Putin, Poroshenko to discuss Ukraine peace, gas supplies in Milan

A Kremlin statement issued late on Tuesday said the Ukrainian and Russian presidents had spoken by telephone and discussed measures to restore peace in eastern Ukraine.

Their forthcoming meeting in Milan is an encouraging sign for Moscow, Kiev and the West, who are balancing on the brink of a new gas rift following Russia's decision to cut supplies to Ukraine because of mounting debt.

Ukraine faces possible energy shortages this winter if no deal is reached, which in turn risks causing disruptions to Europe's gas supplies -- as happened in 2006 and 2009. Europe receives a third of its gas needs from Russia, around half of which is pumped via Ukraine.

The Russian and Ukrainian leaders will continue their discussions on the sidelines of a summit of European and Asian leaders that they are both attending in Milan on Oct. 16-17.

Ukraine's president said on Wednesday "the whole world has high expectations" of their expected face-to-face meeting.

A senior Kremlin aide said on Wednesday that Putin and Poroshenko could meet in the presence of German Chancellor Angela Merkel and French President Francois Hollande on Friday and did not rule out that the two post-Soviet leaders might hold a separate meeting afterwards.

Yuri Ushakov said Putin will also meet Merkel one-on-one on Oct. 16 upon arrival in Milan, ahead of the main Ukraine talks.

Russian natural gas producer Gazprom cut supplies to Ukraine in June after Kiev failed to pay gas debts which Russia says have now reached more than $5 billion.

"I think that the meeting in Milan will bring a breakthrough in the gas sphere," said Mikhail Pogrebinsky, a Kiev-based political analyst. "Russia will eventually sell gas to Ukraine, after Ukraine pays a symbolic part of its debt, this will allow Ukraine not to freeze in winter."

Officials from Russia and the European Commission, which is mediating the talks, say a deal could be near. Poroshenko said on Saturday he hoped for "significant progress" on the issue during the talks in Milan.

Efforts to reach an agreement have been complicated by the conflict in eastern Ukraine. Ukraine and the West accuse Russia of providing pro-Russian separatists there with extra troops and weapons, a charge Moscow denies.

The conflict has caused the worst standoff in Moscow's relations with the West since the Cold War, with the United States and European Union imposing sanctions on Russia over the crisis.

Deep divisions remained between Washington and Moscow after talks between U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov in Paris on Tuesday.

(Reporting by Vladimir Soldatkin, Pavel Polityuk and Richard Balmforth in Kiev,; Writing by Katya Golubkova and Alexei Anishchuk, Editing by Timothy Heritage and Crispian Balmer)