Russian Prime Minister Vladimir Putin and Gazprom CEO Alexei Miller discuss the crisis

WPR editor Hampton Stephens continues:

Writing at the financial opinion Web site Breakingviews.com, for example, Pierre Briançon says Ukraine is as much to blame as Russia:

The dispute has made it clear that Ukraine is a mess. On the political front, a bitter rivalry between its President [Viktor Yuschenko] and Prime Minister [Yulia Timoshenko], former allies in the "orange revolution," made it difficult for Kiev to come up with a coherent negotiating position. On the financial front, Ukraine, with is sinking currency, could hardly buy the dollars it needed to settle its outstanding debt with Gazprom.

Hampton Stephens isn't the only one who has noticed that the typical hysterical denunciations of Russia in the Western media for "using energy as a weapon" against its neighbor Ukraine don't seem to be getting as much traction this crisis year. Over at the Associated Press website, Moscow correspondent Douglas Birch repeats what Russia Blog has been saying about the "gas wars" for the last three years: instead of engaging in tired Cold War rhetoric, just follow the money.

For the last several years, Ukraine's economy has benefitted from skyrocketing prices for steel and other industrial products. However, when global demand for steel collapsed in the last quarter of the year, Ukrainian companies and oligarchs found themselves unable to obtain credit or even service their existing debts acquired during the recent boom. As a result, many of Ukraine's steel mills have shut down, idling or laying off huge numbers of workers. Russia itself has not been spared from the global economic havoc, but has a more diverse base of exports and several hundred billion dollars in Stabilization Fund reserves to fall back on.

Russia's huge state owned natural gas monopoly, Gazprom, must also service the large debts it acquired during the boom times. Gazprom has no choice but to raise the prices it charges for gas in Russia and abroad to meet its obligations to its primary customers in the European Union, as well as expand production to meet future demand from China. Gazprom must do all of this even as its ability to tap shriveled Western credit markets has dwindled. It remains much easier for Gazprom to squeeze customers in Ukraine than it is to increase heating bills for Russian consumers, particularly Russian pensioners, during these difficult economic times.
Either Gazprom can face the tisk tisks of the Wall Street Journal and Washington Post editorial boards, or it can have Russian babushkas beating pots and pans outside its offices in the regions protesting rate increases. The choice, from Moscow's perspective, is obvious.

It's good that some other Western media journalists are starting to catch on to these simple facts. One wonders when members of the U.S. Congress and European parliaments will do likewise. Instead of simply offering useless denunciations of Russia for refusing to subsidize its neighbors, perhaps these leaders will offer Ukraine loans to pay its gas debt in the short term and launch a renewed push for nuclear energy to reduce Europe's dependency on Russian natural gas as a long-term solution to the perennial "gas wars".

Scroll down to read this excellent AP analysis.

Analysis: Money at root of Russia's gas war
By DOUGLAS BIRCH, Associated Press Writer

MOSCOW -- Five months after Russia crushed the Georgian army in the foothills of the Caucasus, Moscow is once again embroiled in a conflict with a former Soviet neighbor: waging an economic war with Ukraine that has disrupted natural gas delivery across Europe.

This time, the Kremlin may be looking more for cash than political clout.

But the geopolitical implications are still clear in Europe: If Russia cuts off energy supplies, for any reason, Europe can face a crisis in heating its homes and powering its factories.

Russia has long seen its vast reserves of oil and natural gas as its trump card, the key to restoring its former power and influence following the collapse of the Soviet Union. But after the global financial crisis sent energy prices tumbling, Russia is no longer quite the confident economic colossus it was last summer.

In its current fight, at least, the Kremlin seems more interested in raising Ukraine natural gas prices to market levels than in restoring its influence in nations along its borders.

"We are struggling with the consequences of the world economic crisis, but it does not mean that Russian taxpayers have to sacrifice in order to keep Ukrainian production alive," said Dmitry Peskov, Prime Minister Vladimir Putin's spokesman.

