Gazprom ukraine
Gazprom refused to soften its position in the latest round of trilateral talks between the EU, Gazprom and Ukraine to resolve the gas dispute.

Instead Gazprom just stuck to the offer it made back in June.

The offer remains $385 per 1,000 cubic meters for 6 months. This is the same price it offered to go down to in June when Ukraine rejected it. Technically the offer is a discount of $100 per 1,000 cubic meters. The contractual price remains $485 per 1,000 cubic meters. At the end of the 6 month period the $100 per 1,000 cubic meters discount ends and the price reverts to the full contractual price of $485 per 1,000 cubic meters.

What has changed since June is that the EU now seems to be backing Gazprom's offer.

Under the deal proposed Ukraine in return for the discount must pay down its debt to Gazprom by at least $2 billion by no later than October and by $3.1 billion by the end of the year. This in addition to its prepayments at the discounted price of $385 per 1,000 cubic meters for gas actually received.

Payment of the balance of Ukraine's gas debt (which now stands at approximately $5.3 billion) is to be deferred until the end of the case before the Stockholm Arbitration Tribunal, which will rule on Ukraine's claim for a reduced price.

Ukraine needs approximately 5-12 billion cubic meters of gas to get through the winter months. In order to see Ukraine through the winter the EU is pressing Ukraine to accept the offer and use the latest $3.1 billion tranche from the IMF loan to reduce its debt. If agreement is reached next week it will be confirmed by through a legally binding Protocol.

Whether Ukraine will heed the EU's advice is another matter. Ukraine has consistently refused to use any part of the IMF loan to pay off its gas debt. Also the offered discounted price of $385 per 1,000 cubic meters is much more than Ukraine so far has been willing to pay. Possibly sensing Kiev's resistance to the deal EU Energy Commissioner Oettinger has warned that disruptions in gas supplies to the EU are possible due to the ongoing dispute.

Ukraine's gas debt is emblematic of the state of its economy with its currency plummeting and its sovereign debt rising.

Perhaps the EU should have considered more carefully the risk of supply disruptions and the potential economic cost of encouraging Ukraine to pursue its "European path". Ukraine for its part will have to endure years of austerity if it continues to aspire to a "bright European future". Time will tell whether the sacrifices are worth it. One thing however is certain. Russia will not finance Ukraine's European dream.