On the battlefield in Ukraine, not much changed last week (or in the weeks before it), as Russia continues its costly assault on Prokrovsk, appears stalled in Kupiyansk, while making incremental territorial gains especially in Zaporizhia in Southern Ukraine and continuing its daily air assaults across Ukraine. Rather, the relevant developments took place in the diplomatic realm where the Trump Administration continued its de facto shuttle diplomacy by meeting with both Ukrainian delegations in Miami and sending a high-level US government delegation to Moscow. Perhaps most importantly, the positioning among Ukraine’s European allies continued in the run-up to what remains the strong policy base case, namely that the EU (and likely the UK and possibly Canada contributing) will approve the Reparation Loan to Ukraine, fully funding Ukraine’s war effort until at least the end of 2027.
The Trump Administration’s peace diplomacy continues, as a US delegation led by Steve Witkoff and Jared Kushner met senior Ukrainian officials for the sixth time in the last two weeks, and noticeably this time issued a joint statement, summarizing the state of negotiations. This statement is worth contemplating in some detail to see where we stand in the talks between Washington and Kyiv:
“The participants discussed the results of recent meeting of the American side with the Russians and steps that could lead to ending this war. The American and Ukrainians also agreed on the framework of security arrangements and discussed necessary deterrence capabilities to sustain a lasting peace.
Both parties agreed that real progress toward any agreement depends on Russia’s readiness to show serious commitment to long-term peace, including steps toward de-escalation and cessation of killings.
Parties also separately reviewed the future prosperity agenda which aims to support Ukraine’s post-war reconstruction, joint U.S.–Ukraine economic initiatives, and long-term recovery projects.
American and Ukrainian parties underscored that an end to the war and credible steps toward ceasefire and de-escalation are necessary to prevent renewed aggression and to enable Ukraine’s comprehensive redevelopment plan, designed to make the nation stronger and more prosperous than before the war.”
Ukraine has clearly endorsed the US role of intermediary with Russia, hence for the time being eliminating the need for direct high-level Russia-Ukraine negotiations (continued POW exchanges are often negotiated and facilitated by other third country mediators), and evidently the core issues of security guarantees and the size of Ukraine’s armed forces were on the table. At the same time, the joint statement pointedly does not mention anything about territorial issues, arguably the hardest point to agree, implicitly highlighting that these US-Ukraine negotiations are unlikely to be close to a successful conclusion. As always – nothing is agreed until everything is agreed.
It is further noteworthy that the US delegation agrees that “real progress” can only be achieved if Russia is ready to show commitment to peace – this seemingly reflects that Putin did not offer such commitment at his meeting with the U.S. delegation in Moscow. Again, these do not seem like negotiations at the cusp of success. That joint U.S.-Ukraine economic initiatives were also discussed once again underlines the clear commercial interest of the Trump Administration in the successful conclusion of negotiations, though one might doubt that Vladimir Putin would ever agree to any negotiated outcome “designed to make [Ukraine] stronger and more prosperous than before the war.” In sum, it remains positive that actual substantive negotiations have commenced, but they do not look likely to yield any concrete outcomes in the near term.
Of more immediate importance for Ukraine and the EU in the long-run, Brussels took two important decisions this week. First, the EU agreed gradually but permanently end of Russian gas imports with LNG imports phased out by 31 December 2026 and pipeline gas by 30 September 2027. Individual EU members may exceptionally extend this deadline until 31 October 2027 in case their storage levels are below the required filling levels. This completes the EU’s gradual exit from all Russian fossil fuel import, as coal has already dropped from 2022 to now in 2025 from 50 percent of the total to zero, crude oil from 27 percent to 3 percent (accounted for by exemptions to Hungary, Slovakia and Croatia mostly), and natural gas from 45 to 19 percent (accounted for mostly by rising LNG import).
This decision – which is unrelated to the EU’s sanctions on Russia and instead concerns the EU’s long-term energy supply strategy (and can be taken without unanimity) – should permanently banish the idea that Russian direct fossil fuel exports to the EU through a repaired NordStream2 pipeline or any other channel can ever be restarted. It cannot, and by late 2027 Russia will have lost its main energy export market forever. It can be argued that over five years will have passed since Russia invaded Ukraine to the EU finally eliminates its fossil fuel payments to Russia, but fundamentally altering the energy supply of an entire region is not done overnight, especially when the region in question has very few exploitable domestic fossil fuel resources. And depriving Russia of European energy export proceeds forever will materially weaken Moscow’s long-term economic potential and hence its future military capabilities, underlining the unalterable national security reasoning behind the EU’s decision.
That TTF prices continued to fall last week following the decision – now down from £42/MWh in early December 2024 to around €27/MWh today – will further strengthen the EU’s resolve. Continuously falling LNG spot prices in Europe will also likely undermine the legal argument raised by the governments of Hungary and Slovakia in their immediate legal challenge to the EU’s decision at the European Court of Justice. Here Hungary and Slovakia argue that “banning Russian oil and gas imports would make the secure energy supply of Hungary and Slovakia impossible and would lead to dramatic price increases“, a point difficult to sustain with low and falling natural gas prices across the EU (and a flat forward curve), unless of course these two governments actually receive their current natural gas supplies from Russia at prices far below what is publicly known, allowing both to earn a hidden profit on ongoing energy imports from Russia. This law suit will hence almost certainly not succeed, but in launching it Budapest and Bratislava highlights the importance and force of the EU’s decision to end all fossil fuel imports from Russia.
Lastly, the EU has entered into the final lap of negotiations regarding its commitment to fund Ukraine’s war effort for at least 2026 and 2027. The European Commission has revealed its long-awaited legal proposal for the up to €210bn loan, split between €95bn in macroeconomic assistance (of which €45bn has already been committed towards repayment of this year’s G7 ERA loan), and €115bn to support Ukraine’s defense industrial capacities during 2026 and 2027. This is in other words money overwhelmingly aimed at militarily supporting Ukraine. Crucially, the final political negotiations among EU leaders have also begun, with a closed-door meeting between the main holdout against the loan in Belgian Prime Minister Bart De Wever, and Commission President Ursula von der Leyen and German Chancellor Friedrich Merz on Friday evening. Only Ursula von der Leyen commented publicly on the content of the meeting, noting that the three had “a very constructive exchange on this matter” and as expected “agreed to continue our discussions with the aim of reaching a consensus at the European Council meeting on December 18.”
While undoubtedly fierce haggling remains in the coming week and a half, it nonetheless remains the strong policy base case that the (possibly in amended form) loan will be approved by EU leaders on December 18th. The EU has no credible short-term financial alternative routes to finding the required assistance to Ukraine, as Hungary’s Viktor Orban predictably blocked an alternative solution in the form of Eurobond issuance to finance Kyiv. That neither Bart de Wever or Friedrich Merz have publicly commented on the content of the meeting certainly suggests that everyone knows what is at stake for both Ukraine and all of the EU. Friedrich Merz has repeatedly put his personal political prestige and capital at risk in promoting the Reparation Loan idea – lastly in the form of an Op-Ed in the German Newspaper Frankfurter Allgemeine last week with the title “We Currently Decide the Future of Europe“, and historically in “EU money matters” it has always been a bad idea to bet against the expressed desire of Germany’s Chancellor.
Jacob
