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Relief after “gas war” is averted

Friday, October 31, 2014 - 02:12

A gas war between Russia and Ukraine has been averted. But as Hayley Platt reports a deal was only reached after Kiev's western creditors agreed to partly funding the deal.

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It was a long time coming - and there was a lot at stake. But a deal to avert a possible gas war between Russia and Ukraine has been agreed - on the European Commission President's last day in office. (SOUNDBITE) (English) EUROPEAN COMMISSION PRESIDENT, JOSE MANUEL BARROSO, SAYING: "With the strong support of the European Commission, Ukraine and Russia have today found agreement on their outstanding energy debt issues." It was EU support that made all the difference. Yuri Prodan is Ukraine's energy minister. (SOUNDBITE) (Ukrainian) UKRAINE ENERGY MINISTER, YURI PRODAN, SAYING: (OFFICIAL TRANSLATION) "This decision will not only provide energy security for Ukraine it will also secure the supply of gas towards the European Union." Russia turned off the gas taps to Ukraine in June over unpaid bills. The price of future gas supplies was also an issue. Ukraine must now pay upfront for new deliveries to see its 45 million people through the winter. But investors were clearly relieved, says Rabobank's Jane Foley. (SOUNDBITE)(English) SENIOR FX STRATEGIST AT RABOBANK, JANE FOLEY, SAYING: " Around about 30 percent of gas in Europe comes from Gazprom. About half of that flows through Ukraine, so this deal certainly does take away some of the threat that there could be gas shortages into Europe this year. And as a function of that we have seen gas prices drop in Europe this morning." The conflict in eastern Ukraine continues to rumble on despite a ceasefire with pro-Russian rebels. Some say Russia's motives over the gas deal were more political than financial. But Moscow too will be relieved in many ways - gas accounts for a fifth of its national budget. It's economy is also suffering from western sanctions and a slide in world oil prices. Jan Randolph is from IHS Global Insight. (SOUNDBITE) (English): Jan Randolph, Director of Sovereign Risk Analysis, IHS Global Insight, saying "The depleting foreign exchange reserves, the economy virtually at a stand still. I think this is all about averting recession and getting the money. Ukraine was a big export market for Russian oil and gas and so they need the money and just as much as Ukraine needs the gas." If more proof were needed Russia's central bank has again raised its main lending rate - this time by 150 basis points. It's now 9.5% - 400 points higher than the beginning of the year.

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Relief after “gas war” is averted

Friday, October 31, 2014 - 02:12