Russia-Europe Gas Spat Ends — For Now

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A man carries firewoods near Sofia. Bulgaria struggled to adapt to the gas shortage today as a total cut in Russian deliveries, on which it is entirely dependent for its natural gas needs, ran into its third day.

An uneasy compromise could mean an end to the latest Russia-Europe gas spat, and relief for the millions of people across vast swathes of Europe who have spent this week shivering. The deal was worked out Thursday after a confusing mesh of negotiations in Brussels, Prague, Kiev and Moscow. E.U. inspectors have now arrived in the Ukraine to assuage Russia that Kiev is not surreptitiously siphoning off gas from the pipeline transiting the country, and Moscow has pledged to turn the gas taps back on as soon as the observers start work in monitoring the gas flow at Ukrainian pumping stations.

Moscow cut its supply of gas to Ukraine last week following a dispute over payment. At least 18 European countries who buy Russian gas and have it piped through Ukraine saw their supplies completely or partially cut as a result. Some governments declared states of emergency and ordered factories and schools to close, while millions of people struggled to cope in freezing temperatures. (See pictures of Russia celebrating Victory Day.)

On Thursday, it looked unlikely that any sort of agreement would result from the complicated talks. Alexei Miller, from Russia's state-owned Gazprom, and Oleh Dubina, from Ukrainian Naftogaz, eventually met in Brussels after playing cat and mouse games to avoid one another in the corridors of the European Commission and the European Parliament. A planned joint press conference appeared to be canceled at the last minute when it was due to take place in a room named after murdered Russian journalist Anna Politkovskaya.

As the farce played out in Brussels, Czech Prime Minister Mirek Topolanek — the Czech Republic currently holds the E.U. presidency — and German Chancellor Angela Merkel were phoning Russian Prime Minister Vladimir Putin, warning him that Gazprom and Russia faced the loss of reputation and revenues as Western customers looked elsewhere. The E.U. efforts were almost all aimed at the Russians rather than the Ukrainians. They also spoke with Ukrainian officials. It helps that the E.U. is Ukraine's largest aid donor. Ukraine is facing a financial meltdown, and recently asked for a $16.4 billion International Monetary Fund bailout. Gazprom, owing around $60 billion and seriously short of cash, currently has storage reservoirs so full that it risked having to burn off some of its surplus if the gas was not pumped out soon.

The two sides are still unhappy. Putin has portrayed Ukraine as a flaky transit country, while Ukrainians say Russia is simply a bully. Over the next few weeks, Moscow and Kiev still have to agree on a price for Russian gas deliveries, subsidized since Soviet times. And even if that happens, there's no guarantee this same dispute will not flare up again in the coming months, as it regularly has over the past few years.

Europe depends on Russia for about a quarter of its total gas supplies. Some 80% of these are pumped via Ukraine, which also counts on hefty transit fees. The E.U. sees this latest episode as further proof that it needs to diversify its energy, something that it must do anyway if it is to meet its ambitious climate-change targets.

Options include investing more in gas storage and focusing on other sources of gas in the Caspian or North Africa and the Middle East. But building pipelines takes years, so a solution won't be easy.

"Today, the Europeans will hopefully focus on what they can do together to increase their energy security," says Katinka Barysch, deputy director of the London-based Centre for European Reform (CER) think tank. "They also need to reinforce their efforts to achieve their 20% energy savings target and explore alternative sources of power, namely renewables and nuclear. If the gas standoff reminds the Europeans of the importance of such measures, Russia and Ukraine will have done the E.U. a favor." Even if that favor was rather chilly.

See pictures of the fashions of Russian czars.

Read about Russia's Gazprom Diplomacy.