A worker turns a valve at an underground gas storage
facility near Striy in western Ukraine. REUTERS/Gleb
Russia has cut off gas to Ukraine in a dispute over
unpaid bills that could disrupt supplies to the rest of Europe
and set back hopes for peace between the former Soviet
After the weekend loss of 49 troops when pro-Russian rebels
shot down a military transport plane, Ukraine's new president
ordered his forces to retake full control of their border
with Russia - saying this could then pave the way for
Calling time on weeks of wrangling in talks over natural gas
supplies, Russia said Kiev had missed a Monday morning
deadline to repay $1.95 billion owed for previous purchases
and announced Ukraine would now only get gas it has paid for
At the same time, Moscow insisted that Ukraine must let
Russian gas flow across the country through international
pipelines to Russia's clients in the European Union - noting
a temptation for Kiev to tap into those supplies in transit.
Kiev and Moscow blamed each other for the failure to agree on
the price of future gas deliveries and refused to abandon
well established positions: Russia offering a discount and
Ukraine rejecting that as a tool for political manipulation.
The talks are bound up with the worst crisis between Russia
and Ukraine since the Soviet Union collapsed - a crisis that
has brought Western sanctions on Moscow, the Russian
annexation of Crimea and Cold War-style sabre-rattling along
Western-backed Ukrainian President Petro Poroshenko, elected
last month to replace the Kremlin-friendly leader ousted in
February, said on Monday he wanted troops to regain full
control of the border with Russia this week. After that,
there could be a ceasefire and efforts to come up with a
"The ceasefire will be declared as soon as the border is
secure," Poroshenko told his security chiefs. "Declaring a
ceasefire while the border is open would be irresponsible."
His remarks underlined his concern that Russia is supporting
the rebels by sending in tanks, guns and men. Hopes of a
lowering of tension had already been dented before the gas
talks failed by the downing of the plane near the eastern
frontier, an attack on Russia's embassy in Kiev and new
accusations from NATO that Russia is arming the Ukrainian
All that sent Russian financial markets lower on Monday and
helped oil and gas prices climb in Europe that were already
firm on fears of supply disruption due to violence in Iraq.
"Thanks to the unconstructive position of the Ukrainian
government, today a prepayment system was introduced," Alexei
Miller, the chief executive of Russian state exporter Gazprom
, told Prime Minister Dmitry Medvedev during a meeting at a
government residence at Gorki, outside Moscow.
He said Ukraine had "adopted a position that can only be
called blackmail", adding: "They wanted an ultra-low price."
At a news conference, he said it would no longer be enough
for Kiev to pay part of its debt for supply to resume. That
would now happen only once Ukraine paid off all the almost
$4.5 billion and paid up-front for a month's deliveries, he
"NOT ABOUT GAS"
Ukrainian Prime Minister Arseny Yatseniuk accused Russia of
deliberately blocking a deal to cause Kiev supply problems
next winter, when temperatures plunge and heating needs
"But it is not about gas. It is a general Russian plan to
destroy Ukraine," Yatseniuk said. "It is yet another step
against the Ukrainian state and against Ukrainian
Medvedev said some of Kiev's ruling elite were not up to the
job, echoing outrage over Ukraine's acting foreign minister
using a coarse anatomical expression to describe President
Vladimir Putin during the weekend embassy protest in Kiev.
"You can see this in many situations; from the paranoid
behaviour of the acting foreign minister at the Russian
embassy in Kiev to the failure of the prime minister of
Ukraine to agree on gas on the basis of a discounted price,"
he said on Facebook.
SUPPLIES IN STORAGE
A source at Gazprom said supplies to Ukraine had been reduced
as soon as the deadline passed and Ukrainian Energy Minister
Yuri Prodan said the country was receiving no gas.
Ukraine has at least 12 billion cubic metres of gas in
storage, enough to meet its and the EU's needs over the
A long-term reduction of supply could hit EU consumers, which
get about a third of their gas needs from Russia, around half
of it through pipelines that cross Ukraine. Earlier price
disputes led to "gas wars" in 2006 and 2009, and Russian
accusations Ukraine stole gas destined for the rest of
Gazprom's Miller said Russia would provide Ukraine with the
volumes necessary to cover EU demand, but implied that Kiev
may take some of those supplies for their own use - a
potential shortfall Moscow could not be expected to cover.
"Regarding transit risks, they exist and they are not
insignificant," Miller said of supplies reaching the EU.
The bloc's energy commissioner, Guenther Oettinger, who has
been brokering the gas talks, said in Vienna that the EU
should top up its storage or could face problems in winter.
He urged Russia to reconsider a compromise and held out the
prospect of new talks before officials break for summer.
But with both sides filing lawsuits at the Stockholm
international commercial arbitration court to try to recover
billions each says they are owed, any quick agreement seems a
Russian shares fell on the talks' collapse. The
dollar-denominated RTS index lost 1.25 percent and the
rouble-based MICEX 0.48 percent. Prices for Brent crude were
up about 50 cents near $113 a barrel.
Western countries saw the talks as a gauge of Putin's
willingness to compromise and had been looking for signs that
he was trying to avert the threat of the West adding to
sanctions on Moscow imposed after Russia seized Crimea three
That move came after Moscow-leaning Ukrainian president
Viktor Yanukovich was ousted by street protests in February
and pro-Western leaders took over power in Kiev. Russia
denounced that as a Western-backed fascist coup.
The gas talks broke down with the sides unable to reach
agreement on price and on changes to a 2009 contract that had
locked Ukraine into paying the highest price in Europe.
Kiev wants to pay $268.50 per 1,000 cubic metres of gas - the
price it had been offered when Yanukovich was in power. But,
in a compromise last week, it said it would agree to pay $326
for an interim period until a lasting deal was reached.
Moscow had sought to keep the price at the 2009 contract
level of $485 per 1,000 cubic metres, but had offered to
waive an export duty, bringing down prices by about a fifth
to $385, broadly in line with what Russia charges other
Kiev says that waiving the duty rather than agreeing a new
contract price means Moscow could use the threat of
cancelling the waiver to keep Ukraine under its thumb.
Oettinger said Moscow had declined a compromise under which
Kiev would pay $1 billion immediately and then make monthly
repayments to Gazprom. It would also pay $385 per 1,000 cubic
metres in winter and about $300 in the summer.
The U.S. State Department said the EU had presented a "fair
and reasonable" compromise to resolve the gas dispute, and
talks should be resumed.