The latest episode in the long series of gas wars between Russia and Ukraine has been by far the worst. Supplies to the entire European Union--which come from Russia via Ukraine--were cut off for nearly two weeks, and residents froze. A Czech-mediated agreement fell apart on January 12. With gas returning to prominence as a tool of Russian foreign policy, the EU found itself powerless to do more than threaten lawsuits, and Ukraine's political maturity was called into question at a critical moment for its future relations with both NATO and the EU. Though an agreement on January 19 reinstated supplies to Europe, the crisis is not yet over.

The long-term effects could be terrible. Both Russia and Ukraine face financial disaster. The lower gas prices predicted for 2009 will cripple an already-flailing Gazprom, the jewel in the crown of Russian state corporations. Ukraine is drowning in debt and may not be able to afford the gas it needs, even at the prices negotiated.

Worse still, the EU began to fracture as harder-hit states searched frantically for energy options. Western Europe, with access to alternative energy sources and reserves, contented itself with scolding Russia and Ukraine, but the East became desperate. Bulgaria and Slovakia considered breaking their accession agreements with the EU--once the sine qua non of a secure future--in order to reopen decommissioned (and dangerous) nuclear plants.

Few lasting solutions are in the offing, and many in positions of power seem oblivious to the risks at hand. Though always eager to regulate, Brussels has been silent about unifying energy policy. By allowing each member state to negotiate secret bilateral contracts with Gazprom, the EU has given Gazprom the upper hand. Apart from this secrecy's practical consequences, the appearance of pervasive corruption is hard to escape. The first goal for Europe should be transparency.

The next goal should be unity and cooperation. When the pumping of gas is disrupted or halted, member countries should work together to replenish supplies for the hardest-hit. For those reluctant to pull together, the specter of reopening Chernobyls across the continent should be persuasive. Europe's renewed interest in the Nabucco pipeline, a project to bring Central Asian gas to Europe via Turkey, is promising. However, recent meetings in Budapest failed to find direct funding for the pipeline. The EU's offer of credit guarantees for private investors may not be enough for Nabucco to compete with Russia's similar pipeline projects and thereby break the Russian hold on European energy supplies.

Vladimir Putin has been pleased to play the villain in this recurring crisis. To be sure, Moscow uses gas as a tool in its efforts to undermine the democratic, pro-Western Orange governing coalition in Ukraine and prevent Ukraine's entry into NATO. But the situation is more complicated, because much of the dispute is straightforwardly commercial. While Ukraine has every right to demand fair-market transit prices, Gazprom has every right to demand fair-market gas prices.

A good first step would be for Gazprom to begin transparent and consistent gas contracting and pricing. It is difficult to determine what "fair" is when the prices offered to Ukraine range from $250 to $450 per 1,000 cubic meters. And as already mentioned, contracts with EU nations are consistently kept secret.

Ukraine has a role to play in solving the problem, too. The onus is on the Kiev government to prove that Ukraine is reliable as a transit country, and to embrace First World business practices. The murky relationship between Ukraine's national gas company, Naftogaz, and Ukrainian politicians must end, or allegations of price manipulation will persist. Ukraine also desperately needs to update its pipeline system, which uses an inordinate 21 million cubic meters of gas per day just to operate. (A truly visionary step would be for Russia and Gazprom to invest in upgrading this infrastructure, perhaps in lieu of paying higher transit fees, since the current inefficiency costs everyone involved dearly.) Finally, if Ukraine wants to emphasize its independence from Russia, it should expect to be treated as an independent state and to pay Russia fair market prices for gas without complaint (and demand fair market prices for transit in exchange).

It is unlikely that any of these steps will be taken soon. The newly negotiated agreement is as vulnerable to conflict as past agreements. Cash shortages, deep mistrust, and Western apathy and distraction have derailed tentative efforts to bridge the gap. The stakes are high for Europe, Russia, and Ukraine. Perhaps the fallout from this crisis will motivate all the parties to find a tenable long-term solution.

Leon Aron is a resident scholar at AEI. Kara Flook is a research assistant at AEI.