Poroshenko, Putin Move Closer to Gas Deal in Milan

The last hours have turned the spotlight on the negotiations between Ukraine and Russia, with an agreement in principle reached at the sideline of the ASEM meeting in Milan. The announcement comes a few hours after European authorities admitted there could be some 5-9 bcm of gas missing in case of prolonged supply disruption from Gazprom.  

Ukraine’s President Petro Poroshenko said that parts agreed on basic parameters of a future gas contract to be signed by Moscow and Kiev.

“We agreed on basic parameters of the gas contract,” Poroshenko said in Milan on Friday, after a meeting with European authorities.

The Kremlin did not speak about an imminent deal, but confirmed that the gas issue was the main focus of the meeting. 

‘Vladimir Putin met in Milan with President of Ukraine Petro Poroshenko, Federal Chancellor of Germany Angela Merkel and President of France Francois Hollande… The situation in Ukraine was the main subject of discussion earlier at a working breakfast hosted by Italian Prime Minister Matteo Renzi,’ Moscow wrote on Friday.

WHAT THE CURRENT SITUATION WOULD IMPLY FOR EUROPE, FOR RUSSIA?

Despite notes released by Rosneft on Friday, Russia will clearly suffer a long period of sanctions. According to recent declarations, Europe might have problems too.

‘A prolonged supply disruption would have a substantial impact in the EU, with the Eastern Member States and the Energy Community countries being affected most. Altogether, the EU and the Energy Community Contracting Parties, excluding Ukraine, could be missing between 5-9 bcm, even after reshuffling their supply mix,’ the European Commission wrote in a memo released on Thursday evening.

The note, which unveiled the results of the Gas Stress Test, explained that a cooperative approach could and should help Eastern European countries, which are the ones more likely to suffer the consequences of the stall. 

‘In general, the Stress Tests showed that a market-based approach should be the guiding principle, with non-market measures (i.e. the release of strategic stocks, forced fuels switching and demand curtailment) only kicking in when the market fails.’

In the current tug of war, Russian companies admitted possible backlashes but explained that they can cope with the current situation, overcoming also the difficulties stemming from low oil prices. 

"The company's projects remain economically viable at prices much lower than current levels," Rosneft said in comments to Reuters.