What the Ukraine crisis means for EU gas markets

What the Ukraine crisis means for EU gas markets:



"With the elections of May 2014, with part of its lands annexed, economic problems, and security issues resulting from rebellions in the eastern provinces, the country of Ukraine has elected Petro Poroshenko as its president. Considering that heavy industry in Ukraine is located in its eastern provinces, security and economic issues are interlaced. In this regard, the armed struggle taking place around the towns in the east of the country is occurring on delicate ground in terms of territorial integrity and economic considerations.



Economic issues are not limited to the non-functionality of the economic institutions. Since the New Year, there has been a serious problem arising from disagreement over prices in the Russian-dominated energy sector, and this problem transformed into a crisis by June.



Subsequent to the political crisis, Russia has increased the price per thousand cubic meters of gas from $268.5 to $485. The change of government in Ukraine and its failure to pay Russia for gas influenced this hike in prices. Russia applied the new prices and billed the Ukrainian government $4.5 billion for gas. The Kiev administration, faced with the sudden increase in cost, has found this price unacceptable and has refused to pay. This circumstance risks a new crisis evocative of the 2006 and 2009 crises. While Gazprom ceased gas transport to Ukraine starting on 16 June, the company also declared that gas transport would continue thereafter dependent on payment in advance."



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