Gazprom, the Russian oil giant, announced it had cut off Ukraine's gas supply after failing to be paid for the last two months in 2008. Ukraine's contract with Gazprom also expired and the two sides failed to reach an agreement on prices for 2009. In negotiations, Naftogaz, Ukraine's state energy firm, raised the rates it was willing to pay to $235 per 1,000 cubic meters but it still falls short of the $250 Russia is demanding.
Ukraine claims it paid its debt to Russia in full for 2008 through an intermediary RosUkrEnergo.
"Thus all the obstacles to reaching agreement on gas supplies for 2009 are removed," read a statement from Dec. 31 on Ukrainian President Viktor Yushchenko's Web site.
Yuschenko said he wanted to resume talks and was hopeful the dispute would be settled by Jan. 7, Reuters reported.
Gazprom said supply to Europe would continue in full. Germany, France and Italy are some of Russia's biggest customers. The European Union, which receives about one-fifth of its gas from pipelines through Ukraine, called for negotiations to continue and said that all energy commitments must be met.
"What this tells you is that politics are to the fore in Russian gas supply ... (Prime Minister Vladimir) Putin will be seeing how far the European Union will let him play his policy out regarding Ukraine ... And Europeans will be reinforced in their desire to diversify away from their increasing dependency on Russian gas," Reuters quoted Dieter Helm, professor of energy policy at the University of Oxford, as saying.
Ukraine said it would not divert supplies meant for other European countries, though it does have the ability to do so. Naftogaz said it has enough gas stockpiles to last several months.
Other European countries reported no drop in supply, though any disturbances would take time to notice because of the large distance. A similar dispute in January 2006 between Ukraine and Russia caused a drop in gas supplies to Europe. At the time, 25 percent of gas to Western Europe came from Russia, and 80 percent of that was shipped through Ukraine.
Gazprom's chief executive Alexei Miller said the gas supplier has no legal reason to provide Ukraine with gas until the full debt and fees are settled. He also suggested that that the collapse of talks may be politically motivated.
According to the BBC, Miller said he was "forming the impression that there are political forces in Ukraine which are very eager to see a gas conflict between our two countries."
Russian Prime Minister Vladimir Putin attributed the dispute to an internal division in Ukraine between Yushchenko and Prime Minister Yulia Tymoshenko.
The United States urged a quick settlement because of the humanitarian implications involved in a gas shut off during winter and to maintain stability in the region.
"The predictable flow of energy to Ukraine and the rest of Europe under market-based, transparent conditions is essential for stability and reliability in regional and global energy markets," said White House spokesman Gordon Johndroe in a written statement.