Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko Sunday struck a deal to resolve a gas dispute that has left millions of Europeans without heating gas in the depths of winter for more than a week.

According to the agreement reached during all-night talks in Moscow, Russia would sell Ukraine gas at an higher price but would grant a 20-percent discount for 2009, and Ukraine would not raise transit fees for Russian gas to Europe in 2009.

The gas price and transit fees will be calculated according to the European price formula on Jan. 1, 2010, said Putin.

It appeared both sides have backed down from their previous positions. Russia had insisted its gas price for Ukraine be more than doubled, while Kiev made it clear that it would only accept a mild price rise and threatened to raise transit fees for Russian gas.

As the two sides were locked in a stalemate in their dispute over gas pricing, Russia cut off its gas supplies to Ukraine on Jan. 1 and gas exports to European countries via Ukraine one week later, accusing Kiev of stealing gas from the pipelines stretching over its territory.

A transit deal brokered by the European Union (EU) last week paved the way for resuming Russian gas exports to the bloc, where people had already suffered from shortages of heating fuel in the depths of winter for a week.

Russia's state-owned gas monopoly Gazprom reopened gas taps into Ukraine's pipelines on the morning of Jan. 13, but stopped pumping gas just hours later, accusing Ukraine of blocking the gas flows to the Balkan states. Kiev argued that the transit route was threatening its domestic consumption.

Talks between Putin and Tymoshenko as well as some leaders from European countries were held in Moscow on Saturday, in a bid to settle the dispute as the EU raised pressure on both sides.

Local observers said Russia appeared to have scored more both economically and politically, although it remains to be seen how the new deal would work and long-running uncertainty would continue form some time.

When the gas talks between Moscow and Kiev began in late December, Russia offered a gas price of 250 U.S. dollars per 1,000 cubic meters for Ukraine in 2009 with transit fees for gas to Europe remaining unchanged.

Ukraine rejected Russia's "preferential price", saying it could only afford 201 dollars per 1,000 cubic meters of gas, and instead demanded that transit fees be raised from 1.7 dollars per 100 km per 1,000 cubic meters to more than two dollars.

The talks collapsed and Gazprom shut off gas supplies to Ukraine but offered a new price: the same as European market price of 450 dollars per 1,000 cubic meters in 2009, much higher than the 179.5 U.S. dollars in 2008.

The price formula agreement was another triumph for Russia as it reduced the three-year interim period for floating gas prices and transit fees to a reasonable level based on the market price, which was agreed by Putin and Tymoshenko in October 2008.

In political terms, some observers say Moscow played a full range of the "battle for transit" to give Kiev, which is seeking NATO membership, a lesson: It could not have the best of both worlds -- to be a part of the "Western world" with a hostile policy toward Russia and to retain its economic competitiveness that is based largely on the low cost of energy imported from Russia.

Both Russia and Ukraine, however, are more likely to "come out of this literal Cold War as losers" as the EU may seek other energy suppliers and shift transit routes, which will gradually lessen the importance of the EU-Russia and EU-Ukraine relationships, the Russian Profile website quoted Andrei Liakhov, partner of the Withers LLP London office, as saying.

(Xinhua News Agency January 19, 2009)