Situation on the ground

• Hopes of a ceasefire increased as Russia signalled it would reduce the intensity of the attacks in Kyiv. Russian negotiator Vladimir Medinsky said the discussions with Ukraine were constructive and confirmed Russia would take steps to de-escalate, including easing military activity around Kyiv.
• However, this does not mean a cease-fire is near. Shelling near the Donbass and in the south of Ukraine remains intense as Russia urges Mariupol to surrender. In addition, nothing guarantees that the Russians will follow what they said. For example, this could be a pause to feed the front lines with ammunition and food.
• The conditions for a cease-fire do not seem to have changed. Whilst Ukraine agrees on military neutrality, as long as supported with security guarantees by the West, the status of Crimea and the separatist regions in Donbass are still contentious points.
• Russia is also trying to keep a military presence in Ukraine for two-years following cease-fire, a condition that will be hard to swallow for Ukrainians.
• Monitoring Russian progress in Odesa and Kyiv will be key over the next weeks. A frozen conflict would lower the likelihood of an EU embargo on energy imported from Russia and could allow more farming activity in Ukraine.

Market update

• Russia continues to insist that it what it terms as unfriendly countries should pay for their natural gas imports in RUB. The weak negotiating position of EU companies highlights the challenging situation.
• On one hand, an embargo on Russian energy imports may well lead to a severe recession in Europe and still not necessarily support a cease-fire in the short term. On the other hand, EU energy purchases allows Russia to keep fighting the Ukrainian war for a longer period.
• Germany continues to debate whether it should continue to purchase energy from Russia, and if it can afford to impose an embargo on energy imports from Russia.
• Prime Minister Olaf Scholz harshly said economists were wrong in saying Germany could not withstand the impact of sanctions on Russian energy imports. 
• Putin signed an order demanding buyers of gas to open accounts in Russian banks.
• Sources indicated Putin Scholz and Putin agreed for energy trade in Euros as long as settled by Gazprombank.
• Bloomberg reported Russia offered Ural grade crude oil at a USD 35 discount to India. Sanctions do not prevent any country from buying oil from Russia.
• Former German Finance Minister Wolfgang Schauble said people sometimes had to make significant sacrifices for their way of life and their freedom.
• Germany set up a crisis team to prepare for gas shortages on fears of disruptions from energy deliveries from Russia.