Russia and Ukraine in step together on oil transit

With gas supplies already secured, Russia and Ukraine have also come to agreement on oil shipments to Europe, averting any risk of a cut off over the New Year period.

The deal is done. Naftogaz Ukraine Spokesman, Valentin Zemlyansky eased any fears of a potential oil dispute when announcing that agreement between Ukraine and Russia had been reached.

“We have found a compromise concerning the transit fees and the minimal pumping volumes. The transit price has gone up 25% or a little more depending on exchange rates.”

Russia will pay as much as 30% more per ton of oil moved, it also promises to pump the same amount in 2010 as in 2009 – 15 million tonnes. The big compromise on the Ukrainian side appears to be switching the settlement currency from dollars to euros.

The largest pipeline, called Druzhba or "Friendship" in English carries the major chunk of Russia's oil to Europe. But it's been more of a source of friction since the two countries switched to dealing with each other on market based terms.

Dmitry Lutyagin, Analyst at Veles Capital says the transit disputes are probably in neither Russia's or Ukraine's interest.

“Both sides would not gain from the conflict. It carries up to 35 million tons annually of Russia's oil and Ukraine is not in the position for ultimate measures."

Just a hint of another possible disagreement with Ukraine as a transit country for Russian fuel was enough to raise alarm in Europe. And although this round appears to have been settled peaceably, it once again suggested the need for longer term and more stable agreements.