Rebels Down Ukrainian Jet Killing 49; Last Ditch Negotiations to Prevent Ukraine Gas Shutoff

There are a couple of significant news items in Ukraine today, and both of them will hike tensions in the region.

Earlier today Pro-Russia Rebels Down Ukraine Jet as Fighting Escalates.

Pro-Russian rebels shot down a transport plane in eastern Ukraine, killing 49 servicemen and threatening to ratchet up east-west tensions over suspicions President Vladimir Putin is backing the uprising.

The killing of the 40 soldiers and nine crew was the deadliest strike on Ukrainian forces since separatists seized government buildings on April 6. The IL-76 aircraft went down as it approached Luhansk airport at 1:10 a.m. local time under anti-aircraft and machine-gun fire, authorities including the Kiev-based Prosecutor General’s Office said today.

The incident, which may fuel tensions between Moscow and Washington, Ukraine’s main ally, came after the U.S. accused Moscow of sending heavy weapons, including old-model tanks and multiple-rocket launchers, to the rebels, who say they are fighting a war against fascism and to join Russia. Moscow is also threatening to cut off natural gas supplies to Ukraine.

Last Ditch Negotiations to Prevent Ukraine Gas Shutoff

Also note that Last-Ditch Russian Gas Talks to Resume.

Ukraine, Russia and the European Union will start today a new round of talks to prevent cutoff of natural gas flows, as the downing of a military plane by pro-Russian rebels raised tensions in the east of the country.

Ukraine and Russia have failed to reach an agreement in EU-brokered meetings since they started last month, with Russia declining to change the pricing mechanism and Ukraine rejecting a 20 percent discount offered by the Kremlin.

“The aim is to continue the discussions on issues related to gas supplies from Russia to Ukraine, with the objective of finding a solution that secures stable deliveries,” the European Commission, the EU’s executive arm, said in a statement today in Brussels.

The showdown over gas heaps pressure on Ukraine’s new president Petro Poroshenko, who’s struggling to fulfill an election pledge to halt an uprising by the rebels. Poroshenko announced a day of national mourning for tomorrow after rebels shot down the military transport plane as it approached Luhansk airport, killing 40 soldiers and nine crew.

Ukraine refused to pay for gas supplies after Russia raised the price of the fuel by 81 percent in April. President Vladimir Putin stripped the country of a 2010 export-duty break that it exchanged for a lease on its Black Sea fleet’s port in Crimea, which Russia annexed in March. The state-run natural-gas exporter Gazprom rescinded a price discount granted to Ukraine in December citing mounting debt.

Ukraine must pay $1.95 billion by June 16 to partially cover its debt for past supplies, according to Gazprom. Prodan has said his country is ready to pay Russia once it sets a “fair” market-based price. A proposed government discount may be canceled at any time, he said.

The EU suggested an interim price of $326 per 1,000 cubic meters, which Ukraine would accept, Naftogaz’s Kobolyev told reporters in Kiev yesterday. Gazprom’s final offer is $385, the Moscow-based company said yesterday.

Apologies for the late reporting. Today was a the first anniversary of my marriage to Liz. We had a big party and I have been tied up all day.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com