Russia and Ukraine have found a composition to their gas deny, but the long-term goods of the three-week thorough freeze are still unknown

By Jason Bush

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The acrimonious three-week natural gas dispute between Russia and Ukraine, which left millions of customers in Central and Eastern Europe freezing in the absence of gas in opposition to heating, is now finally very. Under a face-saving mutual concession lastly hammered out in succession Jan. 20, Russia’sitting Gazprom (GAZP.RTS) has achieved its central objective of formation Ukraine pay "market prices" for its gas, which will be linked to the European medium. But to sweeten the pill, Ukraine has notched a 20% discount during 2009. Other terms of the deal include a one-year be congealed on transit fees charged by dint of. Ukraine and the elimination of RosUkrEnergo, a controversial trading equipment that has acted for the cause that intermediary in the Russia-Ukraine gas bargain.

Both parties are attempting to frame the outcome as a victory and are already disagreeing over the implications with respect to gas prices. Ukrainian Prime Minister Yulia Tymoshenko has said the rate per 1,000 cubic meters will average $228 for the full year—well below the $280 predicted by Gazprom (though higher than the $179.50 that Ukraine paid last year). With both sides even now disagreeing about the distribution’s economic implications, the possibility of futurity disputes arising between the two countries certainly cannot be discounted. "The big question mark is what happens if Ukraine again runs into arrears," notes Chris Weafer, chief strategist at Russia’s Uralsib Bank (USBN.RTS).

In any case, the long-term impact of the dispute will endurance far beyond the immediate implications for efficiency relations between Russia and Ukraine. Despite similarities with the previous bust-up in 2006, Western pluck experts emphasize the latest dispute has been far more important, through lasting implications for the European energy market. "This has been the most serious security event in relationship to aeriform fluid that has eternally happened in Europe," says Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies. "It cannot be allowed to happen again."

Exactly what the long-term implications will be are still rather hard to fathom. It doesn’t cure that many fundamental facts about the dispute remain clouded in controversy—including the elucidation question of who was in the end responsible for cutting off Europe’s gas. While Russia accuses Ukraine of blocking Russian elastic fluid supplies to Europe during the dispute, the Ukrainians say that it was actually the Russians who turned off the taps.

Ukraine Shares the Blame

Getting to the bottom of such matters has more than purely academic significance. For single in kind thing, the threat of legal movement by Gazprom’s European customers remains real—potentially exposing the company to huge claims for indemnity. The debate about responsibility will also rumble onward because it matters during the term of the future of European energy policy. "If it’s a Ukraine enigma, hereafter pipelines bypassing Ukraine are undivided answer to it. If, however, it’s a Russia problem, it doesn’t matter where the pipelines [from Russia] go," says Oxford’s Stern.

What’s already clear is that, in notable contrasting to the 2006 spat that was widely blamed on Russia, this era Western observers have also pointed fingers at Ukraine. "This time round, it’s clear that Ukrainian politicians have a lot to answer for," says Kash Burkett, energy and utilities analyst at Datamonitor (INF.L) in London. The crisis coincides with intense national tumult inside Ukraine, including open be inconsistent between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, which has seriously complicated negotiations with Russia.

The problems in Ukraine mean the dispute is likely to add impetus to energy projects that bypass the country. In particular, Russia backs the Nord Stream pipeline under the Baltic, a project 51%-owned by means of Gazprom, in company through Germany’s BASF (BASF.DE) and E.ON (EONGn.DE) and Dutch energy company Gasunie. Yet despite this substantial recent accounts for Russia’s pet project, many Western experts prognosticate that ultimately Russia and Gazprom will turn out to be the biggest losers.

Original text: http://rss.businessweek.com/~r/bw_rss/europeindex/~3/520105493/gb20090121_784080.htm