And while Washington has been doing what it can to alleviate the problem of Moscow's cut-off of gas supplies to Europe over Ukraine's refusal to pay more realistic prices for gas more closely resembling the European market norm, it needs to bear in mind that in the broad sweep of issues between Washington and Moscow it is the latter that holds most of the aces.

Gas is to Russia as oil is to Saudi Arabia; and Gazprom, the largest gas company in the world, which is more than 50 per cent owned by the government, had its former chairman in the Russian President Dmitry Medvedev.

Thus the influence of Gazprom over government policy is paramount and at one time last year its management was predicting that it would become the world's first company to be capitalised at $1,000 billion. Those ambitions may have been temporarily eclipsed with the decline in energy prices and the sharp fall-off in the value of the rouble, which has resulted in an appeal to the Russian government for bailout funds but its centrality to the aim of making Russia great again remains.

To Prime Minister Vladimir Putin and the rest of the elite, greatness is equated with the wielding of might in the concept of the 19th Century; of gathering up an empire equivalent to that of the czars and pushing back against western influence wherever it is found. But perhaps more disturbing is the reversion to gangsterism on the streets of Moscow in support of the regime with the cold-blooded assassination of a lawyer and a journalist. The lawyer, Stanislav Markelov, had just given a press briefing on the release on parole of a Russian Army colonel convicted of murdering a young girl in Chechenya. Anastasia Baburova, a young journalist working for Novaya Gazeta, an independent weekly, was shot dead at the same time. Baburova had written several articles about the case.

That atmosphere on the capital's streets is a reflection of how the Russian leadership now does business at home and in its near-abroad and perhaps indicates what can be expected of them on the broader international scene.
The annual confrontation over gas has been a staple of the relationship between Kiev and Moscow since the break-up of the Soviet Union in 1992. In the end a deal has always been struck, as indeed this time over, and usually before any serious damage has been done to third parties.

The spats have gradually grown worse over the years but none was as bad as this year which saw a 13-day cut off of supply to a range of European countries some of which have had good relations with Moscow up until now.
There have been a variety of reasons for the seriousness of the latest confrontation and why it can be read as being indicative of how Moscow will pursue its interests in the future. Both sides are suffering from the effects of the economic downturn which make the pricing, transit fees and supply of gas more than usually important while the two countries are locked in a geographic embrace which dictates that Moscow's links to Europe — pipelines, roads, railways and power lines — run through Ukraine. Their agricultural and industrial hinterlands meld together as do the Russian speakers on either side of a border which sometimes only appears to have any real significance on maps. For Moscow, the Russians in Ukraine are the largest group of their countrymen outside of Russia itself, while for the western-leaning elements of the government and civil service in Kiev they are an ever-present and threatening group of fifth columnists whose loyalty to the state is questionable knowing that Moscow would not hesitate to use them for its own ends.

Politically, President Viktor Yushchenko of Ukraine has been pursuing his dream of moving his country to the West through membership of the European Union and Nato, sending shivers through the Moscow security establishment at the thought of western military installations close to the key port of Sevastopol, home base of the Russian Navy's key Black Sea fleet. So to bully Ukraine out of these ambitions is one of the Kremlin's aims but of perhaps more pressing concern is the prospective state of the economies of both countries. Ukraine is heavily dependent on the transit revenues it earns from the gas travelling across its territory to Europe while the country's steel production, for which it is famed, has seen a heavy fall-off in demand.

Rapidly declining revenues from its gas sales are also a key driver for Gazprom but, more importantly, the company has committed itself to huge investment plans based on a high price, which no longer pertains, while the value of the rouble has recently fallen 30 per cent against the dollar, the Russian treasury spending $160 billion in a vain attempt to prop it up over recent months. In the meantime Gazprom has $33 billion in borrowings, more than a quarter of which must be repaid this year. It has promised to spend $32 billion this year building pipelines through the Baltic and setting up new reserves in the Arctic while revenues from gas supplied to Europe is expected to halve.

Hence the Russian drive to wring every cent it can out of a Ukraine which is already virtually bust and on life support from the World Bank and the International Monetary Fund.

The Russians feel aggrieved that it is their image that has suffered, rather than that of Ukraine, over the latter's refusal to pay its gas bill. Few European countries will forget the prospect of a bitterly cold winter in which the heating suddenly went off because of a dispute between two far off countries which had nothing to do with them. The question is do the Russians really care enough about their image in the rest of the world or is this just an indication of how we can expect the Russians to behave in future when something is not to their liking. The developing relationship with President Obama will soon tell its own story.

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