Land for gas: Merkel and Putin discussed secret deal could end Ukraine crisis

Merkel and Putin negotiate to trade Crimea’s sovereignty for guarantees on energy security and trade

Russian President Vladimir Putin shakes hand with German chancellor Angela Merkel, during a meeting last month (Getty Images)

Germany and Russia have been working on a secret plan to broker a peaceful solution to end international tensions over Ukraine.

The Independent can reveal that the peace plan, being worked on by both Angela Merkel and Vladimir Putin, hinges on two main ambitions: stabilising the borders of Ukraine and providing the financially troubled country with a strong economic boost, particularly a new energy agreement ensuring security of gas supplies.

More controversially, if Ms Merkel’s deal were to be acceptable to the Russians, the international community would need to recognise Crimea’s independence and its annexation by Russia, a move that some members of the United Nations might find difficult to stomach.

Sources close to the secret negotiations claim that the first part of the stabilisation plan requires Russia to withdraw its financial and military support for the various pro-separatist groups operating in eastern Ukraine. As part of any such agreement, the region would be allowed some devolved powers.

At the same time, the Ukrainian President would agree not to apply to join Nato. In return, President Putin would not seek to block or interfere with Ukraine’s new trade relations with the European Union under a pact signed a few weeks ago.

Second, Ukraine would be offered a new long-term agreement with Russia’s Gazprom, the giant gas supplier, for future gas supplies and pricing. At present, there is no gas deal in place; Ukraine’s gas supplies are running low and are likely to run out before this winter, which would spell economic and social ruin for the country.

As part of the deal, Russia would compensate Ukraine with a billion-dollar financial package for the loss of the rent it used to pay for stationing its fleets in the Crimea and at the port of Sevastopol on the Black Sea until Crimea voted for independence in March.

However, these attempts by Ms Merkel to act as a broker between President Putin and Ukraine’s President, Petro Poroshenko, were put on the back-burner following the shooting down of the MH17 plane in eastern Ukraine.

But insiders who are party to the discussions said yesterday that the “German peace plan is still on the table and the only deal around. Negotiations have stalled because of the MH17 disaster but they are expected to restart once the investigation has taken place.”

“It is in everyone’s interests to do a deal. Hopefully, talks will be revived if a satisfactory outcome can be reached to investigations now taking place as to the causes of the MH17 catastrophe.”

Closer trading ties with the EU have been one of the big ambitions of Mr Poroshenko’s presidency. He has been a staunch supporter of the country’s pro-European movement even though he is unaffiliated to any political party. He was one of the backers of the 2004 Orange Revolution and served as Foreign Minister under Yulia Tymoshenko.

A spokesman for the Foreign and Commonwealth Office said they had no knowledge of such negotiations taking place. However, the spokesman said he thought it highly unlikely that either the US or UK would agree to recognising Russian control over Crimea. There was no one available at the German embassy’s press office yesterday.

Reaching a solution to the ongoing dispute is pertinent for the Germans as Russia is their single biggest trading partner. Under Ms Merkel, the Russo-German axis has strengthened significantly and, until the plane shooting, her government had been staunchly against punitive sanctions for commercial but also diplomatic reasons.

Such strong trade ties between the two countries have also served to strengthen Ms Merkel’s hand and the Russian speaker has emerged as the leading advocate of closer relations between the EU and Russia. “This is Merkel’s deal. She has been dealing direct with President Putin on this. She needs to solve the dispute because it’s in no one’s interest to have tension in Ukraine or to have Russia out in the cold. No one wants another Cold War,” said one insider close to the negotiations.

Some of Germany’s biggest companies have big operations in Russia, which is now one of Europe’s biggest car markets, while many of its small to medium companies are also expanding into the country. Although Russia now provides EU countries with a third of their gas supplies through pipelines crossing Ukraine, Germany has its own bilateral gas pipeline direct to Russia making it less vulnerable than other European countries.

Ukrainian troops take up a position near the eastern city of Debaltceve, in the region of Donetsk (Getty) (Getty Images)

However, Russia is still the EU’s third-biggest trading partner with cross-border trade of $460bn (£272bn) last year, and the latest sanctions being introduced by the EU towards Russian individuals and banks will hurt European countries more than any other – particularly Germany, but also the City of London.

Central to the negotiations over any new gas deal with Gazprom is understood to be one of Ukraine’s wealthiest businessmen, the gas broker, Dmitry Firtash. Mr Firtash – who negotiated the first big gas deal between Ukraine and Russia between 2006 and 2009 – is now living in Vienna fighting extradition charges from the Americans. But he has close relations with the Russian and Ukrainian leaders – he supported Mr Poroschenko – and has been acting as a go-between behind the scenes at the highest levels.