Russia has given Ukraine three weeks in which to pay its gas bill, otherwise shipments stop. The only way Ukraine could pay the prior bill is funds from the IMF. Future gas will be prepayment only.

Bloomberg reports Gazprom Threatens to Halt Gas Shipments to Ukraine on June 3.

Tomorrow, OAO Gazprom (GAZP) will send Ukraine a bill for June, Chief Executive Officer Alexey Miller said today at a meeting with Russian Prime Minister Dmitry Medvedev. If the bill isn’t paid by June 2 the neighboring country won’t receive any Russian gas from 10 a.m. the next morning, Miller said.

“It’s time to stop coddling them, notify them tomorrow and move them to pre-payments,” Medvedev said during the meeting. “I think that all possible ways to settle this situation — one way or another — were undertaken by Gazprom.”

Stopping shipments to Ukraine may have a knock-on impact on the rest of Europe because about 15 percent of the region’s gas travels through the country’s Soviet-era pipeline system.   

Russia is moving Ukraine to prepayments because it owes $3.51 billion for fuel delivered in 2013 and through April this year, Miller said today. The neighboring country hasn’t paid for 9.42 billion cubic meters of Russian fuel, which is equivalent to Poland’s annual consumption.

Ukraine has the opportunity to pay as it received the first $3.2 billion of an international aid package last week, Medvedev said. While it’s able to start paying off the debt to show its desire to settle the problem, Russia doesn’t see any willingness of that, he said.

Ukraine refuses to prepay for Russian gas and is ready to settle the debt if Gazprom returns an “honest, market price” for gas, Ukrainian Energy Minister Yuri Prodan said last week. Gazprom raised the price it charges Ukraine for gas by 81 percent in April, to $485 per 1,000 cubic meters, more than any EU member pays.

Russia will consider a compromise on natural gas prices with Ukraine only after its neighbor pays its debt for previous supplies, Russian Deputy Energy Minister Anatoly Yanovsky told reporters earlier today in Moscow.

Ukraine is willing to pay for gas but only if Russia lowers the bill. Russia will only lower the bill if Ukraine pays past debts.

One side or another has to give. But if the situation is resolved, the IMF will effectively send billions of dollars to Russia when the US and EU have sanctions in place (and threatening more of them).

Does any of this make any sense?

Mike “Mish” Shedlock