The ongoing dispute over transit fees and pricing has halted Russian natural gas exports to Europe. Ukraine and Russia blame each other for the disruption that has curtailed vital gas deliveries to several European countries, including Hungary, Romania, Austria, Slovakia and the Czech Republic. Amid freezing temperatures and usage restrictions, the Japanese automaker Suzuki says it is halting production at its Hungarian affiliate. The European Union says it is being held hostage to a bilateral dispute and is demanding an immediate resolution of the matter. On Wednesday, German Chancellor Angela Merkel expressed displeasure in telephone conversations with Russia's Prime Minister Vladimir Putin and Ukraine's Prime Minister Yulia Timoshenko. Germany gets some 37 percent of its natural gas from Russia, 80 percent of that through pipelines that transit Ukraine.
Russia claims that Ukraine is $2 billion in arrears in gas payments. It accuses Ukraine of siphoning off gas intended for Central and Western Europe. Gazprom, the Russian gas supplier and the world's biggest energy company, wants Ukraine to pay world market prices - more than double what Ukraine has been paying. Ukraine, in turn, wants Russia to pay more in transit fees.
Three years ago, an almost identical dispute briefly disrupted natural gas trans-shipments.
Thomas Mayer, chief European economist at Deutsche Bank, expects the dispute will be resolved soon. He told Bloomberg Television that neither country wants to damage its commercial ties with Europe. Mayer foresees no significant shortages in Western Europe. "I think there is the possibility for the European Union to share reserves among the European Union countries," said Mayer. "So at the present time, I don't think one needs to be too worried about it. And I think the markets are also not taking a lot of fright from that."
Mayer says that, so far, the shortages are not acute in Germany, which is still obtaining some Russian gas through the pipeline that crosses Belarus.
Several politicians and energy experts say this latest supply disruption reveals that Western Europe has become too dependent on Russia for natural gas and oil. They say that dependence is likely to grow with a planned pipeline from Russia to Germany under the Baltic Sea.
Russia, meanwhile, is expanding its pipeline network to allow greater oil and gas exports to fast-growing China and India.