Russia Stops Supplying Gas to Ukraine

Today, in a move considered by many to be primarily political, Russia started cutting off mid-winter natural gas supplies to the Ukraine. Russia raised the price of 1,000 cubic meters from $50 to $230, the European market price, and Ukrainian authorities said they won't pay more than $80. Eleventh-hour negotiations failed. Consequently, the supply was cut off.

Notably, about 25 percent of Western Europe's gas comes from Russia, largely through the Ukraine. So, gas has to travel through pipelines in the Ukraine, but none is to be delivered to Ukranian customers. Hmmm ... I wonder if someone would be tempted to illegally tap into the pipeline?

Both the Western Europeans and Washington are concerned that Russia may be using its energy supply as a political weapon against the Ukraine in retaliation for pursuing membership in the European Union and NATO. The Russians have denied the allegations and contend that they raised prices to break away from Soviet-era subsidized rates.

Interestingly, the Ukraine agreed to renounce nuclear weapons in exchange for a commitment from the U.S. and Russia to support the former Soviet republic in case of a threat. Ukrainian President Viktor Yushcenko said today that the severance of natural gas supplies is a threat to Ukrainian national security and he's prepared to ask nuclear club nations and the European Union to intervene in the conflict with Moscow.

Obviously, the Russia-Ukraine gas controversy has become a major geopolitical issue involving not only Europe but, also, the United States. And, although the Russians may be irritated by political considerations regarding the Ukraine, it seems perfectly reasonable for them to sell their gas at market price. Sooner or later, the Ukranian economy has to succeed without subsidies from a neighboring nation.

Companion post at In The Bullpen.