German and US officials criticized the Russian cutoff as undermining its credibility as a European supplier. "Such an abrupt step creates insecurity in the energy sector in the region and raises serious questions about the use of energy to exert political pressure," said a statement released by the US State Department.
Gazprom, a state-run monopoly, set the 2006 price of gas for Ukraine at almost $230 per thousand cubic meters, up from $50 under an old contract that Kiev claims is still in force. Moscow says that's in line with the average $240 paid for Russian gas in the European Union. But Ukrainian President Viktor Yushchenko said Sunday that price "is unacceptable, because it is economically unfounded." Mr. Yushchenko has suggested $80 would be an acceptable new price.
Russia has long provided its former Soviet neighbors with cheap energy in return for political loyalty and economic preferences. The Baltic states of Latvia and Estonia - now EU and NATO members - pay $110 for the same amount of Russian gas. Russia's loyal ally, Belarus, pays just $47.
In late 2005, Gazprom said it charged its customers in Western Europe an average of $135 per 1,000 cubic meters, but expected that figure to rise to about $255 this year. Poland won't say what it pays, but media reports have said it pays between $200-$250, according to The Associated Press. Bulgaria now pays $180 per 1,000 cubic meters, but is expected to pay between $230-$260 in 2006.
About a third of Ukraine's gas is supplied by Russia, while Ukraine produces about 20 percent of its own needs. The remainder comes from former Soviet Turkmenistan, via Russian pipelines. Monday, Gazprom reportedly cut off Ukraine supplies from Turkmenistan, too.
Most experts, on both sides, agree there is a strong political component to the Kremlin's tough line. "We have vast resources and they give us political influence," says Vladimir Zharikhin, deputy director of the state-funded Institute of Commonwealth of Independent States Studies in Moscow. "If we give a lower price to somebody, we have the right to demand political concessions. So, we will give economic aid only to the countries that are loyal to us. This may not be a great geopolitical policy, but it's better than nothing."