The first gas pipeline Dashava-Striy was built back in 1924. It was extended to Kyiv in 1948, and six years later – to Moscow. Rapid development of the gas transportation system started in 1960s-1970s with start of the Russian and Ukrainian gas supply to the countries of Central and Western Europe in 1967. The reasonableness of this step was essentially doubted in Europe, particularly by the NATO and some European countries. The Times in 1967 mentioned the project suggested the supply of natural gas by USSR to Italy, France, Austria and even to the Western Germany. Russia had an excess of gas resources in Siberia and wanted it to be supplied to Europe through Ukrainian gas transportation system. Despite the serious doubts regarding the growing dependence on the natural resources from the USSR, the agreement was reached and Russian and Ukrainian gas flowed to Europe. It seems that nowadays it is high time for Europe to recall its past anxiety: being independent on gas supply from “Soviet countries” – Russia and Ukraine becomes critical for economy of the European Union.

There is no doubt, that when Russia and Ukraine were the parts of the same structure – Soviet Union, there were no essential confrontation between them as the supplier and the intermediary. The situation changed in 1991, when the Soviet Union collapsed and two countries became independent. During 14 years (till 2005), Ukraine benefited from subsidized rates for Russian natural gas. It should be mentioned that it was not until 2005 that serious gas conflict arose – and exactly before this, in 2004, the Orange revolution broke out, which ended up with the first truly pro-Western government in Ukraine. That is, Russia started to lose its boundless influence. Moreover, Ukrainian President, mr. Yushchenko made certain steps to join the NATO, which was considered as direct threat to the Russian strategic interests. Since then, each New Year celebration passes under the sign of gas conflict between Russia and Ukraine.

However, we should not forget about the economic justification of the problem. Crisis made countries save money, and each party tries to press out as much dollars as it is possible. If we consider the issue through the prism of economy, we’ll see that Ukraine tries to reduce the price for gas requested by Russia. Switching to market terms, sticking to current Russian demands will mean more than doubling of gas price for Ukraine: $418-$450 per 1000 cubic meters (tcm) in contrast to 2008 price of $179. In response to these terms, Ukraine stated that in this case it will be compelled to increase tariffs for gas transit, according to the market terms as well. For reference, Europe is expected to pay $250-300/tcm this year, according to Russian Gazprom. The conflict has not been settled until now. Ukraine refutes accusations of siphoning off the Russian gas, and the monitors of the EU are checking gas flow through the Ukrainian territory to confirm or refute the case of siphoning off the gas. Gas transit is halted, and again, it is hard to define the party which is to be blamed for this. Gas transit issues are regulated by the Energy Charter Treaty (ECT) (1998), which specifies uninterrupted transit as one of its major provisions. At the same time, this is not the pro-globalization agreement, as far as it brings into the foreground the sovereignty of a nation concerning its energy sector and other issues. This is provided in the Article 18 of the ECT. Therefore, Ukraine is only defending its interests. However, the Treaty provisions can be interpreted differently: thus, Article 7(5) of the ECT claims that member countries are obliged to “secure established flows of Energy Materials and Products to, from or between the Areas of other contracting Parties” (Energy Charter, 2009). In case of interruption, member states should “…expeditiously restore the normal operation of such Transit” (Energy Charter, 2009), as it is stated in Article 16 of the ECT.

It was agreed that gas flow will be restored on 13th Jan, 2009, but this plan failed. The President of Ukraine, Viktor Yushchenko, announced that technical condition of the GTS is impaired, and this hampers the proper control over the gas flow through the pipelines.

Despite the different views on the problem, one thing is obvious: this conflict is rather political, than economic. The reputation of both countries as reliable partners is undermined. Ukraine attempts to reduce the prices for gas, while Russia exerts pressure and demonstrates its power. While the previous gas conflicts between Russia and Ukraine (2005-2007) seemed to raise sympathy of the official Europe to Ukraine as a victim, Europe is neutral today.