Europe depends on Russia for a quarter of its gas supplies, and about 80 percent of that is shipped through pipelines crossing Ukraine. Other smaller pipelines run through Belarus and Turkey.

Russian and Ukrainian gas chiefs resumed their talks on resolving the crisis Thursday, a week after negotiations broke down. Both tried to get the European Union on their side and welcomed deployment of the EU monitors to observe gas transit through the pipeline. Ukraine was unlikely to agree to Putin's demand for European prices, and there was also a hang-up over whether Russians would be allowed to join a monitoring team with EU observers.

Like Georgia, Ukraine has angered Russia by turning away from Moscow and seeking to join NATO and the EU. Ukraine also says it won't renew Russia's lease on its Black Sea base in Sevastopol, and Putin accused Kiev of providing military aid to Georgia during the August war.

But the gas dispute dates back to the collapse of the Soviet Union in 1991, long before the 2004 Orange Revolution that installed a pro-Western government in Kiev.

For almost two decades, Russia has sold gas to Ukraine at a steep discount, a subsidy now worth billions of dollars a year. Moscow has long sought to raise Ukraine's prices to market levels, with only limited success.

Gazprom in 2008 charged Ukraine $179.50 per 1,000 cubic meters of gas. By comparison, Russia's EU customers pay an average of about $400 for the same amount, according to Chris Weafer, chief strategist at Uralsib bank in Moscow.

Adding to the tensions, Gazprom has repeatedly accused Ukraine of failing to pay its bills on time. Gazprom is demanding $600 million in late payment penalties.

"Ukraine has not paid up and this is a scandal again, and Russia has every right to demand every penny," said Dmitry Trenin, director of the Carnegie Moscow Center think tank, at a recent round table on the dispute.

In the past, Trenin said, Russia may have been more forgiving in hopes of restoring its former influence over Ukraine. Today, he said, "Russia has no reason to give Ukraine a break."

Some analysts disagree that the Kremlin is mainly concerned about money, arguing that Russia's chief goal is to weaken a pro-Western government and reassert dominance in the former Soviet sphere.

"The main objective here is to destabilize Ukrainian politics," said Anders Aslund, senior fellow at the Washington-based Peterson Institute for International Economics, a think tank.

But in the ongoing gas dispute, Ukraine -- which has stockpiled enough to last for weeks and probably months -- has seemed far less interested in reaching an agreement than Russia.

While Russian leaders have been on TV almost every day during the crisis, Ukraine President Viktor Yushchenko and Prime Minister Yulia Tymoshenko have been nearly invisible.

And Ukraine's stability seems to be threatened more by its chronic political paralysis than by a cutoff of gas from Moscow.

Russia's August war with Georgia certainly had political roots. Russia invaded its smaller southern neighbor after Georgia launched a military assault on one of its breakaway regions, South Ossetia, with close ties to Russia.

But in the wake of the global financial crisis, the Kremlin's priorities may have shifted away from reasserting its global influence toward shoring up its shaky economy.

At the time of the Georgia war, Moscow -- the world's second-largest exporter of oil after Saudi Arabia -- was still sitting on almost $650 billion in foreign reserves and oil prices were still near record levels.

In November alone, Russia's industrial output plunged 10.8 percent and joblessness grew by 400,000, to 5 million. Russia's economy grew 8 percent in 2008; this year, some economists expect the figure to fall to 2 percent to 3 percent.

Oil has already fallen from more than $140 in July to well below $50 in recent trading. And Russia's foreign reserves are only about two-thirds of what they were in summer.

Gas prices fluctuate more slowly than oil, because gas is generally sold under long-term contracts. But those prices are expected to follow oil prices down in the coming months.

When they do, Russia's economy faces a second devastating blow.

Ukraine's economy, meanwhile, is in much worse shape than Russia's, with a collapse in world demand for steel and other products produced by the country's heavy industries. Its leaders may feel the longer they can postpone paying higher gas prices, the better.

Go to the Associated Press website to read the rest of this story.