Russia and Ukraine move closer to pre-winter gas deal

Russia and Ukraine move closer to pre-winter gas deal

The crisis in Ukraine may be about to enter a new and less violent phase. The ceasefire that was brokered in Minsk in early September 2014 is still in place. Violations are numerous and the killing has not stopped - but the death toll has been reduced, writes Professor Stefan Hedlund.

The introduction of a 30 kilometre buffer zone is ongoing where no side will be allowed to have heavy weapons of a calibre larger than 100 mm. The enforcement of the proposal is likely to be a major problem but it will help reduce the number of deaths which is a positive step towards a lasting solution.

When Ukrainian President Petro Poroshenko met his Russian counterpart Vladimir Putin in Milan on Friday, October 17, 2014, on the sidelines of the summit of Asian and European leaders in Italy, there were few, if any, signs that an agreement on the fundamentals was close.

Kiev has already been forced to make two major concessions: On self-rule for the rebel-held areas in Donbass, and then on postponement of the free-trade agreement with the European Union. In Milan, Ukraine had to accept a third concession.

In a mooted deal that would see resumption of Russian deliveries of gas cut off since June 2014, it accepted to pay a price of US$385 per thousand cubic metres. This is less than the US$485 that Russia has demanded in accordance with a contract signed in 2009. But it is also more than the US$266 which Ukraine has offered to pay.

The price is an average of those paid by European customers. It was negotiated under the supervision of EU Energy Commissioner Gunther Oettinger in June, 2014, and has been on offer from Gazprom ever since.

It may seem fair, but is also problematic. Russia maintains that the price is US$485 and that it has generously granted a US$100 discount. Since a discount may be withdrawn at will, a fair deal would have entailed agreeing on a price without discount.

Looking forward, it seems that the Kremlin may have an interest in winding down the hostilities in Donbass, east Ukraine.

Mr Putin no longer makes glowing speeches about ‘Novorossiya’ and the right to protect Russians abroad. He has taken a cool attitude to the self-proclaimed ‘People’s Republic’ and may feel that the war has already served its main purpose.

In contrast to Crimea, east Ukraine was not about conquest. It was fought to destabilise and weaken the Ukrainian state to the point where it will be forced to accept rules that are written in Moscow.

In this sense, the Kremlin has already won. Kiev is making concessions and is dependent for survival on a steady flow of billions in credits from the West. Repayment of those credits will be problematic.

What the eventual bill will be remains to be seen. But it is clear that it will be sizeable, and that Western taxpayers will be on the losing side.

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