Russia-Ukraine gas war rumbles on: analysts

Russia's decision to back down and restore gas deliveries to its western neighbour Ukraine last week may not have ended the threat to reliable European energy supplies, analysts say. A deal was hastily brokered in which Moscow cancelled a 50 percent cut in supplies after Kiev warned that the shortfall could impact on supplies transiting through Ukraine to EU customers. This was seen as a victory for Ukraine's Prime Minister Yulia Tymoshenko. It also avoided deepening an embarrassing row for Russia's president-elect, Dmitry Medvedev, who chairs Gazprom. But most of the incendiary issues remain unresolved, analysts said. "The conflict will continue," said Mykhailo Gonchar, an analyst with the Ukraine's NOMOS centre for geopolitical studies. "Ukraine has achieved an important interim psychological victory, but nothing more," he said. "Nothing is clear yet," said Vadim Karasyov, director of the Institute of Global Strategies in Kiev. "It was a purely psychological victory." Gazprom on Wednesday said the immediate cause of the dispute was resolved when Ukraine agreed to pay a 600 million (395 million euros) gas debt. But many observers see the debt as a side issue to the real dispute between Moscow and Kiev over control of the lucrative gas transit and distribution markets in the region. "At any moment the debt situation could be recreated artificially," said Gonchar. The focus of the dispute is rather the "colossal resources" of intermediary firms who buy and sell the transiting gas, Karasyov said. Some believe Russia capitulated. "Tymoshenko won the gas war," said the popular Ukrainian daily Komsomolskaya Pravda. Russia's Kommersant business daily described it as "the first failure of Gazprom's foreign policy." "It was a game of brinkmanship and the Kremlin blinked first," said Christopher Weafer, an analyst with Moscow's Uralsib investment bank. However, Russia still controls production and is moving quickly to build alternative export routes to Europe that bypass Ukraine. That means Gazprom remains the heavyweight in the conflict, said Geoffrey Smith, head of research at the Renaissance Capital investment bank in Ukraine. "If the Ukrainian side tries to cut out Gazprom completely, it would have to expect retaliatory measures and a steep increase in the price of gas at the Ukrainian border," Smith said. "Gazprom hasn't even been knocked down, let alone knocked out," said Smith. The dispute has also exposed sharp differences between the positions of Tymoshenko and President Viktor Yushchenko. After Gazprom threatened to cut off supplies to Ukraine over unpaid debts, Yushchenko responded by agreeing a deal with Russian President Vladimir Putin in the Kremlin on February 12. Tymoshenko then refused to accept the terms of the agreement, sparking last week's stand-off. "Yushchenko is clearly on Gazprom's side, and Tymosheko is on the other," said Fyodor Lukyanov, editor of the Moscow-based journal Russia in Global Affairs. "Tymoshenko believes that no intermediary should profit and no profit should go to Gazprom at all. Yushchenko is more flexible and understands that to achieve a lower gas price, Ukraine should offer something to Gazprom." But as the two tussle to get ahead in the race for a presidential election expected in 2010, Tymoshenko has clearly got the upper hand, said Karasyov. "The president said his piece, but the final word came from Tymoshenko," he said.