Gazprom - Naftogaz Ukrainy Dispute: Business or Politics?



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Introduction

On December 14, 2005, the Open joint-stock company Gazprom (Gazprom), a state-controlled Russian company with monopoly over gas exports, announced a stiff hike in its gas prices for 2006 for Naftogaz Ukrainy (Naftogaz),4 the Ukrainian state gas company. Gazprom, which had earlier demanded $160 per thousand cubic meters (Tcm),5 hiked the price to $230 per Tcm and threatened to cut off supplies, from January 1, 2006, if Ukraine did not agree to its new prices.

No agreement could be reached with Naftogaz, which had paid $50 per Tcm of gas in 2005. On January 1, 2006, in the midst of a harsh winter, and the day on which the Russian Federation (Russia) assumed the presidency of G8,6 Gazprom began to reduce the pressure of gas into the pipeline system meant for Europe that passed through Ukraine......

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Argentine Economy Minister Felica Miceli called the agreement "a triumph of cooperation and common work,"and urged further steps to strengthen Mercosur, but some analysts were critical of these moves to restrict trade and felt it was not in line with the idea of a Customs Union4 (CU) at all (Refer Exhibit II for stages of economic integration). The message was clear - it had decided to go ahead with its threat to cut off gas supplies to Ukraine. Within hours, more than half-a-dozen countries in Europe reported reduction in the gas supplies received at their terminals (Refer Exhibit I for Gazprom's gas exports to Western Europe and Exhibit II for Russian gas exports to Europe transiting through Ukraine and other countries)........

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