Russia cut the flow of gas to Ukraine on Monday after last-ditch talks failed to resolve a price dispute that threatens to disrupt supplies to Europe for the third time in a decade.
The failure of EU-mediated negotiations on gas prices only compounds the problems of Ukraine’s new pro-Western leaders as they battle an eastern insurgency that threatens the survival of the ex-Soviet state.
Kiev was dealt a further blow when dozens of Kalashnikov-wielding pro-Russian militia seized the central bank in the separatist stronghold city of Donetsk in a bid to win control over the economically vital region’s assets.
Russia’s state gas giant Gazprom said it had switched Ukraine to a pre-payment system at 0600 GMT -- a move that effectively halts all shipments because Kiev has not forwarded any money for future gas deliveries to Moscow.
Ukraine’s Prime Minister Arseniy Yatsenyuk called the measure “another stage of Russia’s aggression against the Ukrainian state”, while Washington urged Moscow to resume negotiations with Kiev.
Gazprom said it had further notified Europe of possible gas disruptions and lodged a $4.5bn (3.3bn euro) lawsuit against Ukraine with an arbitration court in Stockholm.
Kiev responded by lodging its own $6bn suit against Gazprom with the same Stockholm court to recover past “overpayment” for gas.
Gazprom chief Alexei Miller later told Russian television the firm may lodge a second lawsuit against Ukraine’s gas group Naftogaz seeking $18bn in unpaid gas bills.
Analysts said Ukraine had been urgently filling up its gas storage tanks in anticipation of Russia’s decision and that no disruptions to Europe were likely until the winter heating season begins.
“The authorities estimate they have sufficient reserves to last until the end of this year,” London’s Capital Economics consultancy said.
Naftogaz said a delegation would travel today to Budapest to woo European firms into selling them gas, saying some offers have already come in.
The third “gas war” between Russia and Ukraine since 2006 flared when Moscow nearly doubled its rates in the wake of a winter uprising that pulled Kiev out of the Kremlin’s sphere of influence.
Ukraine receives half its gas from Russia and transports 15% of the fuel consumed in Europe - a reality that prompted EU Energy Commissioner Guenther Oettinger to urgently step in to try to resolve the feud.
Oettinger conceded in Vienna that Europe “would have a problem with a cold winter” if Ukraine ran out of storage supplies.
The European Commission said Oettinger had offered a compromise deal that would have seen Ukraine pay $385 per 1,000 cubic metres of gas - the price proposed by Russian President Vladimir Putin - in the winter and see its rate drop to $300 “or a few dollars more” during summer months.
“The Ukrainian side was ready to accept this, but for the moment the Russian partners were not,” the European Commission said in a statement.
Washington called the EU deal a “fair and a reasonable compromise” and urged Russia to “re-engage on this basis”, said US State Department spokeswoman Jen Psaki.
Arriving in Serbia for a two-day visit, Russian Foreign Minister Sergei Lavrov said: “We said everything which must be said. The news can only come from the Ukrainian leadership, which has to stop the violence, which has to deal with the gas issue. All the cards are on that side of the table.”