Russia offers Ukraine $160/tcm gas to join Customs Union

Ukrainian Prime Minister Mykola Azarov said Russia would offer a gas price of USD 160/tcm if Ukraine joins the Russian-led Customs Union. Azarov said that in general the customs union would be in Ukraine’s interests since about 40% of trade is currently executed with union members Belarus, Russia and Kazakhstan, compared to 30% with the European Union. Azarov reiterated that Ukraine would rather not choose between exclusive trade agreements with Russia or the EU, but work in both vectors. Ukrainian officials have said the country expects to pay USD 432/tcm for Russian gas in 4Q12.

Brad Wells: This marks one of the first times that a specific number has been tossed around for Russian gas in exchange for entrance into the Customs Union – though such a swap has been rumored for some time. We regard this as a bit of a fishing expedition at this point – with Azarov testing the waters for popular reaction to a potential deal – nothing seems to be imminent. At the same time, we do not believe that the Ukrainian government is seriously considering full membership in the Customs Union due to the negative political baggage involved in making such a move, though a 3+1 arrangement with a limited/junior status for Ukraine could happen.