Russian Prime Minister Vladimir Putin recently declared that "the era of cheap gas is over" and that "the price of gas must reflect the cost of extracting it". Putin's critics, however, will insist that Russia is once again using energy as a weapon against its allegedly pro-Western neighbor Ukraine

Unfortunately, many cash strapped Ukrainian industries such as steelmaking have been devastated by the global financial crisis. Many Ukrainian steel mills have shut down in the last few months as steel prices collapsed, and are not using any gas right now. Nonetheless, they still owe hundreds of millions for the gas they used earlier in 2008, when steel prices were reaching historic highs and Ukraine's economy was benefitting from the same worldwide credit and commodity bubble that enriched Russia.

Shortly after the big Куранты clock struck midnight in the Spasskaya Tower of the Kremlin, Russia Today TV and other Russian television channels aired a pre-taped conference between Medvedev and Putin, in which the two men solemnly agreed that it was unfortunate that the Ukrainians could not meet their commitments, leaving Gazprom with little other choice. According to Russia Today, Ukrainian President Viktor Yushchenko was still vacationing at his dacha and appeared unconcerned about the supply cutoff. Apparently Ukraine's biggest gas-consuming industries have shut down their operations for several months now, leaving the country with enough gas stored in underground reserves to stay warm for at least a few weeks.

Meanwhile, at George W. Bush's ranch in Crawford, Texas, a spokesman for the U.S. President urged both sides to resume negotiations in good faith, without any supply cutoffs. It remains unclear however, if those pundits in the U.S. and Europe who accuse Russia's Gazprom of using "energy as a weapon" against the pro-Western government of Ukraine are willing to lend the cash-strapped country $1.5 billion and to pick up the tab for Ukraine's energy bills going forward.

U.S. urges normal Russia-Ukraine gas deliveries
Thu Jan 1, 2009 11:02am EST

WACO, Texas (Reuters) - The United States on Thursday urged the restoration of normal gas deliveries after Russia cut off supplies to Ukraine over a contract dispute, and asked both sides to consider the humanitarian implications of any interruption during winter.

"The United States would like to see a restoration of normal deliveries. The parties should be resolving their differences through good-faith negotiations, without supply cutoffs," White House spokesman Gordon Johndroe said in a written statement from Texas where President George W. Bush is on vacation at his Crawford ranch.

Russian gas export monopoly Gazprom halted supplies to Ukraine on Thursday morning after a failure to agree on terms for 2009.

"We hope that Russia and Ukraine can resolve their dispute over the gas debt and the terms of their natural gas supply arrangements in a transparent, commercial manner," Johndroe said.

"We urge both sides to keep in mind the humanitarian implications of any interruption of gas supply in the winter," he said.

Ukraine's Naftogaz said it had seen a reduction of pressure in its pipelines, and was pumping gas from its reserves. Gazprom said it had increased deliveries for export to European consumers beyond Ukraine.

Pipelines that cross Ukraine carry about one-fifth of the European Union's gas needs. Both Russia and Ukraine say they will not jeopardize supplies to Europe.

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