Reclaiming the satellites, cont.

Russia tightening the screws...although it would be a mistake to conclude that it is operating from a position of strength.

Like the Secretary of Defense, Robert Gates, has said (regarding how Prime Minister Nikita Khrushchev was embarrassed that then President Dwight D. Eisenhower's plane was bigger than his). "I mean, this is pretty deep-seated stuff, and so trying to avoid touching on one of Russia's insecurities is almost impossible,".


January 8, 2009
Ukraine Says Russia Shuts Down All Gas Supplies to Europe

By DAVID JOLLY and ANDREW E. KRAMER
PARIS — All gas supplies to Europe via Ukraine were shut down Wednesday as the pricing dispute between Russia and Ukraine escalated. The European Union called for an immediate solution to the crisis.

The cutoff showed the first signs of hitting the European economy as the Hungarian unit of the Japanese automaker Suzuki said it was halting production because of restrictions on industrial users of gas. The Hungarian news agency MTI quoted a spokeswoman as saying Suzuki hoped to restart production Monday.

The Ukrainian gas company Naftogaz accused Gazprom, the Russian gas monopoly, of halting all transshipments at 7:44 a.m. Wednesday. But in Berlin, Aleksandr I. Medvedev, Gazprom’s deputy chief executive, told journalists that it was Naftogaz, the Ukrainian company, that had closed a fourth pipeline, ending all transshipments to Europe.

“Unfortunately, the situation is continuing to deteriorate,” Reuters quoted Mr. Medvedev as saying. “Yesterday night, Ukraine completely shut down all export pipelines to Europe via Ukraine.”

Jose Manuel Barroso, the president of the European Commission, called Prime Minister Vladimir V. Putin of Russia and the Ukrainian prime minister, Yulia Timoshenko, to urge that they quickly restore the flow of gas, a spokeswoman for the commission said in Brussels. The spokeswoman said Mr. Barroso told the leaders that it was unacceptable that Europe be a hostage to their dispute. Mr. Barroso also suggested the European Union was willing to send observers to monitor the flow of gas to Europe, if requested.

The shutdown left Slovakia, the Czech Republic, Austria, Hungary and Romania with no Russian gas supplies amid a bitter cold snap across much of the continent. European Union countries have access to some other sources of gas — including Russian gas from other pipelines, and gas produced in Britain, Norway and the Netherlands — but the loss of the Ukrainian pipeline puts the European Union under pressure to push for a solution.

The cutoff began Tuesday, causing shortages from France to Turkey. Gazprom said Ukraine was siphoning off for itself supplies destined for Europe, and that Russia would reduce shipments by an equivalent amount. Russia had already halted all supplies to Ukraine for domestic use, saying its western neighbor was not paying enough for the fuel.

Gazprom is seeking to raise the price Ukraine pays for gas to $450 per 1,000 cubic meters from $179.50 last year. It also wants to collect what it says are fines for late payments on previous shipments.

In Vienna, the Austrian gas company OMV said Wednesday it was no longer receiving any Russian gas, after its deliveries fell 90 percent Tuesday.

Viktor A. Yuschenko, the Ukrainian president, called for immediate talks in Moscow to restart the flow.

The European Commission said Tuesday that the situation was “completely unacceptable” and called for the immediate restoration of the gas supply. Europe depends on Russia for 40 percent of its imported fuel.

Gazprom officials in Moscow did not immediately respond to requests for comment. Wednesday is the Orthodox Christmas holiday.

While each side blamed the other for the scope of the latest drop in gas shipments, Russia’s prime minister, Vladimir V. Putin, had personally announced Monday evening on state television that he was ordering a sharp reduction in gas flows, saying Ukraine was siphoning gas from the pipelines without paying.

For Mr. Putin, the escalation comes at a perilous time, as slumping energy prices threaten the fiscal health and political stability that have underpinned his popularity at home.

Some analysts of Russian politics had expected Mr. Putin to become more conciliatory as energy prices fell. Instead, he has taken a hard line in seeking to raise gas prices in Ukraine and perhaps create panic-buying on the international market, where prices of natural gas and oil, Russia’s leading exports, have fallen sharply in recent months.

