Oil & Gas

Russian gas no longer flows to European Union states through Ukraine, marking the end of an energy route that has been active since the Soviet Union's collapse in 1991. This development follows the expiration of a five-year transit deal, with Ukrainian President Volodymyr Zelensky stating that Russia can no longer "earn billions on our blood." Ukraine’s energy minister, Herman Halushchenko, confirmed the cessation of gas flows, citing national security concerns, and emphasized the significant financial losses Russia will face as a result.

The transit deal allowed Russian gas to reach European countries like Hungary, Slovakia, and Austria through Ukraine’s pipelines. While gas can still flow to Europe via the Turkstream pipeline, the closure of the Ukrainian route has reduced Russian gas imports to the EU by approximately 14 billion cubic meters annually. The European Commission has expressed confidence that this loss can be mitigated by increased liquefied natural gas (LNG) imports and pipeline supplies from countries like Norway and the United States. However, regions like Moldova, particularly the breakaway Transnistria area, are already feeling the strain, with households facing heating and hot water shortages.

The financial impact of this development is significant for both Ukraine and Russia. Ukraine earned $800 million annually from transit fees under the previous agreement, while Russia is expected to lose €5 billion annually due to the reduced gas exports. Gazprom, Russia’s state-owned energy giant, has faced severe financial setbacks since the invasion of Ukraine, including a net loss of £5.5 billion in 2023. These losses highlight the broader decline in Russia’s gas revenue, which fell by 40% in 2023, with additional revenue drops anticipated due to the cessation of the Ukraine transit route.

Russia’s reliance on oil and gas revenue, which accounts for a substantial portion of its federal budget, underscores the stakes of this development. While gas exports to China and other nations continue, they are less profitable compared to European markets. Additionally, investigations suggest that Russian oil still reaches the EU through indirect channels, despite sanctions. The end of gas transit through Ukraine not only disrupts Russia’s financial resources but also reduces its leverage over European energy markets, marking a critical shift in the geopolitical energy landscape.