Russia today cut gas supplies to Ukraine as a payment deadline passed and negotiators failed to reach a deal on gas prices and unpaid bills amid continued fighting in eastern Ukraine.
The decision does not immediately affect the gas flow to Europe, but could disrupt the long-term energy supply to the region if the issue is not resolved, analysts said.
Ukraine's Naftogaz company head Andriy Kobolev said Russia had cut the supply of gas to Ukraine, but that Ukraine can manage without Russian gas until December.
Gazprom spokesman Sergei Kupriyanov said that since Ukraine had paid nothing for the gas by today, from now on the company would demand that Ukraine pay in advance for any future deliveries.
Ukraine was ready to accept a compromise in talks in Kiev of paying USD 1 billion now and more later, but Russia didn't accept the offer, the European Commission said in a statement.
Ukraine has been chronically behind on payments for the gas needed to heat homes and fuel its industries. The gas conflict is part of a wider dispute over whether Ukraine aligns itself with Russia or with the European Union. It comes in the midst of the severe crisis in relations between the two countries that has followed Russia's annexation of Crimea in March. Ukraine accuses Russia of supporting a separatist insurgency in its eastern regions, which Russia denies.
The pipeline to Ukraine also carries gas meant for Europe, but Kupriyanov said that the supply to Europe will continue as planned. Ukraine has the obligation to make sure the gas will reach European customers, he said.
However, Gazprom has notified the European Commission of "a possible disruption in the gas transit" in case Ukraine decides to siphon off the gas, the company said.
Analyst Tim Ash at Standard Bank PLC said Russia was likely to cut off only the gas meant for Ukraine, but that Ukraine could in theory simply take what it wants since the gas is intermingled. That would result in a shortage in pipelines to Europe that could hinder the buildup of stored gas ahead of the winter heating season when demand is higher.
"So the message is that this is unlikely to bring a short-term hit to gas supply in Europe, but it will build up problems for the winter unless a deal is reached quickly," he said in an email.
