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Russia Flexes its Gas over Ukraine

Behemoth gas station Russia has cut off gas supplies to Ukraine. Russia has essentially placed the Kiev government on a pre-paid gas service after talks between the two failed to agree on the price of future gas deliveries and a disputed debt. Gas giant Gazprom has demanded Kiev pays at least $1.5 billion of a $4 billion debt to maintain supply. Ukraine which pays the highest gas rate in Europe to Russia of $485.50 per 1,000 cubic meters, had been granted a discounted gas price under the former Yanukovych's government of $268. But Russia reneged on the discount after its ally fled Ukraine. In failed negotiations, Kiev offered to make a payment of $1.95 billion on the gas debt if Russia would sell future gas supplies at $326 per 1,000 cubic meters. Putin's gas station countered with a final offer of $385 per 1,000 cubic meters to which Ukraine, which had made a $786 million payment to Russia earlier this month, did not accept. Thus, earlier today, Gazprom filed a lawsuit at the Stockholm arbitration court to recover its debt from Kiev. In response, Ukraine's Naftogaz will file suit in the said court seeking to recover $6 billion in over payments to Russia since 2010.

With Ukraine's gas shut off by Russia, Kiev finds itself in the ironic position of having most of Europe's gas from Russia passing through Ukraine, but unable to tap into any of the supply as violence continues in eastern Ukraine led by Russian supporters.

Clearly Russia's strong arming of Ukraine along with the 80 percent increase in gas deliveries amounts to Putin's punishment for Ukraine western desires. Moreover, Russia's hard stance to supplying gas to Ukraine at its proposed inflated price, is an attempt by Russia to justify the still undisclosed price it gave to China in a recent $400 billion gas deal, or to offset an unaffordable discount given to Beijing.