Russia is tightening its economic screws on Ukraine, ordering today a further increase in the price of gas it sells to the country and asking that past bills which are growing by the day be paid.
Ukraine, whose economy is on the brink of collapse as it awaits international aid, relies on Russia for almost all its energy. Russia had been giving it discounts on gas as long as the government was willing to have close ties with Moscow.
Now that the new government has signed a partnership with the European Union instead, those favors are being pulled back.
Alexei Miller, the CEO of Russia's state-owned gas company Gazprom, today said the discounts, a part of which were withdrawn earlier this month, would be scrapped altogether.
In practice that means a 70 per cent hike in prices that will add to Ukraine's USD 2.2 billion in gas arrears.
"Our Ukrainian counterparts should find the necessary funding to repay the debts and pay the bills because otherwise our cooperation in this sphere, as well as in other spheres, would not be possible," Russian Prime Minister Dmitry Medvedev said.
He stopped short of saying whether Russia is prepared to turn off the gas taps to Ukraine, like it did in 2009.
The statement "certainly ratchets up the threat of a gas war," said Andrew Neff at IHS in Moscow, although he said it was unlikely unless Ukraine begins siphoning gas.
The effect on the wider region, however, would not be as severe as in January 2009 when a halt in Russian supplies left millions across Eastern Europe without heating. Gazprom has since built new pipelines bypassing Ukraine and increased the capacity of existing ones.
The fact that Russia has scrapped all the discounts for Ukraine indicates Russia is "lining up to get its money when the IMF, the EU (and) the US come in to prop up Ukraine and Naftogaz," said Neff.
The International Monetary Fund has pledged up to USD 18 billion in loans to Ukraine, linked to the country undertaking economic reforms, with the United States and EU also providing support.
