Russia Is Threatening To Raise Gas Prices On Ukraine If $US1.55 Billion Debt Isn't Paid

Ukraine's new Prime Minister Arseny YatseniukREUTERS/Konstantin ChernichkinUkraine’s new Prime Minister Arseny Yatseniuk speaks during a news conference in Kiev February 28, 2014.

The Ukrainian interim government, already facing possible bankruptcy and a Russian military incursion into Crimea, now has another challenge to face — Russian demands for owed fuel money.

Ukraine receives the vast majority of its natural gas from Russian gas monopoly Gazprom. Last year, Yanukovych managed to secure a deal receiving natural gas from Russia at a discounted rate.

Now, Gazprom is considering raising prices on March 1 unless Ukraine pays $US1.55 billion for owed fuel costs.

Elena Mazneva and Stephen Bierman of Bloomberg write:

Ukraine’s interim government led by Arseniy Yatsenyuk can little afford to meet Gazprom’s demand for back payment as it tries to negotiate a $US15 billion bailout with the International Monetary Fund. Ukraine, which uses more gas than France, gets more than half its supply from Russia.

This is by no means the first time that Russia has leveraged Ukraine’s energy supply for greater influence in the country. Since 2006, Russia has shut off the gas twice to Ukraine to pressure the country’s domestic and international policy.

This wielding of the gas debt is a typical Russian manoeuvre to put pressure on former Soviet republics, Mikhail Korchemkin, the head of Malvern, an Eastern European Gas analysis group told Bloomberg.

If Russia chooses to halt the flow of natural gas to Ukraine, the rest of Europe would also suffer. Large portions of Russian natural gas flow through Ukraine before reaching Europe.

This chart from Agence France-Presse shows the extent of Putin’s leverage in Europe:

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.