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Wednesday, January 07, 2009

 

russia cuts off ukraine gas transit


in a simmering dispute with ukraine over rolling back subsidies which have seen russia offer ukraine a 50% discount on natural gas supplies since the end of the soviet union, the flow of gas to europe from russia through pipelines which transit ukraine has been halted. russia claims (probably correctly) that beleaguered ukraine has been pinching delivery intended for europe to build up reserves as it intends to hold out against any price increase, much less the doubling that russia intends to bring ukraine up to market rates.

as goldman sachs notes via ft, the pinch isn't much felt in western europe directly as in eastern europe, particularly the balkans. but the knock-on effect could quickly feed back through the european financial system (which heavily funded now-troubled eastern european economies) and european labor-intensive industrials (which expanded into low-cost former communist bloc countries in recent years) in the event that the impasse carries on.

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