Russia and Ukraine resolved a dispute over gas prices yesterday that had severely disrupted supplies to several EU states earlier this week.

Oil prices fell 54 cents to $62.60 a barrel following the announcement of the five-year deal on gas prices as concerns eased over the potential threat to Europe's gas imports.

The EU welcomed the agreement but also signalled that the disruption to natural gas imports on New Year's Day to states such as France and Austria called for a major rethink of its energy policy.

Austrian energy minister Martin Bartenstein said Russian gas would remain the backbone of Europe's energy supply mix.

But he said lessons had to be learned from the dispute between the Ukraine and Russia, which resulted in gas imports to one EU state dropping to 50 per cent below their normal levels earlier this week.

"We have to think about energy supply security in general, gas supply security," said Mr Bartenstein, who represented the EU presidency Austria at an emergency meeting on the issue in Brussels.

Energy supply will now be placed on the agenda of an EU summit scheduled for March and the commission intends to publish a new paper on energy policy in the spring.

The EU relies on imports of natural gas for about a quarter of its current supply. However, this is set to rise to 75 per cent by 2020 as North Sea gas stocks run low.

Yesterday's complex deal will see Ukraine pay an average price of $95 per 1,000 cubic metres of gas to Russia, compared to a price of $50 last year. Ukraine will also be paid 47 per cent more for transporting Russian gas to Europe over its pipelines.

Both sides claimed victory in the dispute, which had a hard political edge following the Orange revolution that swept the pro-EU Viktor Yushchenko into power against a pro-Russian candidate.

Russian president Vladimir Putin said the deal created stable conditions for long-term Russian gas supplies to Europe.

However, EU energy commissioner Andris Piebalgs said the bloc's new energy paper would focus on measures to provide security of supply of oil and gas and create a common EU approach to energy issues.

His comments followed an emergency meeting of EU experts on natural gas supply called to discuss the Ukraine- Russia dispute.

This group will now be placed on a permanent footing to monitor gas supplies and review EU policy in the field, said Mr Piebalgs.

It is anticipated that the EU will now seek to diversify gas transit routes by building new gas pipelines while also sourcing more gas from different states, such as Norway and Algeria.

It is also likely to try to step up efforts to boost energy efficiency and the use of renewable energy sources to reduce the bloc's dependency on gas and oil imports.

However, a previous attempt by the EU to extend its power in the field of energy supplies met with only limited success.

In 2004, a directive specifically intended to give the EU new powers to co-ordinate an emergency response to gas supply disruption was watered down by member states, said Mr Piebalgs.