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Experts Downplay Fears Over Ukraine-Russia Gas Crisis

Will Russia cut off gas to Ukraine again this year?
Will Russia cut off gas to Ukraine again this year?
It's becoming an annual rite: with winter fast approaching, Russia is threatening to cut off natural-gas supplies to Ukraine if Kyiv doesn’t pay the fees it's demanding.

The barbs are raising worries over a possible new gas crisis this winter. Moscow's shutoff last winter left millions of Europeans without heat in the bitter cold, but observers say they doubt there will be a repeat this year.

This time, Prime Minister Vladimir Putin is directing some of his legendary ire at the European Union. On November 2, he said the EU should come up with at least $1 billion to help Ukraine pay for Russian gas this year.

"Why are they being so stingy?" he said. "They have money, too. Let them open their wallets."

Europe depends on Russia for a quarter of its gas, most of which crosses Ukraine. When Moscow cut off supplies to Kyiv during a price dispute last winter, deliveries to other countries were disrupted.

Russia now says Ukraine must cough up between $400 million and $500 million for last month's gas bill by November 7.

Political Rivalry

In previous months, Ukraine's Naftogaz energy company relied on central bank credits to finance its payments to Moscow. Critics say the bank's practice of printing money to come up with the cash risked inflation. But when President Viktor Yushchenko, who controls the National Bank of Ukraine, put a stop to the scheme this month, Putin lashed out.

"Yushchenko is obstructing the normal cooperation," Putin said, "between [Ukraine's] central bank, which has control over gold and currency reserves, and the Ukrainian government, and is blocking the transfer of funds."

Vladimir Putin (left) and Yulia Tymoshenko -- allies of convenience?
The government, and Naftogaz, are overseen by Yushchenko's bitter rival, Ukrainian Prime Minister Yulia Tymoshenko. Putin said it was she who warned him of Yushchenko's "obstruction" in a telephone call.

Putin's criticism prompted accusations in Kyiv that Moscow was meddling in Ukraine's internal affairs. Yushchenko's first deputy administration chief, Oleksandr Shlapak, hit back on October 30, saying Yushchenko had proposed only to come up with a better way to pay for Ukraine's gas.

"The president was criticized because he refused to print more money," Shlapak said. "[The government] prints money to pay for gas, and won't give it up."

Most analysts say Kyiv will probably avert a standoff with Moscow this month by coming up with a way to pay its gas bill.

But there's another potential problem. Yushchenko wants to revisit Kyiv's gas contract with Russia, arguing the global financial crisis has caused Ukraine's gas demand to fall more than Kyiv is obliged to buy next year.

Tymoshenko on November 3 said both sides had worked out a preliminary new contract. But if a final deal isn't reached by the end of the year, another crisis would coincide with next year's presidential election.

Volodymyr Fesenko of Kyiv's Penta center for political studies says he's optimistic that won't happen. "I believe the majority of politicians in Ukraine and Russia aren't interested in another such crisis," he says.

'Enemy Of My Enemy'

The latest wrangling comes ahead of the country's presidential election in January. Tymoshenko is running against Yushchenko, her former Orange Revolution ally.

Once the subject of an arrest warrant in Russia, Tymoshenko has been forging closer ties with Moscow as her relationship with Yushchenko has deteriorated. Some believe Putin supports her candidacy against his bitter foe Yushchenko.

But Fesenko says Putin's criticism of Yushchenko probably isn't meant to influence the election. He says Russia's hard-line prime minister is interested chiefly in ensuring Kyiv comes up with the money to pay Moscow -- and in blackening Ukraine's image in the West.

"If Ukraine is seen as a weak link in the supply of gas," he says, "Putin may be hinting that Europe should back [projects to develop] alternative routes."

Vladimir Pribylovsky of Moscow's Panorama political research group agrees. He says while Putin has trouble containing his intense dislike for Yushchenko, targeting him now makes little sense because Yushchenko already has "no chance" of winning January's election.

"Of course the Kremlin would like to influence the situation in Ukraine," he says, "but it hasn't yet figured out what it actually wants from Kyiv."

Pribylovsky says the Kremlin hasn't decided whether to back Tymoshenko or Russia's traditional ally, Victor Yanukovych, leader of the pro-Moscow opposition Party of Regions.

The Kremlin poured millions into Yanukovych's presidential campaign in 2004, when accusations of vote rigging following his initial victory sparked the Orange Revolution that brought Yushchenko to power.

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