Global Processing

Russia stops all gas supply to Europe via Ukraine

January 8, 2009
Russia cut off all gas supplies to Europe through Ukraine, playing hardball in a weeklong standoff that has left more than a dozen countries struggling to cope with dwindling energy supplies in the depths of winter, as reported by the Associated Press. Prime Minister Vladimir Putin endorsed the move, even as factories shut down in Eastern Europe, schools closed and tens of thousands of people scrambled to find other ways of keeping warm. Insisting that Ukraine was responsible for the crisis, Putin appeared determined to force Kiev to back down and accept increased prices for natural gas. The effects of the gas cutoff reverberated across the continent, with Bulgaria, the EU''s poorest member, among the worst hit. Croatia declared a state of emergency and Hungary instituted gas rationing for industries. The situation in Bosnia was so dire that woodcutters revved up their chain saws to cut wood for fireplaces. Hundreds stormed shops in Sofia looking for electric heaters. In Hungary, voluntary rationing for the country''s largest consumers went into immediate effect. Japanese carmaker Suzuki closed its plant in the northern city of Esztergom, while a brick factory belonging to Austria''s Wienerberger, the world''s largest brick manufacturer, in the eastern city of Bekescsaba and a tire factory in Racalmas, central Hungary, owned by South Korea''s Hankook also shut down due to gas shortages. The Hungarian subsidiary of General Electric and famed salami maker Pick were among the companies cutting output. The EU accused both Russia and Ukraine of using consumers as pawns in their dispute. In Washington, U.S. officials criticized Russia for the energy crisis. Russia supplies one quarter of Europe''s natural gas. About 80 percent of that is shipped through pipelines crossing Ukraine. Other smaller pipelines run through Belarus and Turkey. Russia''s gas monopoly Gazprom stopped all gas shipments to Ukraine on Jan. 1 after the two countries failed to agree on prices and transit fees for 2009, but kept supplies flowing to Europe over Ukraine''s pipelines. Russia reduced supplies this week, accusing Ukraine of siphoning off gas meant for Europe. But Putin ordered Gazprom to stop all shipments by mid-week. EU Commission President Jose Manuel Barroso pressed Putin and his Ukrainian counterpart Yulia Tymoshenko for a quick resolution to the standoff. He said both countries agreed to accept international monitors that could verify the flow of gas once it resumes. Talks had been expected in Moscow, but Ukraine said it was sending its delegation instead to Brussels, where Gazprom''s Miller is to speak before the European Parliament. In 2008, Russia charged Ukraine about half what it charged its European customers for gas — a Soviet-era practice it has long sought to change. Ukraine, however, says if it pays more for natural gas, Russia should pay more for shipping that gas across Ukraine. Russian President Dmitry Medvedev told Ukraine''s President Viktor Yushchenko on Wednesday that Moscow would insist that Kiev pay European prices "without discount." Medvedev also demanded full payment of Ukraine''s $600 million debt to Gazprom, which Ukraine has said it will not pay until the issue is settled in arbitration courts. Ukraine, which has a vast underground storage system full of natural gas, says it can weather the dispute until early April. Gazprom, however, is losing substantial income during a peak season for gas consumption. It also will soon see an excess of gas in its system, which will create a costly storage problem.