The EU imports large amounts of natural gas from Russia, and nearly half of this gas is transited through Ukraine. The Ukrainians have been paid well over the years to function as a transit country, but the current deal will expire at the end of this year. Russia and Ukraine’s relationship is ice cold due to the Donbass conflict and the Russian annexation of Crimea in 2014. Therefore, the EU has had to mediate, so a new agreement could be reached.
This appears to have been a success. An EU official stated Wednesday, that the countries will sign a new, short-term agreement soon, which will secure gas supplies to the EU during the forthcoming winter. Both Russia and Ukraine have an interest in continuing the deal despite the ongoing war, and as the third part in the deal, the EU has managed to talk them in to striking a deal.
The Russians were only interested in a short-term deal, as the country awaits the construction of the Nord Stream 2 connection, which will run between Russia and the German coast of the Baltic Sea. From that point on, Russia will become less dependent on Ukraine for the transport of gas to the EU.
The trilateral negotiations will re-start at the end of the month, and with the expectations of the EU, that a deal will be reached this time. Uncertainty on the market is decreasing as a result, and we are looking at a winter with a very solid supply situation on the European gas markets. Storage levels across the continent are already close to 100 %.
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There were relatively major fluctuations across the markets last week. The topic of Brexit is once more in focus, with just over two weeks to go until the exit date.