As with most things, Ukraine's dispute with Russia comes down to money and, in this case, the Kremlin's desire to force former Soviet republics to pay the same price for gas as countries further west.

A quarter of Europe's gas comes from Russia, a figure that is expected to rise steadily as supplies from the North Sea dwindle. While most countries in Western Europe pay Gazprom, Russia's state-controlled gas monopoly, a fluctuating price calculated every three months and linked to the oil price, the situation is different for Ukraine, Belarus and Moldova. These three have benefited for years from sweetened energy supply deals with Moscow, a relic of their shared history, and fixed-price contracts, often set for a year or longer.

However, in 2006 Gazprom sought to introduce a new regime, under which the three former Soviet republics would be paying the Western European rates by 2011. This has led to an annual arm-wrestling contest as Moscow tries to ratchet prices higher and Kiev and others seek to resist.

The latest row is essentially an escalation of the price dispute, but with an added element. Gazprom pays transit fees to countries through which its gas pipelines pass. Ukraine is the biggest recipient of these fees, because 80 per cent of Russian gas destined for Europe has to pass through its territory, and Russia has accused Ukraine of trying to drag other countries into the row by disrupting supplies to countries such as Greece, Croatia and Bulgaria.

While most analysts believe that British consumers are unlikely to be affected by the dispute unless it drags on for weeks - only between 2 and 3 per cent of the gas consumed in the UK originates in Russia - a prolonged period of gas shortages in Central Europe could have a knock-on effect on Britain by pushing up prices on the European wholesale market. There has been little evidence of this so far. British prices edged slightly higher yesterday, but analysts blamed the cold snap and a surge in industrial demand after the Christmas break.

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