Ukrainian voters will go to the polls this Sunday (25 May) amid growing fears that no deal is going to emerge to avert a Russian threat to halt or reduce their energy supplies.

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A cut-off would test Ukraine’s willingness to deliver gas in transit from Russia to the European Union, rather than to use it domestically. Around two-thirds of Russia’s gas supplies to the EU are channelled through Ukraine.

José Manuel Barroso, the European Commission’s president, said in a letter to Russia’s president Vladimir Putin on Wednesday (21 May)  that “it is the European Union’s clear expectation that all sides will remain reliable and responsible supply and transit partners”. He urged a “constructive approach” from Russia. According to Günther Oettinger, the European commissioner for energy, the EU will try to broker an agreement within the next ten days.

Putin enters this critical negotiating period in the knowledge that Russia secured a mammoth gas-deal on Wednesday with an alternative long-term market, China. Russian media put the value of the deal at $400 billion (€293bn). At a meeting with China’s President Xi Jinping on Monday (19 May), Putin also secured a statement from China that it rejects “unilateral sanctions rhetoric” by members of the international community.

Putin wrote to 18 EU governments on 10 April, warning that, from 1 June, Gazprom would consider “completely or partially ceasing gas deliveries” to Ukraine unless Ukraine agreed to pay for gas in advance.

The 1 June deadline falls between the scheduled first and second rounds of Ukraine’s presidential election, increasing the difficulties for Ukraine of striking an agreement with Russia. One recent poll suggested, however, that Petro Poroshenko, a tycoon and former minister, may win outright in the first round this Sunday. While a first-round victory could strengthen Ukraine’s negotiating position, Poroshenko’s prominent role in the protests that unseated Viktor Yanukovych from the presidency could harden Putin’s position.

The issue of pre-payment for gas is closely linked with two other disputes – Ukraine’s outstanding bills to Russia, and the price that Ukraine pays for Russian gas. Ukraine currently pays more than most other European countries (up to one-third more than Germany, for example), and Russia is now demanding that Ukraine pay $480 per thousand cubic metres of gas, well above the rate – $270 – available on the ‘spot’ market for immediately deliverable gas.
In a bid to resolve the problems, the EU, Ukraine and Russia held a high-level trilateral meeting on 2 May, and began expert discussions on 12 May.

The G7 industrialised states – the United States, Japan, Canada and the EU’s four largest economies – are currently working on an emergency plan for Ukraine in the event that Russia cuts off supplies. The European Commission is also drawing up long-term proposals to secure the EU’s own energy supplies, and this will be discussed by EU leaders on 26-27 June.

Any decision to cut supplies to Ukraine could reduce Russian gas revenues, as Ukraine and the EU are major customers.

Russia’s ability to persuade Ukraine to accept its conditions has been increased by the military and political crisis in Ukraine. Frank Umbach of King’s College, London says that Russia’s annexation of Ukraine’s Crimean peninsula has deprived Ukraine of a large source of potential diversification. Crimea has huge offshore gas fields, little-explored shale-gas potential, and could provide significant volumes of renewable energy. The unrest in eastern Ukraine, where separatists are pushing for secession to Russia, could also affect Ukraine’s current energy-diversification efforts, as the region’s coal has provided much of the energy used to reduce Ukraine’s need for Russian gas.

The United States has already said that it is willing to target Russia’s energy sector if Russia does not take more action to “de-escalate” the crisis in Ukraine. On 12 May, the EU imposed its first sanctions related to energy, by imposing restrictive measures on a Crimean company that Gazprom has absorbed since Russia annexed Crimea in March.