Moscow Threatens to Shut Off Ukraine's Gas

Russia's President Dmitry Medvedev sternly urged Ukraine on Wednesday to fully pay its $2.1 billion debt for Russian natural gas supplies or face sanctions, as a Jan. 1 deadline for payment loomed.

Medvedev's statement was the strongest indication to date that Ukraine may face a repeat of January 2006 cutoff of Russian gas shipments which led to a reduction of supplies in Europe. It will likely raise worries in the European Union, which depends on Russia for 40 percent of its gas imports.

"If Ukraine fails to pay, we will use a whole arsenal of possible measures, there must be no illusions on this score," Medvedev said in televised remarks. "They must pay the debt to the last ruble if they do not want their economy to face sanctions."

Russia's state gas monopoly Gazprom on Wednesday reaffirmed its warning to turn off the taps on Ukraine, if the neighbor doesn't pay off the entire debt by the end of the year.

Gazprom spokesman Sergei Kupriyanov said Ukraine's gas company Naftogaz told Gazprom officials that they wouldn't be able to pay the debt.

"We asked them a straight question — will you pay up by the end of the year and we received the answer 'no'," Kupriyanov said at a news conference. He said that Ukraine's debt for November and December together with fines amounts to some $2.1 billion.

Naftogaz declined to comment saying talks were still ongoing.

But in a sign that both countries did not want to upset European consumers, Kupriyanov voiced hope that Ukraine wouldn't siphon gas intended for Europe from a transit pipeline crossing its territory as it did three years ago. He said Ukraine this time has enough gas saved in storage facilities to fulfill its transit obligations.

Ukrainian President Viktor Yushchenko made a similar statement earlier in the day, saying that supplies to Europe would be uninterrupted, as Ukraine has some gas saved up.

Ukraine is scrambling for the money amid a devastating financial crisis and relentless political turmoil. The country is relying on a $16.4 billion emergency loan from the International Monetary Fund to mitigate a meltdown as it buckles under a halving of exports and a sharp devaluation of the national currency.

The financial crisis is made worse by a messy tug-of-war between Yushchenko and Prime Minister Yulia Tymoshenko, who accused the president Wednesday of seeking to usurp power by canceling upcoming presidential elections.

Russian Energy Minister Sergei Shmatko has urged European countries to put pressure on Kiev to avoid a repeat of the 2006 gas war. The other transit country for Russian gas to Europe is Belarus.