Economy, Politics Stoke Russia-Ukraine Gas Quarrel

Russia halted shipments of natural gas to Europe via Ukraine as the two countries sparred over prices and debt. Russian and Ukrainian officials met Thursday and continue talks to resolve the dispute.
By Philip P. Pan
Washington Post Foreign Service
Thursday, January 8, 2009

MOSCOW, Jan. 7 -- Since the fall of the Soviet Union, Russia and Ukraine have wrangled over fuel prices, with both sides holding a powerful bargaining chip. Russia has had the natural gas Ukraine needs to power its industries. Ukraine has owned the pipelines Russia depends on to transport the gas it sells to Europe.

The two have often engaged in brinkmanship, threatening to cut off deliveries. But they have never followed through on the threats for very long -- until now.

A confluence of factors tied to the global economic crisis and political uncertainty in both countries have altered the dynamics of the annual dispute. For the first time, Russian gas deliveries to Europe through Ukraine came to a complete halt Wednesday, as the standoff between the two countries stretched into a seventh day.

Russia accused Ukraine of shutting down pipelines that deliver a fifth of the continent's fuel, while Ukraine charged that Russia had simply stopped sending gas. With more than a dozen countries scrambling to maintain heat and electricity amid a bitter cold snap, the European Union urged both countries to accept international monitors to verify gas flows.

Direct talks were scheduled to resume Thursday, but analysts said progress would be difficult for the same mix of economic and political reasons that led the two nations to dig in this week instead of compromising, as they had done in years past.

With its economy in deep trouble, Ukraine has little to lose by using its control of European fuel shipments to resist Russia's demand for a price increase. By contrast, Russia is suffering huge losses in immediate gas revenue and enormous damage to its reputation as an energy partner seeking European investment. Yet political considerations seem to have prevented the Kremlin from surrendering.

Russian Prime Minister Vladmir Putin is confronting the most severe economic crisis he has faced since taking power as president in 2000, with the ruble falling, a stock market that has crashed and unemployment soaring. After delivering growth for eight years, Putin remains popular but appears politically vulnerable, with social unrest on the rise and polls showing discontent with the government climbing.

In such an environment, it would be risky for him to back down in the standoff with Ukraine, said Lilia Shevtsova, a political scientist at the Carnegie Moscow Center and author of a study on Putin's leadership. At the same time, she said, a conflict with Ukraine gives him a chance to "distract" the public from the economic slowdown.

"If Putin decides to get soft with our neighbors and the West, it could be viewed in Russia and by his own gang as an expression of weakness," Shevtsova said. "Toughness is approved by Russian society."

The Kremlin's relations with Ukraine have been strained since the 2004 street demonstrations known as the Orange Revolution, which resulted in a pro-Western government in the former Soviet republic that is seeking membership in NATO and the European Union. Ties worsened last year after Ukrainian President Viktor Yushchenko vocally backed Georgia in its August war with Russia.

Putin later accused Ukraine of secretly supplying arms to Georgia before and soon after the fighting broke out. Some analysts say he is trying to using the fuel cutoff to damage Ukraine's reputation in the West and sink its NATO bid while undermining Yushchenko. Russian officials have singled out Yushchenko for criticism in the standoff, saying he refused to authorize Ukrainian negotiators to sign a deal on New Year's Eve.

"Russia is trying to browbeat us," said Ivan Lozowy, president of the Kiev-based Institute of Statehood and Democracy. "Polls show that Russians are more concerned about the loss of superpower status than poverty or economic issues. And for Russia to reestablish itself as a great power, Ukraine is critical."

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