Russia's state-controlled gas monopoly Gazprom says it will dramatically increase natural gas prices for Ukraine.
Gazprom has announced that it will more than quadruple natural gas prices for Ukraine. As of January 1, Gazprom says it will charge Ukraine the full European market price - now roughly $230 per 1,000 cubic meters. Ukraine is currently paying $50 per 1,000 cubic meters. Gazprom has also threatened to cut off natural gas supplies to Ukraine if it doesn't agree to the new deal.
Ukrainian officials have described the move as "irresponsible." But they expressed the hope that the issue could be resolved through negotiations.
Experts say this dispute highlights an increasing chill in relations between Kiev and Moscow which began last year with the "Orange Revolution" and the election as president of Viktor Yuschenko, who has promised closer ties with the West.
Marshal Goldman, Russia expert with Harvard University, says Gazprom's move to hike prices should not be a surprise, given statements by Russian President Vladimir Putin.
"President Putin had given a warning some time ago," he said. "I remember last year, he made the comment that if Ukraine wants to look to the West, to become part of the West, to become part of the European Union, even NATO - that's up to them, that's a decision they have to make. But if they do do that, they should realize that we no longer will continue to help underwrite their expenses, by which he meant we are going to jack up [increase] the price of natural gas and even some of the oil we've been selling them."
Russian officials say the natural gas hike is dictated by economic demands, by a changing market situation.
But many experts say politics are at the root of Russia's move. They point to the fact that Gazprom has hiked natural gas prices for Georgia and Moldova, two countries seeking closer ties with the West. But the company has not renegotiated rates with Belarus, headed by a staunchly pro-Russian president.
Ziba Norman, Director of the Transatlantic Institute, a London-based foreign policy research organization, says Moscow is very much concerned about what happens in neighboring countries.
"Russia is deeply uncomfortable with the loss of influence in its back yard: in the Baltics, in Ukraine, in central Asia," she said. "And Ukraine is a particularly hard felt loss. Russia sees its future security in terms of a regaining of its preeminence.
"And Ukraine, it feels, has fallen from the fold very publicly and I think they see also that there are possibilities there for regaining influence," continued Ms. Norman. "There are strong opposition parties and Yuschenko has had some difficulties over the last year since he has taken power. Clearly, they are a little bit weak - the government in Ukraine is a little bit weak and Gazprom sees this as an opportunity."
Analysts say it is unclear how the Ukrainian people will react if Gazprom continues its hard-line stance against Kiev. Frank Sysyn is an expert on Ukraine with the University of Alberta, Canada.
"Obviously, there are those who traditionally see Russia as interfering in Ukrainian affairs, who will interpret this as one more example of Russia's unwillingness to allow Ukraine to be a fully independent country and to pursue its pro-European course," noted Mr. Sysyn. "On the other hand, there will be those in Ukraine who want closer relations with Russia and instead will interpret this as saying, well, without closer economic and political integration with Russia, Ukraine isn't capable of standing alone economically."
Experts agree Ukraine could retaliate if Gazprom goes ahead with its threat to cut off natural gas supplies.
"Some of the Ukrainians said okay, you are going to do that to us, we're going to raise the rent you pay in Sevastopol where you have a naval base, where the Russians have a naval base," explained Marshall Goldman from Harvard University.. "So we are going to raise the rent there. And the other thing that the Ukrainians can do, and that is to say, remember, at this point, about 80 percent of the natural gas that you export to western Europe, particularly to Germany, goes through Ukraine and you raise the price of natural gas, we raise the transit fee."
But Marshal Goldman and others hope that Ukraine and Russia will be able to resolve their dispute peacefully, through negotiations. They say if they fail, it will only increase tensions between two countries that already do not see eye to eye on many issues.