Ukrainians woke up with new year hangovers to the news that Russia had cut their gas supplies over unpaid bills and their refusal to sign a contract.

Moscow was quick to lay the blame on Kiev for the breakdown of talks on a new contract for 2009, accusing Ukraine of blackmail for suggesting that it might siphon off gas intended for Western Europe. Ukraine assured Europeans that they would continue to receive gas.

Gas was flowing to Western Europe as Gazprom, the Russian state-owned monopoly, had stipulated, said a spokesman for Naftogaz, of Ukraine. The Ukrainian gas company secures gas transit to Europe in compliance with Gazprom orders.

At the headquarters for Gazprom in Moscow a spokesman said that supplies for Ukraine had been cut but Europe’s remained at the normal level. “Usually we supply 390 million cubic metres per day, of which 300 million is transit gas for Europe. Today supplies are running at 300 million cubic metres. We continue supplying Europe in full,” the spokesman said.

Ukraine, hit in 2006 by similar cuts from Russia that also affected supplies in Italy and Eastern Europe, says that it has reserves to last several months and there is no cause for concern. Analysts fear, however, that Europe, which receives one fifth of its gas through pipelines crossing Ukraine, could suffer again if the row over the deal becomes protracted. Ukraine and Russia are arguing over a $49 (£34) difference in the gas price for 2009. Russia says that it is being generous in offering a price of $250 per 1,000 cubic metres when the market price should be $418. Ukraine, which has been paying $179.5, says that $201 would be fairer because of the global fall in energy prices.

Yesterday Oleh Dubina, the director of Naftogaz, said that Ukraine would be prepared to go to $235. Kiev, which said that it had paid off arrears for November and December, is also balking at a $600 million fine that Russia imposed for late payment. These disagreements could be resolved easily were there the political will, but this seems to be the problem. Mindful of its poor image in the West and fearful that it could again be cast in the role of energy bully, Russia contacted the EU to press its case that Ukraine was politicising what should be a purely commercial discussion.

“The essence of the game started by Kiev is to create an artificial crisis and to blame Russia for it, as a country which creates tensions,” Gleb Pavlovsky, a Russian commentator, said.

No love has been lost between Moscow and Kiev since the Orange Revolution in 2004 but relations worsened last year during Russia’s war with Georgia. President Yushchenko of Ukraine has yet to comment on the row but Kiev said that it had approached the EU, was ready to continue talks and hoped for a deal by the Orthodox Christmas on January 7.

Already impoverished, Ukraine has been hit badly by the recession. Russia is also facing rising unemployment and a sliding rouble. Ukraine needs the cheapest gas deal that it can get and Russia, still dependent on energy exports, needs to keep prices high.

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