At exactly 2000 GMT (4:00 p.m. EDT), Ukraine’s unpaid gas bill is due to Russia. Kiev owes Gazprom some $2.2 billion in unpaid natural gas fees and is obligated to settle its account on the seventh day of each month. This April, that due date comes with an additional wrinkle: In light of recent events, Russia has jacked up the price for its gas by roughly 80 percent, a reversal of the sweetheart deal it dangled in front of Ukraine as a reward for turning down last November’s free trade and association agreement with the EU. Reuters reports:
A Gazprom spokesman declined to say what action, if any, the company would take if Kiev did not meet the deadline – which falls on the seventh day of each month – for settling its monthly bill.“There have been zero payments from Ukraine,” he said.Ukraine has missed deadlines in the past without punishment but Gazprom has suggested it might ask Kiev to pay in advance for gas if it does not meet the monthly deadline.
Kiev has publicly repudiated the recent gas price increase, but it has precious little leverage in this fight. Russia has not been shy about shutting off its gas supplies to Ukraine in the past, and a repeat of 2005 and 2008 price disputes could spread across Europe. The continent gets roughly a quarter of its gas from Russia, half of which travels through Ukraine.However this shakes out in the short term, Europe desperately needs to diversify its energy supply and end its reliance on Russian gas in the long term. Many have called for U.S. liquified natural gas to help meet this need, but that is not a short-term solution, and in the long term, markets will determine who gets America’s abundant shale gas. Europe can also increase its domestic energy reserves by pursuing shale development and building new nuclear plants (or, at the very least, not shutting down its existing facilities). But in the meantime, Russia will continue to use its dominance in the regional energy market as a foreign policy weapon.