Putin Postpones Payment by Ukraine for Gas

On April 9, Russian President Vladimir Putin suggested that Gazprom should postpone the upfront payment of billions of dollars by Ukraine for natural gas.

Apr 13, 2014 at 1:26PM

This article was written by Oilprice.com -- the leading provider of energy news in the world. Also check out this recent article.

On April 9, Russian President Vladimir Putin suggested that Gazprom (NASDAQOTH:OGZPY) should postpone the upfront payment of billions of dollars by Ukraine for natural gas. Gazprom has been insisting that it transition to an upfront payment system to supply gas to its neighbor, but Putin said that should wait, "given the difficult situation in Ukraine." Still, it is not as if Putin absolved Ukraine of the $16 billion debt, and even went further, hinting at the possibility that natural gas supplies could be cut off if Ukraine fails to pay.

Gazprom recently increased prices for natural gas to Ukraine to $485 per thousand cubic meters, nearly double the previous rate of $268 per thousand cubic meters. Ukraine missed a deadline on April 8 deadline to pay Gazprom $2.2 billion for electricity and heating fuel. The failed payment upped the chances that Russia will take further measures to squeeze Ukraine.

"[A gas cutoff] may be used by Russia to escalate the political conflict with Ukraine," Dmytro Naumenko, an energy analyst at a Kiev-based think tank wrote in an email to the Christian Science Monitor. "But in spring-summer season it's not a very efficient tool of pressure and thus will have limited impact on Ukraine."

Russia's intentions are unclear at this point, as Putin's comments indicate he is willing to hold off for now on more serious action. Meanwhile all eyes have shifted to the eastern provinces of Ukraine, where pro-Russian demonstrators are pushing for a referendum on secession. The EU is working on a strategy to reverse flows of natural gas to keep Ukraine supplied in the event of a cut off.

An alternative view presented by the New York Times is that Russia is playing a longer, subtler game. It may be pushing for greater autonomy for Ukraine's eastern provinces in which local governors have more power. This would give Russia greater influence in the region without having to actually seize the territory.

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Written by Joao Peixe at Oilprice.com. 

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