Tuesday, December 30, 2008

Russia to Ukraine: Pay up!

It could be a cold winter in Ukraine if they don't make good on a debt to Russia. Ukraine currently owes $2 billion to Russia's natural gas monopoly, Gazprom, who is threatening to cut off supplies as of January 1 if Ukraine doesn't make good on the outstanding balance.

The back-story here is that right after the end of the Soviet Union, Russia sold natural gas and oil to former Soviet republics like Ukraine at cut-rate prices. Countries in the West, who also bought Russian gas complained about this arrangement and wanted Russia to start paying fair market prices. Russia has been increasing the price it charges in the 'near abroad' (their term for the countries of the former Soviet Union) over the past few years though it is still well below market rates, but Ukraine has been falling behind in their payments and now owes around $2 billion. So now Gazprom is threatening to cut them off.

This all puts Ukraine in a tough spot, since they just had to ask the International Monetary Fund for a loan of more than $14 billion to keep their economy afloat, so its doubtful whether they have a spare $2 bil lying around. To make things more complicated, the pipelines that carry Russian natural gas to Europe pass through Ukraine, the Russians are worried that if Gazprom cuts off Ukraine, they might just siphon off some of the natural gas headed for customers further west.

And Ukraine isn't the only problem brewing in that part of the world. Russia's RIA Novosti is reporting that Georgia is moving tanks up to the border of South Ossetia. The deployment of tanks follows a similar report by European observers monitoring the border after the August war who noted the arrival of several dozen Georgian armored vehicles in the area in the last two weeks. All of this is sparking fears that the conflict between Georgia and South Ossetia could reignite, which would undoubtedly draw Russia back into the fight.

Perhaps all of this explains why last month President Bush decided to insure all American ships sailing through the Black Sea against damage caused by military action (usually that kind of insurance is only issued when ships will be entering a war zone). The insurance decree runs through next March.
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