“No More Transit Risk”: Ukraine & Russia Ink Landmark Gas Transit Deal, Hammering European Gas Prices

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“No More Transit Risk”: Ukraine & Russia Ink Landmark Gas Transit Deal, Hammering European Gas Prices

Ukrainian President Volodymyr Zelensky has hailed the completion of an against all odds landmark deal with Russia’s Gazprom as ensuring “energy security and prosperity for Ukrainians.” 

It will keep natural gas flowing to Western Europe via Ukraine for the next five years, which is estimated to net Ukraine $7 billion (€6.25 billion) in gas transit fees by 2024

After a series of compromise breakthroughs over the past weeks, including Gazprom paying out $2.9 billion legal settlement to Naftogaz and Kiev in turn agreeing to wave a separate legal claim, the two sides finally inked the historic deal on Monday, which signals a broader thawing in tensions and dramatic deescalation after Moscow and Kiev have for years stood on the brink of open war. 

Per Gazprom Chairman Alexey Miller, the accord has already gone into effect as of Tuesday: “After five days of uninterrupted negotiations in Vienna, definitive decisions have been made and final deals have been reached,” he said in a statement.

And Zelenskiy further presented it as an ‘everyone wins’ breakthrough: “Europe knows that we will not fail when it comes to energy security,” he said. Indeed European gas markets immediately felt the effects:

European gas and power prices extended declines after a last-gasp accord between Russia and Ukraine on natural gas flows averted a winter supply crisis.

According to Bloomberg’s analysis:

“There’s no more transit risk,” said Thierry Bros, an associate at Harvard University’s Davis Center for Russian & Eurasian Studies. “We are in a world with a lot of LNG and piped gas and the Russians want to keep their market share in Europe.”

Benchmark Dutch gas prices dropped 0.7%, taking their record annual plunge to 44%. German power traded at its lowest level since May 2018.

This collective sigh of relief which came down to the wire, given the previous accord was set to expire on December 31, further comes ironically enough after sanctions-happy Washington has claimed all along to be acting in Ukraine and Europe’s best interest as it shouts “Russian interference” in Europe’s energy sector (especially given current US pressures over the Nord Stream 2 direct Russia-Germany pipeline). 

Clearly the parties now hailing the new deal don’t see it that way. Instead, all indicators suggest a slow rapprochement between Russia and Ukraine, driven by necessity of supplying energy to Europe, and given Russia naturally wants to keep its significant chunk of the European market online. 

It bears repeating that such good faith compromise between the two just isn’t supposed to happen! — that is according to the shrill cries of the neo-Cold War pundits who keep telling us Putin is not only bent on taking over Ukraine, but Europe as well — especially through gas and energy dominance.


Tyler Durden

Wed, 01/01/2020 – 07:40


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