MOSCOW – Russia and Ukraine stepped back Friday from the brink of repeating their annual winter "gas war" amid surprisingly warm smiles and handshakes between prime ministers Vladimir Putin and Yulia Tymoshenko.
The Russia-Ukraine agreement, sealed after a night of talks in the Crimean resort city of Yalta, makes several unexpected concessions to Ukraine. Moscow agreed to an estimated 60 percent increase in transit fees paid by Russia's state gas monopoly Gazprom and to lifting stiff penalties that it could have imposed on Ukraine for not fulfilling its 2009 purchasing pledges. The bargain will also peg Ukrainian purchases of Russian gas to market rates for the first time.
"It would be very good to meet the New Year without shocks," Mr. Putin told journalists in Yalta Friday.
Ukraine and Russia have engaged in regular spats over gas supplies for the past four winters, since Russia sends gas westward through Ukraine, with a shivering western Europe watching anxiously downstream.
Chill in Ukrainian politics
Several times in the past few years, a stand-off between Russia and Ukraine has slashed energy supplies to Europe during the coldest winter months. Europe is heavily dependent on Russia gas, much of which is delivered via Ukraine's pipelines.
The problem has been aggravated by fierce geopolitical differences between Russia and the former Soviet state of Ukraine, especially President Viktor Yushchenko's insistence on bringing Ukraine into the NATO military alliance. Arguments between the two have seemed nearly incomprehensible due to a near total lack of transparency in the gas trade between Ukraine and Russia.
This year, there's an added twist – an escalating political battle between Ms. Tymoshenko and Mr. Yushchenko ahead of January presidential elections. The two former allies led Ukraine's 2004-05 Orange Revolution that unseated a pro-Moscow leader, but they now despise each other.
Reading between the lines of Friday's gas accord, some see Mr. Putin swinging Russia's considerable weight to subtly endorse Tymoshenko in her bitter struggle to succeed Mr. Yushchenko in the upcoming Ukrainian presidential polls, slated for Jan. 17.
'Yushchenko is out of the game'
On Thursday, Yushchenko, whose name is anathema in Moscow due to his pro-Western policies, dispatched an open letter to Mr. Medvedev, warning that Ukraine's economic crisis necessitated revisions in the two countries' gas accords, including a sharp increase in transit fees.
But Kremlin official Sergei Prikhodko responded harshly, saying Yushchenko's letter "is something from the sphere of political blackmail" and rejecting any concessions. The next day, Putin handed Tymoshenko almost exactly the package of concessions that Yushchenko had called for.
"Yushchenko is out of the game," says Andrei Klimov, deputy chair of the Russian State Duma's foreign affairs committee. "Yushchenko has never been an advocate of Russian-Ukrainian cooperation, and it would probably be better if someone else sat in his place... Tymoshenko has shown that cooperation is possible, if there is realism. This [Putin-Tymoshenko] accord shows that realism can bring good results."
Though Putin insisted he was not trying to influence Ukraine's elections, he offered lavish praise for the former "Orange Revolution" hero, Tymoshenko.
"She's a tough negotiator," he said in Yalta, with a smiling Tymoshenko at his side. "But we've always been able to agree, despite all difficulties, and we have managed to keep all of our commitments."
Ukrainian experts say Tymoshenko has probably emerged the winner in her power struggle with Yushchenko and, in any case, relations between the two can hardly get any worse.
"Yushchenko may be president, but he couldn't disavow the gas agreement without changing the government, and his power to do that is limited," says Vladimir Horbach, of the independent Institute of Euro-Atlantic Cooperation in Kiev (Kyiv).
"Tymoshenko, who hopes to be the next president, is happy to make herself look like a decisive and weighty leader who can make deals with the Kremlin, even if these are discriminatory toward Ukraine in the long run," he says.
Sign that Putin calls the shots in the Kremlin?
Experts are also taking careful note of Putin's role in sealing the international deal with Tymoshenko, because it sends a not-too-subtle message about who is actually calling the shots in the Kremlin.
"It's hard to understand why Yushchenko sent his open letter to [President Dmitri] Medvedev, when everyone knows that Putin is the chief gas manager in Russia," says Viktor Nebozhenko, director of Ukrainian Barometer, an independent Kiev (Kyiv) political consultancy.
Some experts suggest Yushchenko may have been trying to exploit the perceived tensions between Putin and Medvedev to his advantage.
If so, it didn't work.
"What we're seeing is that whenever it comes to an issue of policy, it's Medvedev who makes a broad statement of principle, but Putin who actually closes the final agreement," says Sam Greene, deputy director of the Carnegie Center in Moscow.
"Putin is clearly the decider," he says.