Russia and Ukraine struck a complex deal yesterday to end a bitter gas dispute that has sent a shudder across Europe, where the jolt to supplies has left nations questioning their reliance on Russian supplies.

The five-year accord on pricing ensures deliveries to Ukraine and, through its transit pipeline network, to the rest of Europe. News of the deal was welcomed by the oil market, where prices fell in New York and London, and by the European Union which had been concerned about the potential fallout for major Russian gas importers such as Germany.

Russian President Vladimir Putin said the agreement created "stability for European consumers in the long term." "I am convinced the resolution of this difficult problem in the sphere of gas will have a positive influence on the whole spectrum of Russian- Ukrainian relations," he told a news conference.

The deal was hailed by Ukrainian President Viktor Yushchenko, who said his country was "completely ready for new market conditions."

Officials from Russian energy giant Gazprom and its Ukrainian counterpart Naftogaz unveiled the agreement after talks in Moscow, and it took immediate effect.

Gazprom controls a third of the world's natural gas reserves, and the vast majority of its deliveries to Europe-France, Poland and Italy are other big importers-pass through Ukraine. The dispute had reached a head Sunday when Gazprom switched off deliveries to Ukraine after Kiev rejected a huge price hike.

It had the knock-on effect of reducing supplies to Europe, which relies on Russia for a quarter of its gas needs. Some countries reported a fall of up to 40 per cent in deliveries Monday.

Gazprom pledged to plug the gap, and by Wednesday gas was flowing normally again.

Under the accord, Kiev will buy gas at a rate of 95 dollars (79 euros) per 1,000 cubic metres (about 2.75 dollars per 1,000 cubic feet).