1. There's no doubt this move is politically motivated. Obviously Russia is interested in providing cheap natural resources to its strategic partners, just as the US or any other country would do in other cases. The politics behind this are quite annoying, but not unusual. One thing for sure, I would prefer all prices to be controlled by the marketplace, not some political agreements, and for that I blame Russia and other governments.

2. Ukraine does not pay commercial rates for gas, nor does Russia pay commercial rates for transit. However, when you offset the two, the difference is still quite staggering. Russia sells gas for less to Ukraine than it does internally. The impact of Ukraine's increasing its transit rates to commercial levels would mean Russia would have to fork out extra $1.5 billion. The impact of Russia's increasing gas prices to commercial levels would mean Ukraine would have to fork out around $3.0 billion more. In other words, the difference is $1.5 billion. If I were Yuschenko, regardless of who is right and who is wrong, I would have taken this option, and come out a bigger man and a bigger politician than Putin. This would have been a more stable and pragmatic approach both internally and externally. $1.5 billion is a lot of money, but it's hardly worth the bickering and political capital it will cost Yuschenko (Yanukovich is loving this situation right now).

Thanks!

Mikhail from SF