cut 65.3 million cubic meters of gas supply intended for European customers. In fact, the cut totaled about 240 million cubic meters, out of Russia's total exports via Ukraine of 300 million cubic meters.
Company officials said they had intended to ship more fuel Tuesday, but Ukraine had blocked two of three principal export pipelines. Ukrainian energy officials denied this.
"We are shocked that we're not in the position to bring gas to the border of Ukraine because they shut down the pipelines," Aleksandr Medvedev, a deputy chief executive of Gazprom, said at a news conference in London. "We are now seriously thinking about our reputation as a reliable supplier. There is no reason to blame Russia or Gazprom."
Medvedev declined to say how much longer before European consumers would feel the gas shortage but said "the situation is very serious."
In Ukraine, Sergiy Teriokhin, former minister of economy, said the talks with Gazprom were often fruitless because there was no market for gas or transit services: Both are monopolized.
As there are no alternative players on either side of the transaction, the deal cannot be based on market principles, said Teriokhin, who is a parliamentarian allied with Ukraine's prime minister, Yulia Tymoshenko.
"When there are two monopolies, then you need a political negotiation," he said. "It is not just any two corporations talking. It's a political problem. It's a problem of the European Union. It is not just a problem of Ukraine and Russia."
Oleh Dubyna, the director of Ukraine's national energy company, Naftogaz, said he would fly to Moscow on Thursday to resume negotiations. Gazprom's spokesman, Sergei Kupriyanov, said the company was "ready to begin negotiations at any moment. Gazprom was, and will be, a reliable supplier."
Also, countries in Western Europe have greater interconnectedness, ample reserves, spare pipeline capacity, the flexibility to draw on reserves of neighbors or swap Russian gas with flows from the North Sea. As countries succumb to the shortages, authorities will likely interrupt service to industry and electrical power generating stations that can swap coal or bunker oil first to maintain pipeline pressure for residential users, energy experts said.
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European Union demands Russia restore gas supplies as fuel prices rise
The European Union has demanded the immediate restoration of gas supplies from Russia as the East-West energy crisis sharply pushed up fuel prices and as shortages began to bite across a freezing Europe, The Daily Telegraph reported.
Gas prices, traded in London, were up 18.5 per cent as energy operators, national and EU officials warned that a protracted energy dispute between Russia and Ukraine would start to hit consumers, including Britons, during a hard winter.
Furious EU officials hit out at Vladimir Putin, Russia's prime minister and Victor Yushchenko, Ukraine's President, for breaking personal pledges that a bitter gas price dispute between Moscow and Kiev would not spill over into Europe.
Following instructions from Mr Putin, Russia's Gazprom energy giant on Tuesday cut gas supplies, carried across the Ukraine by pipelines to Europe, by almost 80 per cent, with Greece, Bulgaria, Hungary, Turkey, Serbia, Macedonia, and Croatia cut off completely.
France, Italy, Austria and Romania reported drops in supply of between 70 and 90 per cent as Germany, Europe's largest economy, warned of an energy crunch if the crisis dragged on and sub-zero temperatures continued across Europe.
A statement issued by the EU Presidency, currently held by the Czech Republic and the European Commission, with British support, has demanded "that gas supplies be restored immediately to the EU".
"Without prior warning and in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities to the EU, gas supplies to some EU member states have been substantially cut. This situation is completely unacceptable," said the statement.
Russia has drastically cut energy supplies after accusing the Ukraine of siphoning off gas meant for Europe after Kiev, reeling from the global financial crisis refused to pay a Moscow demand for a huge price hike.
President Yushchenko telegrammed EU governments to deny that the Ukraine was stealing gas.
But Gazprom Deputy Chief Executive Officer Alexander Medvedev, brother of Russia's President, accused Ukraine of having "throttled deliveries to western Europe to one- quarter of normal". "Regrettably, Ukraine has threatened to cut deliveries further," he said. "This is an example of real barbarian behaviour."
For the first time since the Russia-Ukraine crisis broke on Jan 1, countries across Europe, both in the prosperous West and poorer East, have begun to feel its effects, with emergency situations declared in Bulgaria, Slovakia and Serbia.
"The situation has dramatically changed. Supplies have been substantially reduced," said a Commission official.
The head of Ukraine's state energy firm said he would fly to Moscow on Thursday. Gazprom, which held talks with EU officials in Berlin on Tuesday said it was ready to talk any time but did not expect Ukraine to return to the talks table for now.
EU sources have told The Daily Telegraph that officials are drawing up a contingency plan should the situation continue over the next 48 hours.
European foreign ministers meet to discuss the issue in Prague on Thursday and an emergency meeting of the EU's "gas coordination group" of national experts will take place on Friday.
"We are not yet detailing all the things that we could do as that would take the pressure off Russia and the Ukraine to sort out the problem," said an EU source.
"There are possibilities of extra measures to help countries in distress."
Analysts have suggested that while Moscow will seek to avoid a head on confrontation with the West the dispute could drag on because of its political roots in Russia's hostility to Ukraine's Western ambitions and Kiev's request to join Nato.
"This is Russia's way of meddling in Ukrainian politics," said Nick Day, CEO of Diligence, a private business intelligence firm. "At the same time, they don't want to allow it to get to the stage where Europeans are starting to freeze in their houses.”
