Ukraine and Russia yesterday announced a landmark deal to extend the lease of a Russian naval base in Crimea by 25 years in exchange for Kiev receiving a huge discount on gas imports.
The deal, announced after talks between President Viktor Yanukovych and his Russian counterpart Dmitry Medvedev, is the most substantive result yet of the warming in Kiev-Moscow ties after Mr Yanukovych's election in February.
"The decision that has been taken is without precedent in the history of our relations," Mr Yanukovych said after the talks in the northeastern Ukrainian city of Kharkiv, barely 50 kilometres from the Russian border.
The meeting saw the signing of agreements granting Ukraine a discount of around 30 per cent on Russian gas imports and extending the lease of the Russian naval base for at least another quarter-century.
"Russia has won again and outplayed Ukraine on gas," said analyst Volodymyr Fesenko, head of the Penta political research centre in Kiev. "The problem is the lease is very long. Ukraine will have Russian influence for a long time."
Cash-strapped Ukraine was pushing to pay less for Russian gas to help keep down its budget deficit in line with International Monetary Fund conditions for receiving the next disbursement of a crucial loan package.
Russia meanwhile has been working hard to secure the future of its Black Sea fleet base in the Crimean port of Sevastopol in southern Ukraine - a strategic facility for Russia's military - when the current lease expires in 2017.
"Our Ukrainian partners will receive a discount on the gas price which will amount to $100 dollars if the price (per 1,000 cubic metres) exceeds $330 or if the price is lower will amount to 30 per cent," Mr Medvedev said.
Mr Yanukovych said the gas deal would be worth $40 billion to Ukraine over the next 10 years.
The gas deal was signed by the heads of the Russian and Ukrainian state gas firms, but the accord on the Black Sea fleet was personally inked by the two Presidents.
"We signed an agreement which says that the period of the presence of the Russian base is extended by 25 years," said Mr Medvedev, adding there was also the option of a further five-year extension.
"This was a step we have awaited for a long time," said Mr Medvedev.
The clearly delighted Russian President also made clear that the two agreements on gas and the Black Sea fleet were linked.
"The gas discount will be considered as part of the rent for the presence of our military base in Sevastopol," he said.
Gas remains a hugely sensitive issue between Moscow and Kiev after a bitter row in January 2009 led to Russia turning off the taps to Ukraine, which in turn left many European countries short of gas.
The accords immediately aroused the ire of Ukraine's pro-Western politicians, who have repeatedly accused Mr Yanukovych of seeking to sell out Ukrainian national interests to Moscow.