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Ukraine Threatens Arbitration over Russian Natural Gas Prices

Saturday, April, 12, 2014


 

It was widely regarded as a certainty that Russia would raise prices on the natural gas imported by Ukraine in the wake of the recent hostility between the two nations that saw a revolution in Ukraine remove a pro-Russian President and Russia seizing the Crimea Region in a largely bloodless action.  Russia made good on those predictions this week by doubling the price of natural gas imports, throwing the already chaotic Ukrainian economy into total chaos.

 

Russia raised prices from $268.50 per 1,000 cubic meters to $485 per 1,000 cubic meters.  Ukraine has entered into emergency negotiations with Western suppliers to make up the shortfall, and has informed Russia that it will likely seek an international arbitration court over the issue.  The Russian company Gazprom is a monopoly in that country and is widely regarded as being controlled indirectly by the Russian government.

 

The price change is not technically an increase, as the $485 price is actually stipulated in the 2009 contract signed between Ukraine and Gazprom.  However, two discounts that kept the prices low (a 2010 discount given in exchange for an extension of Black Sea Fleet hosting in Crimea until 2042, and a second discount given when former Ukrainian President Yanukovich rejected the deal with the European Union in favor of a trade deal with Russia – the act which precipitated the revolution in the first place).  As a result, Russia has officially stated it sees no reason for an arbitration court to be convened.