The EU Bites Back

"If the transit (of Russian gas through Ukraine) does not go as normal, we will have a real problem", and the EU will have to conclude that "we no longer consider the supply of gas from Russia through Ukraine as credible," said European Commission President Jose Manuel Barroso.

Barroso, who was speaking in Prague at the launch of the Czech presidency of the bloc, said both Russian Prime Minister Vladimir Putin and Ukrainian Prime Minister Yulia Timoshenko had accepted an EU offer to deploy international observers tasked with monitoring Russian gas flows through Ukraine.

Russian state-owned energy giant Gazprom has accused Ukraine of siphoning off supplies destined to its lucrative EU markets amid an escalating row over unpaid bills. Ukraine has rejected the charges, arguing that Moscow is to blame for turning off the taps.

Officials from Gazprom and from Naftogaz, Ukraine's state-ran gas supplier, were expected to attend talks in Brussels on Thursday aimed at clarifying the details of such an observation mission.

Czech presidency gives a 24-hour ultimatum

The EU is however still hoping that such a mission will not be necessary, with Czech Prime Minister Mirek Topolanek giving the sides 24 hours to resume supplies to Europe.

"If supplies are not restored tomorrow, we will have to see a strong intervention by the EU," Topolanek said. "Obviously there is a political dimension to this problem," Topolanek said.

While officials declined to elaborate on the substance of the EU threat, Barroso underlined the fact that the EU represents Gazprom's "most important customer".

And "if Ukraine wants to be closer to the EU, it should not cause any problems when it comes to the supply of gas to Europe," the commission chief said.

However, analysts note that the EU has virtually no short-term alternatives to Russian gas, which represents about a quarter of its total needs, and which mostly reaches the bloc through Ukrainian pipelines.

The standoff has already left much of Europe tapping into its gas reserves, with some countries now beginning to take emergency measures aimed at meeting the shortfalls.

Big nations hit during Europe's coldest winter

Germany, Italy, Austria, Greece, Turkey and most of the Balkan nations have been among the hardest hit by the drop in Russian gas, which has coincided with one of the coldest winters in decades, heightening fears of possible shortages over the coming days or weeks.

Hungary became one of the first European countries to impose restrictions on industrial gas Wednesday, in a move that forced Japanese carmaker Suzuki and other industries to temporarily halt production.

And in Austria, which normally receives 51 per cent of its gas from Russia, electrical utilities started using oil instead of gas in four power plants.

Economic Minister Reinhold Mitterlehner said there were enough stocks to supply heating gas to private homes for at last three months. But an industry source said that supplies would only last this long if industrial users were taken off the net.

The current situation could provide a boost to the planned Nabucco pipeline, which is designed to transport gas from the Caspian Sea to Europe, bypassing Russia, Mitterlehner said.

Serbia, meanwhile, admitted that its reserves had been virtually depleted while Bulgaria, which is totally dependant on Russian gas, was considering re-opening one of its Soviet-era nuclear reactors - shut down for safety reasons when it joined the EU - in order to meet its energy needs.

Emergency measures were also triggered in Slovakia, while Poland was compensating for a complete cut-off by boosting supplies via neighboring Belarus.

Germany joins in pressurizing rowing gas powers

Two of Germany's biggest gas importers confirmed significant drops in the supply of Russian gas transiting through Ukraine, prompting German Chancellor Angela Merkel to pile diplomatic pressure on Moscow and Kiev. Germany is Gazprom's biggest single client.

Meanwhile Italy, which relies on Russia for almost a third of its gas imports, also confirmed that it had received none of its allotted daily supply.

But Economic Development Minister Claudio Scajola said the current cuts did not represent "specific concerns," noting that the country had enough reserves to last until February.

Italy, like other European countries, has sought to expand and diversify its energy imports, clinching accords with Algeria, Libya, the Netherlands, Norway and Britain, after being badly affected by the previous Russian-Ukraine gas standoff of 2006.

Britain, Spain and the Nordic countries have been largely unaffected by the crisis - either because they do not import Russian gas or because they do not receive it via Ukrainian pipelines.