June 16 - Russian gas exporter Gazprom has cut supplies to Ukraine after Kiev failed to meet a deadline to pay off its gas debts. As David Pollard reports, the dispute raises worries that supplies to the rest of Europe could be disrupted.
It's hard to believe this is only six months ago. Vladimir Putin and his Ukrainian counterpart, ousted President Yanukovich, sign a deal which knocks a third off the price Ukraine pays Russia for gas supplies. That was then. Now, the latest casualty of the Ukrainian crisis is its cheap energy. Russia's state gas exporter Gazprom announced Ukraine won't get any more gas unless it pays up front. And then briefed Russian prime minister, Dmitry Medvedev. SOUNDBITE (Russian) RUSSIAN PRIME MINISTER, DMITRY MEDVEDEV, SAYING: "They were offered super preferential conditions, even when compared with the gas cooperation during the previous presidential term. However, they haven't agreed to these conditions and have artificially created a gas crisis. That's a pity. And it smells of blackmail, as you said." The ultimatum follows the breakdown of an EU-brokered attempt to secure a new deal. Russia wanted to return prices to full 2009 levels - but offered to waive export duty - an effective discount of $100 dollars. Ukraine wanted the price agreed by Putin and Yanukovich - though did offer a bit more for an interim period. The two sides also disagreed over a demand for a backpayment $1.9 billion. Part of a total Ukrainian gas debt Russia puts at over $4 billion. Both now say they're filing lawsuits over that. Iraq is already stoking concerns over energy prices. With Russia supplying around 15% of Europe's gas needs via Ukraine, markets are rattled - Russian stocks down over two per cent. Robert Halver is with Baader Bank in Frankfurt. SOUNDBITE (German) HEAD OF CAPITAL MARKET ANALYSIS AT BAADER BANK, ROBERT HALVER, SAYING: "We have to stand together, the European Union, and say, 'Dear Russians, we need your gas, which gives you an advantage as well. So, put the conflict aside.' Otherwise, we have a huge new potential conflict which nobody needs and would be negative for the markets." Gazprom says supplies to Europe won't be affected. The EU says it'll try to convene a new round of talks. With no end in sight to the conflict in Ukraine, Commerzbank's Darren Sinden thinks Europe may have to step in. SOUNDBITE (English) DARREN SINDEN, TRADER, TITAN INVESTMENT, SAYING: ''We'll have to see if Ukraine plays ball and passes on the supply. I suspect since it wants to remain in the EU's good books it would do that. I could imagine a situation perhaps going forward where the EU acts as some kind of honest broker or guarantor of the debt for the Ukraine and maybe that will be the way ahead to try and placate the Russians.'' For now, there's no sign of disruption to Europe's gas flow. EU stocks are unusually high after a mild winter. Another harsh one and a further chill between Ukraine and Russia could change that.