Officials in Kiev say Gazprom is acting at the Kremlin's behest to punish Ukraine for pro-Western policies, especially as it has sought lower increases from other ex-Soviet states.

So are the Russians really doing this to punish the Ukrainians for their political activity? I find this not only pretty incredible, but a really bad precedent for the increasingly oppressive role that geopolitics will be playing in the supply of oil and gas in the near future.

This does not bode well for the US should it want to form another 'coalition of the willing' for some future adventure, such as military action against Iran. The unmistakably message is that you better be a good boy if you want to stay warm this winter.

So the Russians now have a commodity they can sell anywhere else, particularily a very ng needy Western Europe at basically a sky's the limit price. Of course what this shows is how for Eastern Europe the century old path of developing with cheap fossils fuels is getting narrower and for Western Europe that high price is going to start crippling growth.

Yet Gazprom has announced that starting on Jan. 1 it will raise gas prices across the former Soviet empire, from the Baltic States in the north to Moldova and Georgia in the south. In most cases, the increases do not match world market prices; nor are they all the same.
 For example, Ukraine is being asked to accept the greatest price increase, from $50 per 1,000 cubic meters to over $220 per 1,000 cubic meters.
 Moldova, whose government has shifted its foreign policy away from a pro-Russian stance to one seeking closer ties with the EU and NATO, will have its gas prices increased from $70 to $150-$160.
 The Baltic states, which joined the European Union in May 2004, will next month pay $120 instead of $80.
 Armenia, which is trying to reduce its dependence on Russian energy by building a gas pipeline with Iran that should be completed in 2006, will pay $110 for its Russian gas instead of $56.
 Georgia, which has blocked attempts by Russia to buy a stake in its gas pipeline, will pay $110, an increase of 70 percent.
 The only country that will face no immediate price increase will be Belarus, Russia's small western neighbor, which will continue to pay $47.

http://www.iht.com/articles/2005/12/26/business/gazprom.php

Putin is no dummy ( I am sure he reads at least the morning paper)...The Russians, no doubt, have been biding their time.  They are now in the driver's seat, nuclear armed, and cozying up to China....

End of Empire anyone?  Looks like the "reality based community" may have the last laugh.  Too bad for us Anglo's our leaders don't belong to it...

The Russian have accused the Ukrainians of stealing the gas in transit. The Ukrainians have denied this but probably the Russians have some real reasons for their claim. All this is political, of course. Natural gas imports are crucial to the Ukrainian economy that has the heavy industry as its core. High energy prices make the main export industries hopelessly uncompetitive - if there will be enough gas to keep them going  at all.

Ukrainian economic growth has stalled this year - after the "orange revolution". The Western investments have not flowed in, but energy problems - oil prices and depleting coal - have hit the industry badly already now. The situation is really grim. Now they are facing the reality: the West is praising the "orange revolution" but unable to relieve the energy situation. The EU cannot deliver any gas nor the US.

The real problem behind the situation is the depleting Donbass coal. The Ukrainian industry was built on the large coal deposits in Eastern Ukraine. The coal production there started to decline in the '70s (this was a main cause of economic stagnation in the Soviet Union), but coal and natural gas was imported from the Urals and Siberia during the Soviet times and the Ukrainian, very energy-intensive metallurgical industry survived with that, also after the break-up of the Soviet Union. The Ukrainians got their gas from Russia at sizable discount - the price has been about 25% of the European market price - not only as a political favour, but also because the Russian oligarchs have had stakes in the Ukrainian industry.

So this is a very complex matter - politics, energy supply, markets, competing oligarch groups. This is the second grave energy crisis in Europe at present - the other one is the UK natural gas crisis. The Ukrainian crisis has as background the very tight gas supply situation, depleting coal and energy crisis. This is it.

   "please sir, can i have some more?"

Phase II: Supply Shrinks and Oil Markets Close
Eventually supply will reach a point where the decline rates in the large super-giants that have been overworked, will not be made up for by the ability to increase production in newer fields. If this happens quickly (say a 5-10% yearly decline in supply), this will have a severe worldwide economic impact causing such rampant inflation in the cost of basic goods that many standards of living worldwide will fall dramatically. Some currencies will become so devalued that they may not be able to be exchanged for goods on the international market. As a result, the oil trade may collapse completely on the basis of money for oil. In its place would be a sort of barter system of food or other commodities or manufactured goods for oil. Order may breakdown in some developing countries as economies collapse due to lack of fuel.

By then it will be apparrent to all that oil is a very precious strategic commodity that needs to be secured by military means. China may embark on military operations in Central Asia to get "their share of the pie". Other countries may follow suit and many petty resource wars may occur at a regional level in Africa and Latin America. If there is a major conventional war between the major military powers (US, China, Russia) and some of the oil exporting countries (Iran, Iraq, Saudi Arabia, Venezuela, Nigeria) then even more energy will be wasted securing the remaining oil resources. Even without major wars, I believe the world will revert to a neo-mercantile system of economic/military blocs, which has been the norm of human history except for the post WWII era fueled by cheap oil.

I would revise this now to add that if the world follows a "Last Man Standing" path, long before the oil markets breakdown, natural gas will become the political / economic / military football in many regions around the world. And if anything drove that home for me, it was the final minutes of Syriana...

http://www.orangerevolution.us/blog/_archives/2005/12/27/1524272.html

Attacks on Russian infrastructure in 2004:

• February 18.  Moscow.  2 gas pipelines were blown up with IEDs made from rocket propelled grenades.
  
• March 15.  A power transmission line was severed.  A Chechen flag was found at the blast site.
  
• April 5.  Dagestan (southern Russia).  The Russian gas export pipeline to Azerbaijan was interdicted for several days.  Additionally, the Baku-Novorossiisk oil pipeline was damaged due to collocation vulnerability with the gas pipeline.
  
• April 24.  Volgograd.  The Samara-Lisichansk long-distance pipeline was blown up.
  
• May 24.  Dagestan.  The Mazdok-Gazimagomed gas pipeline was damaged.
  
• June 5.  Stavropol.  The Baku-Novorossiisk oil pipeline reservoir was bombed.
  
• July 5.  Chechnya.  The Mazdok-Gasimagomed pipeline was damaged again.
  
• November 28.  Moscow.  A circular gas pipeline was severed.
  
• December 8.  Dagestan.  The Russian gas export pipeline to Azerbaijan was blown up.

Gazprom called the demanded price hike a long-overdue shift to free-market price mechanisms.

But Andrei Illarionov, Putin's former economic adviser, blasted it Saturday as a political move signaling the rise of neo-imperialist trends in Kremlin policy.

Illarionov said the Kremlin had asked him to help portray the price hike as a free-market measure, but he resigned this week because the move "had no relation not only to liberal economic policy, but to economic policy at all."

"Energy weapons are being used against neighbors," Illarionov said on Ekho Moskvy radio. "The move toward a policy of imperialism ... has a clear and high price that will eventually be paid by the citizens of a nation that embarks on the imperialist path."

Illarionov said that in August 2004, Gazprom signed a deal with Ukraine's gas company that envisaged five years of gas supplies at $50 per 1,000 cubic meters _ part of the Kremlin's efforts to support presidential candidate Viktor Yanukovych, who lost to the Western-leaning Yushchenko.

"When the political situation changed, they remembered about subsidies," said Illarionov, who long was a dissenter in the Kremlin, which is dominated by Putin's fellow veterans of the Soviet spy agency KGB.

The rest at the Washington Post