Tensions remain high between Russia and Ukraine following the change of regime in Ukraine and the shift towards the West (from a Russian perspective) that resulted. Skirmishes continue sporadically in the east of the country between Ukrainian forces and “rebels” (all a question of perspective) largely of Russian ethnicity and language who wish to reintegrate with Russia.
Ukraine is heavily reliant on Russian gas for its industry and domestic market and Russia exports a considerable volume of gas to Europe via a pipeline which crosses Ukrainian territory. There has been a festering dispute between Russian gas supplier Gazprom and the Ukrainian authorities over unpaid bills. Gazprom believes that it is owed $4.5 billion; for its part, Naftogaz, the Ukrainian gas company, claims that Gazprom owes it $6 billion for overpayments since 2010. The EU has tried to broker a deal which would see Ukraine make a down payment of $1billion and the rest instalments, but this was rejected by Gazprom which demanded nearly twice as much.
The upshot is that Gazprom has cut off all gas supplies to Ukraine, but claims it will honour contracts with Europe, although it recognises that there are “significant” risks for gas transit through Ukraine to the EU now. 15% of the EU’s gas is supplied through Ukrainian territory. Gazprom says that it will now only deliver gas to Ukraine if it is paid for upfront. Ukraine is estimated to hold adequate reserves of gas to meet its domestic needs until the end of the year.
The EU will continue to push for a resolution and has hinted that some compromise could be found over the suspension of the “south stream” gas pipeline which would not pass through Ukrainian territory. Construction of this pipeline has been suspended whilst the EU determines if Bulgaria has breached EU competition laws in awarding contracts for the project.