The reality is that ever since the collapse of the Soviet Union, energy assets in Ukraine have been subjected to "appropriation," which Moscow has repeatedly complained about to no avail. For the last 17 years the scene has closely resembled the film "Casablanca." When Humphrey Bogart's character, Rick Blaine, complains to Signor Ferrari that all of his shipments of liquor are "just a little bit short," Signor Ferrari chuckles and replies, "Carrying charges, my boy, carrying charges." Substitute Gazprom for Blaine and Ukraine for Ferrari, and you have a most apt metaphor.

On Jan. 1 Gazprom halted all gas shipments to Ukraine but kept supplies flowing to Europe over Ukraine's pipelines. The next day Gazprom again raised the issue of gas theft, to which Ukraine's state-run Naftogaz countered it was not stealing gas but "diverting" gas to maintain pressure in the pipeline network in order to ensure the transit of Russian exports. On Jan. 6 Russia countered by reducing gas meant for Europe, while the next day Prime Minister Vladimir Putin ordered Gazprom to stop all shipments.

The effects were immediate, with 18 European nations reporting either major shortfalls or complete cutoffs of their Gazprom export supplies via Ukrainian pipelines. Both Gazprom and the Russian government suffered immediate public relations black eyes as badly informed pundits loudly opined that plucky, democratic-leaning Ukraine with aspirations to NATO membership was being subjected to Kremlin "pipeline politics."

The European Union already has a significant economic stake in Ukraine, as it is its largest aid donor. Ukraine's fiscal mismanagement and corruption have produced a financial meltdown, resulting in Kiev seeking a $16.4 billion International Monetary Fund bailout. Gazprom also has fallen on economic hard times, with debts now totaling about $60 billion in the midst of the global recession, which makes the reliability of its European customers of increasing importance.

Stripped of rhetoric, after 17 years of a tempestuous relationship, Gazprom finally has decided to insist that Ukraine pay near European market prices for its natural gas imports. Despite the fact that last year Western European import prices averaged around $450 per thousand cubic meters, in late December Gazprom initially offered Ukraine a 2009 price of $250 per tcm. Kiev, which in 2008 was paying $179.50 per tcm, cheekily informed Moscow that it felt $201 per tcm was more equitable, and oh, by the way, the transit fees charged to Gazprom for crossing Ukrainian territory would rise as well.

Ukraine's response angered Putin, who had commented that the $250 per tcm was in fact a "humanitarian gesture" of fraternal solidarity to Ukraine, tinged with empathy for its economic situation, and the offer was actually extremely generous, given that Russia recently had concluded new gas contracts with Central Asian states, which provide the majority of its European exports, at $340 per tcm. At the 11th hour Naftogaz backed down and said it was ready to pay $235, but Gazprom, now thoroughly angered, insisted on $418 per tcm, later raised to $450 per tcm, closer to the European market rate, essentially cutting Eastern Europe's most profligate energy welfare queen adrift.

Gazprom currently supplies 25.5 percent of the 27-nation European Union's natural gas imports. Among Western EU states, Gazprom currently supplies 65 percent of Austria's natural gas imports, 36 percent of Germany's, 27 percent of Italy's and 25 percent of France's.

It is the newer EU members farther east that are more dependent on Gazprom imports, as a rough rule of thumb is that the farther east one goes, the greater the dependency. Of the EU member states that joined in May 2004, the former Soviet republics of Estonia, Latvia and Lithuania along with Slovakia import 100 percent of their natural gas via Gazprom. Among the former communist Warsaw Pact member states, Hungary is reliant on Gazprom for 89 percent of its imports, Poland 86 percent and the Czech Republic 74 percent. Finland, a member of the EU since 1995, is similarly 100 percent dependent on Gazprom natural gas, while Bulgaria and Romania, which joined the EU in January 2007, import 97 percent and 39 percent, respectively. Other EU members reliant on Gazprom include Slovenia, Greece, the Netherlands and Switzerland.

As for Kremlin allegations of Ukrainian theft of transited gas amid Kiev's pious denials, to give but one example, in August 2004 Naftogaz Ukrainy Board Chairman Yuriy Boiko proudly informed the press that in conjunction with the Interior Ministry his company over the previous seven months had uncovered around 1,100 crimes at oil and gas sector facilities, more than 900 of which were classed as "serious" or "very serious."

Gazprom is a hard company to like. Under the leadership of former KGB member turned politician Putin, the state-run energy company (in 2005 the government acquired just over 50 percent of the company) began pressuring Russia's neighbors into selling their energy assets and infrastructure for less than their real worth, often in exchange for below-market natural gas rates.

In its current spat with Ukraine, and thus Europe, Gazprom is no energy gangster. While Brussels congratulates itself on reaching an agreement dispatching EU monitors to start checking pipelines from Russia, it overlooks the fact that Gazprom had on Jan. 1 in fact invited independent auditors from the French company Societe Generale de Surveillance to monitor its gas measuring facilities, but that Naftogaz had refused to allow them to check its facilities.

After a weekend of negotiations, on Jan. 12 Putin told a session of the government presidium that Ukraine had signed a new version of the protocol on control over gas transit, and "Now this document is on its way to Brussels, where representatives of the European Commission must sign it." For shivering East European EU members, Brussels can't move quickly enough.

If anything good is to come of the spat, it is that the EU should consider the implications of some of Europe's broader policies on Russia, most notably its persistent seductive offer eventually to enfold Ukraine into the North Atlantic Treaty Organization, an action strongly urged by Washington. At the end of the day Eurocrats are going to have to grasp the impact of such a move on Moscow and decide once and for all whether they envisage Eastern Europe's value as primarily economic or military. If they continue to send conflicting signals to Russia and favor the latter, they should be prepared to lose more than a few skirmishes in the "war of the thermostats" that they have done so much to bring on. As for Gazprom's embracing Western capitalist models for its commodities, then they should remember the words of captain of industry Michael Corleone -- "It's just business."

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