Ukraine and Russia have had a stormy relationship over gas supply and gas transit for two decades. Periodically their disputes spill over to affect gas supply of their European neighbors, usually in the dead of winter, most recently in January of 2006 and 2009. Just as regularly the two sides declare that they have solved their problems, only for another crisis to appear a few years later. During Vladimir Putin’s time in power as either Russian president or prime minister, long-term agreements were signed with Ukrainian governments under President Yushchenko in 2006, Prime Minister Tymoshenko in 2009, and President Yanukovych in 2010. Soon afterward one side (often both) would complain about unfair pricing or unreliable performance by the other side. Yanukovych and his Prime Minister Mykola Azarov set a post-Soviet record by objecting to unreasonably high gas prices within months of signing agreements in Kharkiv in April 2010. Gas prices are a controversial issue in Ukraine, with the prime minister, Mykola Azarov, recently claiming that the country has overpaid by over $20 billion over the past three years for Russian gas.

Russia wants Ukraine to join its own Customs Union of former Soviet states, and has repeatedly sent dire warnings that by signing the deal with Europe, Ukraine will lose billions of dollars and face myriad problems. One Kremlin economic adviser even predicted that if the deal is signed political and social unrest will ensue and Russia could cease to recognize Ukraine's status as a sovereign state.

Russia will offer cheaper natural gas to Ukraine if the government in Kiev opts to join a Moscow-led economic bloc after halting free-trade talks with the European Union, according to First Deputy Prime Minister Igor Shuvalov. Ukraine’s economic difficulties will be best resolved if it chooses integration with Russia, Shuvalov said. No one other than Russia can provide Ukraine with the necessary funds so quickly and in such a quantity,” Shuvalov said. “A gas agreement could help relieve Ukraine of a huge problem. We can also give them a loan, but we will not help them without commitments on their part.

As a result, Ukraine failed to sign an EU free-trade accord last week, suspending talks in order to repair economic ties with Russia. The country is a key route for natural gas shipments to the EU, while both Russia and the EU buy about 25 percent of Ukraine’s exports. Russian President Vladimir Putin’s ambitions for an economic bloc of former Soviet nations to rival the EU have put him in conflict with European leaders including German Chancellor Angela Merkel.

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