Russian President Vladimir Putin and Ukrainian President Petro Poroshenko seem to have finally agreed on a solution to a very serious problem for Ukraine this winter: staving off gas shortages. After meeting in Milan last week, the two heads of state reportedly found some common ground to ensure up to 5 billion cubic meters (bcm) of additional gas for Ukraine this winter in a short-term deal.Russia’s Gazprom cut off supplies to Ukraine earlier this summer over disputes about pricing and a sizable unpaid gas bill. Russia prices that bill at $5.3 billion, but Ukraine argues that it owes much less, that the gas it bought should be priced lower. To secure supplies this winter, Ukraine has agreed to pay $1.45 billion by the end of October, and another $1.65 billion by the end of the year.But make no mistake: Kiev isn’t out of the woods yet. The 5 bcm it could receive from Russia out of this new deal might not be enough to heat its homes and power its industry should this winter turn out to be a particularly cold one. Kiev will be hoping for some outside assistance to help pay its gas bill—presumably from the West—as its economy isn’t exactly booming at the moment. Reuters reports:
Kiev faces a $3.5 billion funding shortfall for this year and next but the International Monetary Fund has said the government should be able to cover most of it with planned debt issues and an expected $900 million in further donor support.“[I]t remains unclear where Ukraine would get the money for either the back payment for the gas delivered or the prepayment for future gas. Ukraine does not have the means to pay, and no one has yet offered the country a loan to finance this gas,” analysts at Sberbank CIB said.
The EU gets a third of its gas from Russia, and roughly half of that transits Ukraine as it wends its way westward. That makes this Ukraine-Russia gas standoff a continental concern; when Russia has played hardball with Ukraine in the past, Kiev has siphoned off this transiting gas, causing shortages elsewhere in the trading bloc.It’s in the West’s best interest, then, for Ukraine to sign some kind of deal with Russia, preferably before temperatures start dropping and gas demand starts spiking. Putin knows this, and is using it to his advantage. This latest deal keeps Ukraine in an uncomfortable position (no one is feeling very energy secure in Kiev right now), and there’s a strong possibility that the West will have to step in to finance it. If that happens, Europe will be pouring money straight into Putin’s pocket.