With the cold weather closing in Kiev has paid $378 million to Gazprom to 1 billion cubic meters for December. Gazprom will to start to supply the gas either on Sunday or Monday.

On the same day there was news Ukraine intends to buy 50,000 tons of coal from Russia.

Kiev’s decision to buy coal and gas from Russia shows the tight corner Kiev is in. Its reserves of gas at 13.9 billion cubic meters are very low - nowhere near enough to cover needs for the winter.

The much talked about “reverse flow”, basically the resupply to Ukraine by certain EU states of gas Russia has supplied them, has failed to fill the gap. The war in eastern Ukraine has cut Ukraine off from coal mined in the Donbass. The attempt to buy coal from South Africa ended in scandal.

A reported accident at a Ukrainian nuclear plant shows that things are far from well with Ukraine’s nuclear industry. Already there are reports of rolling power cuts across Ukraine.

According to the Ukrainian government, Naftogaz, Ukraine’s state-owned natural gas provider, is running a deficit of $6.7 billion. The Ukrainian government is running a deficit of $4.4 billion. Neither Naftogaz nor the Ukrainian government seem to have any significant cash reserves left. Ukraine has not had any more money from the West.

So where is the money coming from?

The likely answer is from the central bank’s foreign exchange reserves. The payment of $1.45 billion that Ukraine paid Gazprom in November in part payment of its gas arrears is known to have come out of the central bank’s foreign exchange reserves. They now stand at just $9.97 billion - insufficient to cover even two months’ imports.

Ukraine must pay Gazprom a further $1.6 billion to clear more of its arrears by the end of December. If it is paid, this money will also have to come from the central bank’s foreign exchange reserves, pushing them down further.

This is a very high risk strategy. The Ukrainian currency, the hryvnia, has lost half its value since the start of the year. There are reports Ukraine’s banks are in bad shape. If there is a run on the currency or a run on the banks or if there is a demand for debt repayments - all very possible given current conditions - the central bank will be perilously short of money to do anything about it. There is a very high risk of a sovereign default or of a currency or bank crash.

There were reports a few days ago that the head of Ukraine’s central bank had resigned. Most media assumed this was because of the scandal over Ukraine’s vanished gold reserves. A more likely reason is that she objected to the raid on the central bank’s foreign currency reserves to make these payments.

Ukraine had no choice. The Ukrainian government obviously doesn’t feel secure enough politically to risk further power shortages in winter. The Russians have said that if Ukraine tries to do what it did in 2006 and 2009, which is steal Russian gas that is being transported by pipeline across Ukraine to Gazprom’s other European customers, then they will reduce the amount of gas transported through Ukraine by the amount Ukraine is stealing.

The Russians did this in 2009 when the eventual result was that transportation of Russian gas across Ukraine entirely stopped. No one thinks the Russians this time are bluffing. Ukraine therefore has nothing to gain from stealing Russian gas. The only thing it would achieve if it did would be to anger its European allies on whose goodwill it depends and whose gas would be cut off.

Ukraine’s gamble is that it can hold things together until the next tranche of the IMF loan comes through in January. However there is no guarantee Ukraine will get this tranche. This is because Ukraine is failing to meet its IMF targets. An IMF report in September reported a sharper than expected deterioration in Ukraine’s economy with Naftogaz’s deficit growing from a planned 4.3% of GDP this year, to 7.6% of GDP. The likely deficit will actually be more like 10% of GDP as more and more of Naftogaz’s customers fail to pay their bills.

The political pressure from western states friendly to Ukraine to clear the next tranche of the IMF loan despite all the difficulties will be strong. However the IMF still has to consider the attitude of Russia. Ukraine owes the Russian government, Russian banks and Gazprom a combined total of $35 billion.

Russia is in a position to demand immediate repayment of $3 billion it loaned Ukraine in January. That loan was conditional on Ukraine’s debt staying below 60% of GDP. Though Ukraine has not published figures everyone knows its debt level is now above that. If Russia calls in this loan, which it can do at any time, Ukraine will likely default bringing the entire Ukrainian economic house of cards crashing down.

Whether they like it or not the IMF and the western powers therefore have to deal with Russia to make sure that any further IMF payment does not go wasted, just as Ukraine has been forced to turn to Russia for gas and coal.

Regardless of what happens in January and between now and January, Ukraine is now living hand-to-mouth. There is no reason to think things will get better.

Unless the west is prepared to come up with a lot more money (with some saying Ukraine needs a further $15 billion just to get through the next 6 months) the crisis will deepen with the risk of a sovereign default and a currency collapse looming ever larger.

In the meantime life for the Ukrainian people continues to get harder.