Moscow - In the annual Russia-Ukraine game of chicken over pricing for gas exports, Russia crashed the car once in 2006. This year, it showed it is willing and able to do so all over again.

Unable to reach a deal on gas pricing and transit tariffs with Ukraine before midnight on December 31, Russian gas monopolist Gazprom opened the new year with a full stop to exports to its former Soviet neighbor.

The European Union held an uncomfortable seat on the sidelines of the jousting and refused to enter the fray as long as its supplies kept flowing.

Yet, when Gazprom cut supplies in a 2006 face-off, Ukraine siphoned off gas destined for Europe, causing shortages and price spikes as far away as Paris. That gives the EU a reason to keep a close eye on developments as well as on its relations with Ukraine and Russia.

Although the feud is ostensibly about money - Gazprom's mission to recoup 2 billion dollars in back payments it says it is owed by Ukraine and the real need for Kiev's near bankrupt economy to broker an affordable price for future gas supplies - much more is at stake.

At the current stage, both sides are angling to see who can emerge from the crisis with the least collateral damage to their reputations as gas providers to the EU. The union is Russia's largest gas client, and receives its supplies almost exclusively via pipeline through Ukraine.

Feeding the standoff are long-simmering political tension between Moscow and Kiev - in which the European Union is the passive third party.

Analysts said that Gazprom's image as a reliable energy partner for Europe would take the first hit after it halted gas supplies from 0700 GMT on Thursday.

The groundwork has long been laid for those concerns, they said. Suspicion of Russia has increased following its five-day conflict with Georgia in August. Russia is also often accused of using its resources as a political club to bring neighbors in line.

Its grand ambitions to gain access to downstream distribution in Europe is also challenged by its repeated rows with Ukraine.

But more than that, Gazprom and Russia cannot afford to lose out on export revenues after the company sought a bailout to refinance its bubbling debt and the global financial situation deteriorates oil prices.

Russia's state energy monopoly has maintained a full-throttle PR presence this time around with regular press conferences, letters to European governments and clients and the launch of a website publishing updates on the crisis.

At a press conference before negotiations brokedown, Gazprom deputy chief executive Alexander Medvedev produced what he called a "blackmail" letter from Ukraine, saying it could seize gas supplies meant for Europe.

Over 80 per cent of Russia gas is exported via Ukrainian pipelines to Europe.

Russian President Dmitry Medvedev and Prime Minister Vladimir Putin added their bit when they went on air and pointedly briefed each other on the state of eleventh-hour talks with Ukraine. As Russia's Christmas holidays started Wednesday evening, they had this exchange while seated in front of a Christmas tree.

Putin called the Russian offer price for gas a "humanitarian gesture," saying it was subsidized and much lower than the market price for the rest of Europe.

Both Putin and Ukrainian Prime Minsister Yulia Tymoshenko called EU Commission President Jose Manuel Barroso on New Year's Eve to reassure the EU over its gas supplies.

For Ukraine, the conflict with Russia is a chance to turn public opinion to its side as its economy sags under the weight of the financial crisis. The country has also been brought to a standstill at time by ongoing squabbling between President Ukrainian President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, part of a political drama in their run-up to a presidential vote 12 months away.

Experts say Ukraine has enough stored gas to weather the Russian cut-off. Besides, its financial woes have pared down its energy needs through the winter months.

But the inevitability of demand works in favor of the world's largest natural gas producer, Gazprom, and gives it impetus to lay new gas supplies that bypass troublesome Ukraine, such as the North Stream pipeline from Russia to Germany and the South Stream from Russia through Bulgaria to Europe.

"The Ukraine side, in turn, risks gaining a reputation as an uncertain transit partner, which would build on arguments in favor of projects looking for gas routes bypassing Ukrainian, particularly the South Stream pipeline," said Moscow-based analysts Alexei Makarkin, who is the deputy director of the Center for Political Technology.

Despite its current fiscal difficulties, Gazprom executives have said they will not cut funding to the new pipeline projects. And Russia has already proved it is willing to fight for control of its gas markets.

That point has been made abundandly clear by its moves to steal away Serbian and Hungarian support for its pipeline through Hungary, making life more difficult for proponents of the Nabucco pipeline, a US-European project designed to run through the Caspian Sea, sidestepping Russia. (dpa)