Russia Reverses Itself on Gas Cuts

MOSCOW, Jan. 2 -- Russia retreated abruptly Monday from its confrontation with Ukraine over natural gas prices, after an uproar in West European capitals over dead-of-winter cuts in gas supplies threatened to undermine Russia's ambition to expand its highly profitable role as a strategic energy partner of the European Union.

The state-controlled Russian energy giant Gazprom said it would almost completely restore reductions it made Sunday in the gas it pumps into Ukrainian pipelines that connect to the rest of the continent.

Drops in gas volume were widely reported after Russia, in a pricing dispute, cut Ukraine's supply. The gas crosses Ukraine to reach pipelines such as the one above in Campiolo, Italy. (Eni Group (Italy) Via Associated Press)

About a half-dozen West European countries on Monday had reported sharp drops in the gas they were receiving, even though the cuts were intended to target only Ukraine as pressure in the pricing dispute.

The hard-nosed tactics had damaged Russia's reputation with customers in Western Europe, where senior government figures on Monday publicly questioned Russia's long-term reliability as a supplier. They also criticized the decision to turn tough on the very day Russia assumed a year-long chairmanship of the Group of Eight industrial nations promising to make "energy security" a priority for 2006.

Germany's economy minister, Michael Glos, noted on German radio that his country gets 30 percent of its gas from Russia. "That should be increased," he said. "But it can only be increased if we know that deliveries from the east are dependable. Russia has the G-8 presidency and . . . one should naturally act responsibly."

The German government, which last year agreed to a multibillion-dollar deal with Gazprom to build a pipeline to Germany under the Baltic Sea, forged a close relationship with Russian President Vladimir Putin during the tenure of Chancellor Gerhard Schroeder. Schroeder is to head the board of the new pipeline company. Glos's statement appeared to imply that Germany's new government under Angela Merkel could reconsider its energy strategy.

Expressions of concern about energy ties with Russia were heard across the continent Monday. "I think Russia now will be mindful of its reputation as a secure energy supplier," British Energy Minister Malcolm Wicks said in an interview on BBC radio. In France, the newspaper Le Monde said in an editorial: "In the heart of winter, Vladimir Putin turns off the faucet that permits 50 million Ukrainians to heat themselves and make their economy run."

The European Union called an emergency meeting for Wednesday to discuss the issue. And E.U. foreign policy chief Javier Solana contacted leaders in Moscow and Kiev on Monday to urge a resumption in negotiations.

"Until January 1, this was Ukraine's problem, but Russia has internationalized the dispute and is hurting its own image," said Vadym Karasov, director of the Institute for Global Strategy, a research organization in Kiev. Even with Russia's concession, the dispute continues.

Natural gas exports are one of Russia's biggest earners of foreign exchange -- Gazprom's export revenue in 2004 exceeded $18 billion, according to the company. Russia's long-term development plans hinge on continuing and expanding the gas relationship with foreign customers.

Much of the gas flows in pipelines that cross Ukraine. Under long-term agreements, Ukraine takes from the pipelines the share of gas that it has bought for itself and sends the rest on to the other customers. Prices vary country by country.

Russia had proposed to more than quadruple the price on Jan. 1 to $230 per thousand cubic meters, a level that it contends is the market rate; Ukrainian leaders have publicly accepted a substantial increase but say it should be phased in over an extended period. They contend that the increase is political retaliation for the Western orientation of the year-old government of President Viktor Yushchenko, which wants to join the E.U. and the NATO alliance.