Russia just froze Ukraine's gas supply and this could be really bad news for Europe

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Gas Oil Pipe Engineer Russia Beregdaroc

REUTERS/Laszlo Balogh

An engineer checks the gas distribution system in Beregdaroc, one of several points where Russian gas crosses into the European Union February 10, 2015.

Russia and Ukraine relations have soured since Moscow's annexation of Crimea in March 2014 and now they are fighting about gas supplies again.

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On Wednesday morning, the CEO of Gazprom, Russia's biggest state-owned natural gas producer, said that the company has cut off gas supplies to Ukraine after the country failed to pay in advance for more energy.

As first reported by the Financial Times, Russian wire services say that Gazprom boss Alexei Miller told reporters all supplies have stopped.

AFP reported that Miller said as of 7 a.m. GMT Ukraine's Naftogaz had used up all the gas it had paid for and "no new upfront payment has been made".

"As such, deliveries have been stopped until the receipt of new payments from the Ukrainian company," Miller said in a statement as reported by AFP. "The refusal to buy Russian gas will create serious risks for the reliable transit of gas to Europe through Ukraine and for the supply of gas to Ukrainian consumers during the upcoming winter."

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Europe relies heavily on gas pumped into the continent from Russia, much of which travels through Ukraine, and a total supply cut might have the potential to start an energy crisis across Europe. Germany and Italy are particularly heavy importers of Russian gas.

The move to cut gas supplies to Ukraine comes just a day after Russia's energy minister, Alexander Novak, first made the threat to stop sending Ukraine gas. "Today or tomorrow gas deliveries will be stopped because of lack of advance payment," Novak told Vesti FM in Moscow.

Whilst Novak cited Ukraine failing to pay for its gas supplies, it looks like the real reason may be the escalation of the argument between the countries over the annexation of Crimea. Over the weekend, unknown saboteurs in Crimea blew up numerous electricity pylons, forcing the Russian annexed province to rely on emergency generators to create power.

Moscow has accused Ukrainian authorities of failing to act to fix the power on purpose, to make a political point.

"It's strange that the authorities cannot access the electricity facilities. That is, out of some kind of political motivation the restoration of this line is not taking place," Novak added in the radio interview.

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He also threatened that coal supplies could also be also be cut off.

"Russia delivers coal to the Ukrainian energy sector. We could, and maybe in this situation we need to, take a decision about halting deliveries of coal by our commercial organisations which deliver coal to Ukrainian power stations."

So far it looks like its just the gas that Russia is turning off, but this could well change.

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