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Russia makes deal with Europe on gas

Fri., Jan. 9, 2009

Monitors would oversee shipments

MOSCOW – Russian Prime Minister Vladimir V. Putin struck a deal with the European Union on supervising the flow of natural gas through Ukraine early today, paving the way to restart shipments to European customers.

The price dispute that first drove Russia to cut off gas to Ukraine on New Year’s Day had yet to be resolved, and there was no word on how soon gas deliveries to Europe would start again. There was no immediate response from Ukraine.

Still, European officials said they expected Russia to resume gas deliveries. The agreement calls for monitors to ensure that Ukraine does not siphon fuel en route from Russia to the European Union.

Fuel shortages plunged to new depths the past two days, after Gazprom, the Russian gas monopoly, stopped pumping Europe-bound gas through pipelines that cross Ukraine. In Eastern Europe, schools and factories were forced to shut down, and in some regions families scrounged wood and coal for heat.

Analysts say Russia is under pressure to resolve a stalemate that has badly tarnished its reputation in the West. Although both Ukraine and Russia are losing cash and taking criticism from European leaders, Russia, where the economy depends heavily on supplying about a quarter of Europe’s gas, stands to lose the most, observers say.

Russia said deliveries had to be halted because Ukraine was stealing Europe-bound fuel and blocking pipelines; Ukraine denies the accusations. Experts say it’s impossible to know which country is telling the truth.

“There’s been a lot of damage done to Russian credibility as a gas supplier, whether deserved or not,” said Jonathan Stern, director of gas research at the Oxford Institute for Energy Supplies. But, he added, “even people like me, who’ve been following this minute by minute, don’t know who to believe.”

Still, he said, Russia comes in for criticism because Gazprom resorted to a supply shutdown instead of allowing gas delivery while negotiations continued.

“You don’t stop the gas just because you don’t agree about a price,” Stern said.

Russia is certain to face lawsuits from Europe for failing to fulfill contractual obligations to its customers. Ukraine also will be dragged into litigation – Russia already has filed a lawsuit in arbitration court over accusations of siphoning gas.


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