Since independence, Ukraine has depended on Russian oil and gas exports to satisfy domestic demand; conversely, Russia has depended on Ukraine for the transportation of its oil and gas to markets in Western Europe and elsewhere. In the early 1990s Turkmenistan wished to use the Soviet-era transit pipeline from Central Asia to Russia to export gas to hard-currency markets in Europe, but Gazprom had no desire for Turkmen competition. Turkmenistan cut off gas supplies to Russia in 1997 over transit and price issues; Gazprom then declared that it would never allow Central Asian producers to use its pipeline system for exports to Europe. Providing Turkmenistan access to export pipelines has been a challenge: until 2000, the US supported a proposal to transport Turkmen gas to European markets via a Trans-Caspian gas pipeline; however, the project failed for commercial and political reasons. Turkmenistan now is transporting a small amount via Iran to Turkey. During her previous time in government, Yulia Tymoshenko attempted to secure supplies of Turkmen gas via the Caucasus to Ukraine, thus avoiding the Gazprom system; however, this project was also found to be economically unworkable.

The dispute between Russian state-owned gas supplier Gazprom and Ukraine over natural gas prices started in March of 2005 (over the price of natural gas and prices for the transition of Gazprom's gas to Europe). The two parties were unable to reach an agreement to resolve the dispute, and Russia cut gas exports to Ukraine on January 1, 2006. The supply was restored on January 4, 2006, when a preliminary agreement between two gas companies was settled. However, the inter-government treaty has not been signed yet.  In March of 2005 Gazprom informed Ukraine that gas prices were to be raised to market rates. Ukraine objected; on one hand accepting the need to pay at the going rate, on the other hand objecting to the short notice of such a large increase in gas price.   In the same month Ukraine took steps to change radically the method of compensation for the transition of Gazprom's gas to Europe, requiring a change from barter to actual money. The Russian company Gazprom took steps  to adjust  the prices for natural gas sold to Ukraine and Ukraine’s new government did agree to buy natural gas from Russia’s gas monopoly Gazprom at higher prices in return for increased gas transit fees. Negotiations started, Gazprom first suggested raising the price to 300% and later to 460% (from US$50 per 1,000 cubic meters to US$150 to US$230). The two parties were unable to reach an agreement to resolve the dispute, and Gazprom cut gas exports to Ukraine on 1 January 2006 .  

Gazprom assured Western customers their gas supplies would not be affected and Ukraine was accused Ukraine of taking gas and Ukraine's state-owned energy firm Naftogaz admitted withholding some Russian gas intended for other European countries, but said it would still meet its contractual obligations. After great media interest and political discussion in the two countries, the EU and the U.S. a compromise contract was reached, where gas prices were roughly doubled, but Ukraine transit fees also increased, offsetting the increase in cost. The supply was restored on January 4, 2006, when the preliminary agreement between Ukraine and Gazprom was settled.

On January 4, 2006 the two countries reached an agreement to end the dispute. The 5-year contract was signed, although with the prices set for the next 6 months only. The parties also agreed to raise the tariff for transit from US$1.09 to US$1.60 per 1,000 cubic meters/100 km which concerns not only the transit of Russian gas to Europe but also Turkmen gas through Russia to Ukraine. The agreed price would fluctuate with the market, according to a Gazprom spokesman.    

A new gas dispute arose in October 2007 and it culminated with the gas reduction in March 2008.   Earlier this year Gazprom declined Turkmenistan's offer to buy natural gas at $58 per 1,000 cubic meters as too expensive, in December 2005 it made an unexpected deal to buy additional 30 billion cubic metres of gas at $65 (with 15 billion cu metres to be delivered in 1Q2006). Many observers say that was done to limit Ukraine's options to seek alternative sources of the gas.   Although one should note that oil and gas price doubled during the year of 2005. At the same time Russia admitted it had limited Ukraine's access to the gas that Ukraine had been importing from Turkmenistan (it should be noted that Ukraine never bought gas directly from Turkmenistan, but always through Russia, the more so there is no common border between countries). The two leaders said several other issues between the countries had been resolved, as well.  Yushchenko said Ukraine will pay its gas arrears of 2007 and will be a stable transit supplier to Western Europe.   

