Another row between Moscow and Kiev over energy prices and supplies:

Crippled by the financial crisis, Ukraine is struggling to pay off hundreds of millions of pounds in debt for Russian gas it bought earlier in the year.

At the same time, Ukraine – which carries 80 per cent of Russian gas bound for Europe through its pipelines – is desperately trying to resist attempts by Moscow to raise prices for 2009 deliveries.

But Ukraine’s pro-western government, which has already been forced to seek an emergency £11.3 billion loan from the International Monetary Fund, has found that Russia is in no mood to compromise.

Mr Putin … portrayed a Ukrainian plea to freeze prices at 2008 levels as unreasonable.

"They ask us to leave the same prices" he said. "How long can we leave in place the prices of the current year?"

Switching into Ukrainian Mr Putin added: "Have you lost your mind."

For the European Union, which depends on Russia for over a quarter of its gas, the fear is that Ukraine could respond to a freeze in its supplies by siphoning energy meant for European consumers.

The Kremlin accused Ukraine of "stealing" Russian gas during the 2006 dispute. While Ukraine insisted that it only took what it was owed in transit fees, many Western countries reported their Russian gas supplies had fallen by as much as 50 per cent.

Some background.

During the USSR period, Ukraine had heavily subsidised energy from Russia.

When the USSR collapsed, Ukraine liked the principle of independence from Russia but disliked the cost of moving to world energy prices. A series of messy deals ensued to keep energy prices lower, primarily for political reasons: the Ukrainian government could sell the public cheaper energy and win cheap popularity, the Kremlin liked Ukraine staying in some way ‘subservient’.

Meanwhile Russian gas went to Europe via pipelines passing through Ukrainian territory. What should Ukraine charge Russia for transit fees? And was Ukraine ‘siphoning off’ (ie stealing) gas intended for W Europe anyway?

Plenty of scope for messy dealings and hard bargains.

Western governments got this one wrong. Back in the 1990s when Moscow threatened to cut supplies to Ukraine because bills were not being paid, we nagged the Russians to keep supplying cheap(er) energy to Ukraine to support Ukraine’s fragile democracy. Much better for Ukraine’s independence and general good order to have told Ukraine to grow up and phase in a plan to move determinedly to world prices.

Moscow’s problem of course is that, pipes being pipelike, it is not easy to turn off gas supply to Ukraine without turning it off to W Europe as a whole. And unlike Ukraine (and Belarus), Europe pays its bills on time.

So Russia threatens Ukraine now hoping to make W Europe’s flesh creep so that W Europe leans on Ukraine to pay up (or at least pay more).

Prime Minister Putin in summing the problem up has a nice direct style:

…[O]ur Ukrainian partners haven’t settled their debt yet, $2.5bn, this isn’t small money, for Gazprom or the country. We know Ukraine is having bigger problems than Russia, for example, as a result of the financial crisis.

What to do? Trade doesn’t happen for free, you have to pay? If you go to Germany and say, ‘I want a Mercedes for free’. Who will give it to you?"

No-one.

But hey, have one anyway.