Gazprom and Ukraine Resolve Dispute

By Jason Simpkins
Associate Editor

Europe breathed a sigh of relief Wednesday, as OAO Gazprom and Ukraine settled an ongoing dispute over the fate of the continent's natural gas supplies.

Ukraine will pay the $600 million debt demanded by Gazprom, and the Russian oil monopoly will restore deliveries of gas to the country in full. Gazprom had reduced supplies to Ukraine by half after the country reneged on a deal reached Feb. 12.

Governments throughout Europe became extremely concerned when Ukraine threatened to siphon off gas supplies in transit to other parts of the region, and the International Energy Agency called Gazprom's move to cut supplies "excessively harsh." Russia supplies a quarter of Europe's gas supply, and 80% of that passes through the Ukraine.

Russia has a well-documented history of using its oil and gas exports as political bargaining chips and Gazprom has been all too willing to jeopardize Europe's gas supply for its own gain.  But it was Ukrainian Prime Minister Yulia Tymoshenko who refused to go forward with an accord reached between Ukrainian President Viktor Yushchenko and former Russian president Valdimir Putin, and abolished Ukranian intermediary Ukrgazenergo.

"It was absolutely crazy," Jonathan Stern director of gas research at the Oxford Institute of Energy Studies, told the Financial Times. "This is not what grownups do. Grownup people with big contracts don't suddenly abolish counterparties," he said.

Tymoshenko frequently challenges Gazprom's influence in Ukraine's domestic gas market, and has repeatedly clashed with the policies of President Yushchenko. Whether future sales will be made direct or through a joint venture has not been determined. Nor have the two sides resolved disputes about how much Ukraine will pay for Russian gas supplies going forward. Russia has more than tripled the price it charges Ukraine for gas since 2005.

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