The latest project which was suggested by Ukrainian prime minister Yulia Timoshenko during her visit to Brussels in January was the White Stream pipeline.   Its main idea is to diversify gas deliveries both to the European Union and Ukraine, and thus to reduce their dependence on Russia. Natural gas is supposed to arrive from the Caspian region to Europe: through Azerbaijan to the Georgian port of Supsa and then on toward the European Union along the Black Sea bed. Ms. Timoshenko first suggested this pipeline project in 2005 when she was made prime minister for the first time.    It is noteworthy that the project’s presentation was blemished by a drift between Ukraine and Turkmenistan, which was caused by lack of a prior agreement on the gas saturation of the White Stream.  The next day after the presentation, Turkmenistan’s Foreign Ministry put out a statement expressing its displeasure over Ukraine’s failure to bring Turkmenistan up to date and Kiev’s failure to hold preliminary talks and consultations with it.  

White Stream would branch off from the South Caucasus Pipeline near Tbilisi and run for approximately 100 kilometres (60 mi) via Georgia to Supsa at the Black Sea. From there a 650 kilometres (400 mi) long offshore section on the seabed of the Black Sea will continue to Crimea near Feodosia in Ukraine. The offshore section will be linked to Ukraine's transit system by 200 kilometres (120 mi) long onshore section. The alternative plan proposes to prolong the offshore pipeline to Romania.  This is not just strategic planning of supplying Turkmen gas into Europe through Ukrainian territory, but completely eliminating Russia’s involvement.    It seems that White Stream is a double edged sword aimed at Moscow by Kiev.  First it is directed at decreasing the oil revenue into Russia’s budget and thus weakening economic positions of Russia.  Secondly, this is a threat to another new Russian project “South stream”, which was announced in 2007, as a joint venture company between Italian energy company Eni and Russian Gazprom The 900 kilometres long offshore section of South Stream would start from the Beregovaya compressor station at the Russia’s Black Sea coast, and would run to Bulgaria's Varna. The pipeline route will cross the continental shelf of Ukraine and Romania. According to the UN Convention on the Law of the Sea, the delineation of the course for the laying of such pipelines on the continental shelf is subject to the consent of the coastal State. This section would be built and operated by South Stream AG, a joint company of Gazprom and Eni .     

Turkmenistan’s agreement to Timoshenko’s White Stream plan would wage a war between Berdimukhammedov and Medvedev, prompting a quick statement from Mr. Chernomyrdin that EU can only rely on Russian gas at this point as a single abundant source which supplies not only Russia and the post Soviet space, but the entire European continent.   Because of the unstable economic and political situation in the countries effected by project White Stream, such as Azero-Armenian Kharabakh conflict, Georgia-Abhazia-South Ossetia conflict as well as the possibility of Crimean situation becoming escalated.   

Many US media and analysts saw the conflict as the Government of Russia 'punishing' the new 'orange' Government of Ukraine, who was considered more pro-NATO and EU than its predecessor.   Russia explains they just don't want to subsidize former Soviet republics.  In spring of last year information was leaked on the world wide web describing this possibility of an Orange Revolution in Turkmenistan and the resulting demise of Turkmen president Gurbangula Berdimukhameddov.    According to American experts, the  President of Turkmenistan has been characterized in his own country as a hypocritical, vengeful and mean spirited person.  It has been speculated that he is in a conflict dispute with the head of his security service Akmurat Redjepov.  It should be noted that during his latest visit to Russia, Victor Yushenko invited his Turkmen colleague to visit Ukraine and according to the PR service of the Ukrainian President, this visit should commence sometime later this year.  However, the date has not been confirmed and it is speculated that the gas scandal is disturbing these plans.  This project headed by Mr. Gaiduk and Ms. Timoshenko without a doubt serves the interests of United States, and from this point of view Ms. Timoshenko regards great support.   As to European interests, they are secondary in comparison with those of United States.  One thing is certain, to achieve its goal Kiev will need the support from the people close to  President Berdimukhammedov  such as his right hand Mr. Khramov.