The crisis comes only a month after Kiev agreed to settle an outstanding natural gas bill with Gazprom for $1.3 billion. On Nov. 7 Gazprom said in a statement, "Today the RosUkrEnergo company in full and timely fashion fulfilled the conditions of an agreement on paying the debts incurred before the Gazprom group for the gas supplied in 2007 as well as dividends on RosUkrEnergo's activities in 2006."

Ukrainian Fuel and Energy Ministry Yuri Boyko and Belarusian First Deputy Prime Minister Vladimir Semashko are in Moscow meeting with Gazprom Chief Executive Officer Alexei Miller, but the Ukrainians and Belarusians have no real cards to play and they know it. What Minsk and Kiev do have in their favor is increasing European nervousness over what it perceives as Russian hardball tactics on energy supplies, leading many European politicians and commentators to wonder if Europe is not becoming too dependent on Russian energy imports. Last year Russia briefly cut gas supplies to Ukraine over an earlier pricing dispute, giving Ukraine's Western European Union neighbors a fight as gas supplies slumped. Many analysts saw the January 2006 cutoff and subsequent supply disruptions to the EU as punishment for the Ukrainian government's pro-European inclinations.

Yanukovych told a government session, "I fully support the position of President Yushchenko on the issue. A price of more than $150-$160 (per 1,000 cubic meters), which is being discussed now, is unacceptable to Ukraine."

Yushchenko staked out Ukraine's optimal gas price for 2008 imports at $150-$160 per 1,000 cubic meters on Oct. 28. Adopting a tough tone, Yushchenko said, "I would like to respond to this as in 2005, when we were offered the price of $235 -- there will be no higher price."

Ukraine buys its natural gas from Gazprom intermediary RosUkrEnergo at $130 per 1,000 cubic meters, while Belarus pays $100 per 1,000 cubic meters. Both prices are a bargain, as Gazprom charges its more affluent European customers $260 per 1,000 cubic meters.

While Ukraine might win a temporary reprieve on dramatic price increases for the moment, the handwriting is on the wall, as Gazprom issued a statement coinciding with Boyko's visit that, "The topics of discussion included ... the gradual transition towards market prices for gas supplies to Ukraine and transit across its territory by 2011."

Further adding to Kiev's uncertainty, Gazprom on Nov. 7 postponed for a week its decision on natural gas prices it plans to charge Ukraine next year, pressuring Yushchenko's administration, which had been expecting the new tariffs, to redraft its 2008 budget in accordance with the new price.

Ukraine will not be the only nation to feel Russia's growing energy clout and its determination to revise its transit arrangements; Moscow is informing the Commonwealth of Independent States of its intention to suspend its participation in the April 12, 1996, agreement on conducting coordinated policy in oil product through the Soviet-era pipeline network traversing neighboring countries, which has serious implications for Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan and Uzbekistan, along with Ukraine. The upshot of Moscow's action is that market forces will determine transit questions, with each transit country becoming individually responsible to supplier and customer.

Due to record high energy prices, Gazprom is awash in cash, with its capitalization at roughly $300 billion.

Behind the scenes is a covert struggle that has been ongoing for years in which Russia has been seeking to acquire outright ownership of the Ukrainian and Belarusian pipeline networks in lieu of delinquent payments for natural gas, a move that both Kiev and Minsk have resisted. In Russia the state-owned Transneft pipeline monopoly controls the country's entire pipeline network and sought to extend its leverage up to the borders of its Eastern European clients. While not offering a controlling share in the Beltrans pipeline network, Semashko reportedly offered Gazprom the opportunity to buy into Belarusian power generation and fertilizer conglomerates.

Gazprom has also indicated that it intends to raise domestic prices as well but has thus far released few details.

Seeking to blunt domestic and foreign consumer nervousness over Gazprom's growing assertiveness, Dmitry Medvedev, Russian first deputy prime minister and chairman of the board at Gazprom, during an interview with Interfax said, "There are clear directives, the government has decided on how to handle the gas and energy price policy for the next few years. There will be no surprises and all parameters we have been agreed upon."

Russia is in the EU's driver's seat as regards energy imports, as it supplies about 25 percent of the EU's petroleum needs, while Gazprom is the sole provider to Estonia, Latvia, Lithuania, and Slovakia and a major supplier to Hungary, Poland and the Czech Republic. Accordingly, many EU capitals are focused on the energy talks in Moscow, anxious to learn if outstanding issues will be resolved or whether the continent is in for a long, cold winter.

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