Discord at the EU-brokered gas talks comes as Ukrainian Prime Minister Arseniy Yatsenyuk and President Petro Poroshenko dispute who should lead coalition talks after the Oct. 26 parliamentary election gave their respective parties the most votes.

Russia and Ukraine failed to clinch an agreement on winter gas supplies as the Kremlin said it wants the European Union to guarantee payments as Russian warplanes flew military maneuvers on NATO borders.

Discord at the EU-brokered gas talks comes as Ukrainian Prime Minister Arseniy Yatsenyuk and President Petro Poroshenko dispute who should lead coalition talks after the Oct. 26 parliamentary election gave their respective parties the most votes.

“The Russians feel they can deal with Poroshenko but not with Yatsenyuk,” Joerg Forbrig, senior program officer for central and eastern Europe at the Berlin Bureau of the German Marshall Fund of the U.S., said by phone. “The Kremlin will drag out the gas talks in order to weaken Yatsenyuk. Winter is coming and the gas he needs isn’t there.”

The tensions are hindering an effort to install a new government to steer the nation of 43 million people as it struggles with the seven-month insurgency in the east and its worst recession since 2009. That’s rekindling memories of the squabbles that dogged the camps of President Viktor Yushchenko and Prime Minister Yulia Tymoshenko after the 2004 Orange Revolution.

“We’ve seen this once in a horrible, ugly way,” Vira Nanivska, president of International Center for Policy Studies, said by phone from Kiev. “The risk that it may happen again isn’t a risk anymore as it’s turning into reality.”

Bonds Fall

Ukrainian government bonds fell as of 11:33 a.m. in Kiev after rising for nine days, pushing yield up by seven basis points to 13.44 percent, data compiled by Bloomberg show. The hryvnia weakened to 13.03 per dollar from 13 yesterday.

Talks in Brussels aimed at an interim deal to resume gas deliveries from Russia to Ukraine broke up early this morning after failing to reach an agreement. Russia cut off gas to Ukraine in June over unpaid bills. The Russian Energy Ministry said negotiations may resume today and that Russia is waiting for the EU to give Ukraine financial guarantees for gas.

European Commission President Jose Barroso said today a deal is “within reach.” The EU is eager to clinch an agreement because the 28-nation bloc gets 15 percent of its Russian gas supply via pipelines going through Ukraine.

Ukraine and the EU are seeking to avoid a repeat of 2006 and 2009, when disputes over gas volumes and prices prompted Russian exporter OAO Gazprom (GAZP) to cut supplies, leading to shortages across Europe amid freezing temperatures.

‘Doomed to Deal’

“We are doomed to deal with Ukraine,” Karl-Heinz Kamp, academic director at the German government’s Federal Academy for Security Policy in Berlin, said in an interview. “Someone has to pay their energy bills because if they freeze they will all come to us.”

Yatsenyuk said he should lead coalition talks rather than Poroshenko after an almost final tally showed his People’s Front with a narrow lead in party-list voting. Setting aside an agreement delivered by Poroshenko to Yatsenyuk’s party and the third-placed Samopomich, the premier said his bloc would draw up its own coalition framework and invite more parties to seal a pact within 20 days.

Pro-European parties may have won enough seats to gain a two-thirds constitutional majority, defeating Russian-leaning political forces that hail from the nation’s war-ravaged east. The vote took place during a fragile truce in the pro-Russian rebellion that Ukraine, the U.S. and the EU blame President Vladimir Putin’s government for instigating. Russia denies all involvement.

Look Elsewhere

The People’s Front had a razor-thin lead over the Poroshenko Bloc, 22.16 percent to 21.82 percent of the party-list voting that makes up half of the legislature, with 99.53 percent of votes counted, according to the Central Electoral Commission. Lviv Mayor Andriy Sadovyi’s Samopomich party was third with 10.99 percent.

Ukrainians also voted for candidates -- some backed by parties, some independent -- in the single-seat constituencies that make up the other half of the assembly. Members of Poroshenko’s party were ahead in 63 of those 198 races, which Deputy Premier Volodymyr Hroisman said yesterday would give the president’s party the most members in parliament.