“They’re still playing hardball, when they have to realize the rules have changed,” Marshall I. Goldman, a senior scholar in Russian studies at Harvard and the author of the recent book “Petrostate: Putin, Power and the New Russia,” said in a telephone interview. “It happened so quickly that I don’t think they’ve had time to realize the implications.”

With temperatures plunging, European leaders expressed mounting concern. Some countries announced rationing for industrial customers to reserve enough heating for residential buildings.

A spokesman for the European Commission said that the cut had come “without prior warning and in clear contradiction of the reassurances given by the highest Russian and Ukrainian authorities,” adding, “This situation is completely unacceptable.”

The cutoff appears to have multiple aims.

Ukraine has angered Russia by seeking membership in the North Atlantic Treaty Organization, as has Georgia, a country Russia fought a brief war against last summer.

Mr. Putin is also under heavy pressure domestically. Oil and gas exports provide about 60 percent of the Russian budget; oil prices, meanwhile, have fallen by about two-thirds since their peak last summer.

The effects are rippling through the economy. The ruble is being devalued, Russian companies are facing bankruptcy and the government’s huge budget surplus will turn into a deficit next year if prices do not rebound, analysts say.

At the same time, Russia’s relations with the West slumped to post-cold-war lows after Russia sent troops into Georgia in August.

Even as Russia will need foreign investment to offset dwindling energy export revenues, options are dwindling for attracting investors to a country that even in the best of times had a poor track record of property rights.

“The Russian elite mind-set right now is a residue of petro-confidence slamming into the financial crisis,” said Cliff Kupchan, a director at the Eurasia Group, a global risk-consulting firm based in New York. “So in my view, they’re confused about whether to seek help from the international financial system to solve their problems that way or continue a bare-knuckled approach to the world.”

Gazprom is seeking to raise the price Ukraine pays for gas to $450 per 1,000 cubic meters, from $179.50 last year.

It also wants to collect what it says are fines for late payments on previous shipments.

Ukraine has in turn demanded that Gazprom pay more to transship gas to Europe.

Executives of Gazprom blamed Ukraine. In an announcement on Monday, Mr. Putin and Gazprom’s chief executive, Aleksei B. Miller, said they would cut 65.3 million cubic meters of gas supplies for Europe. In fact, the reduction totaled about 240 million cubic meters, according to Gazprom.

Company officials said that they had intended to ship more fuel on Tuesday, but that Ukraine had blocked export pipelines. Ukrainian energy officials denied this.

“We are shocked that we’re not in the position to bring gas to the border of Ukraine because they shut down the pipelines,” Mr. Medvedev, a deputy chief executive of Gazprom, said at a news conference in London on Tuesday. “There is no reason to blame Russia or Gazprom.”

Oleh Dubyna, the director of Ukraine’s national energy company, Naftogaz, said he would fly to Moscow on Thursday to resume negotiations.

Gazprom’s spokesman, Sergei V. Kupriyanov, said the company was “ready to begin negotiations at any moment.”

A compromise may be harder to find this year, Thane Gustafson, an expert on Russian energy at Cambridge Energy Research Associates of Massachusetts, said in a telephone interview from Washington. “We’re talking about two sides that are under extreme constraint,” he said.

Among the pipeline routes that were affected the most was the so-called Western Balkan route, affecting supplies to Romania, Bulgaria, Macedonia, Greece and Turkey, said Ferran Tarradellas, a spokesman for the European Union energy commissioner, Andris Piebalgs.

Substantial cuts could also affect Slovakia, Hungary, Slovenia, Italy and Austria, Mr. Tarradellas said.

In Turkey, flows of gas through a pipeline that runs from Ukraine stopped completely on Tuesday morning, said the country’s energy minister, Hilmi Guler. The pipeline is a major source of gas for Turkey, which imports nearly all its energy.

Several other sources, including the Blue Stream pipeline, which carries gas to Turkey from Russia under the Black Sea, were unaffected, however.

David Jolly reported from Paris, and Andrew E. Kramer from Moscow. Reporting was contributed by James Kanter from Brussels, Dan Bilefsky from Prague, Sabrina Tavernise from Istanbul, and Ellen Barry from Moscow.