Gazprom Warns Ukraine To Pay Debt Or Face Gas Shutoff

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Russia continues to rattle its saber at the Ukraine, but this time it’s economic rather than military threats. Gazprom OAO (ADR) (OTCMKTS:OGZPY) (MCX:GAZP), the essentially state-owned Russian petrochemical giant, announced today that it could soon stop shipping gas to Ukraine because of unpaid and overdue bills. Given the ongoing Russian occupation of Crimea, the thinly veiled threat set off alarm bells in Kiev and across Europe.

Gazprom CEO statement

“Either Ukraine makes good on its debt and pays for current supplies, or there is risk of returning to the situation of early 2009,” Gazprom OAO (ADR) (OTCMKTS:OGZPY) (MCX:GAZP) CEO Alexei Miller said.

“Today, March 7, was the deadline for payments for gas supplies to Ukraine in February. Gazprom has not received payments for the debt,” Miller continued. “Essentially, this means that Ukraine has stopped paying for gas. This totally contradicts the provisions of the contract and international trade practices. For our part, we have always fulfilled and will fulfill our contractual obligations. But we cannot supply gas free of charge.”

He also noted that Ukraine owes his company $1.89 billion and that the bill for February had not yet been paid.

Ukrainian political turmoil and Russian takeover of Crimea

The current showdown over natural gas supplies comes in the shadow of the recent political turmoil in Ukraine. After more than a month of protests, pro-Kremlin Ukrainian President Viktor Yanukovych was chased from office a couple of weeks ago by hundreds of thousands of angry protestors when he scuttled a treaty with Europe in favor of a deal with Russia. He eventually resurfaced in southern Russia.

A few days later Russia reacted by moving military forces into Crimea and taking over all major government operations and military bases. The takeover was accomplished largely bloodlessly, and Russian President Vladimir Putin justified the military moves as necessary to protect ethnic Russians living in Crimea. Crimea has long historic ties to Russia and its population is around 60% Russian ethnic background.

The U.S. and Europe have announced initial sanctions against Russia over the last few days, but they are limited in scope and there is no sign that Putin is backing down, especially given today’s announcement from Gazprom OAO (ADR) (OTCMKTS:OGZPY) (MCX:GAZP).

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