On New Year’s Day, Ukraine officially cut off the flow of Russian natural gas to several European countries, marking the end of Moscow’s long-standing dominance over Europe’s energy markets. The move, which had been widely anticipated, comes as the five-year transit agreement between Russia and Ukraine expired without renewal amid the ongoing war between the two nations.
At around 8 a.m. local time on Wednesday, Russian state energy giant Gazprom confirmed that gas exports to Europe through Ukrainian pipelines had stopped. This development, following over three decades of Russian gas transit via Ukraine, underscores the shifting energy dynamics in Europe as the EU continues its push to reduce reliance on Russian supplies.
Ukrainian President Volodymyr Zelenskyy made clear last month that Kyiv would not extend the gas transit deal, stating, “We will not give a chance to earn additional billions with our blood.”
While Russia still has the TurkStream pipeline, which supplies gas to Hungary, Serbia, and Türkiye, the stoppage of the Ukrainian route deals a significant blow to Gazprom. Ukraine is estimated to lose $1 billion a year in transit fees, while Gazprom could see a $5 billion hit in lost gas sales.
Europe braces for impact
The European Commission assured its 27 member states that preparations were in place to address the cessation of Russian gas flows through Ukraine. However, the impact will be felt unevenly across the continent. Slovakia, Austria, and Moldova are the most vulnerable nations, as they relied heavily on Russian gas transit through Ukraine in 2023.
Austria, which imported 5.7 billion cubic meters of gas via Ukraine last year, has expressed confidence in its preparedness for the shutdown. Moldova, on the other hand, declared a 60-day state of emergency last month to address energy security concerns. Meanwhile, Slovakia’s Prime Minister Robert Fico warned that the termination of the transit deal could have a “drastic” impact on the EU while sparing Russia from significant harm.
Fico, a vocal critic of EU support for Ukraine in the war, even threatened to cut electricity supplies to Ukraine in retaliation. Just before Christmas, Fico made a surprise visit to Moscow to meet with Russian President Vladimir Putin, further complicating regional dynamics.
A “historic event” for Ukraine
Ukrainian Energy Minister Herman Galushchenko described the end of Russian gas transit through Ukraine as a “historic event,” signaling a broader shift in Europe’s energy landscape.
“Russia is losing markets, it will suffer financial losses,” Galushchenko said in a Telegram message. He connected the decision to the EU’s broader push for energy independence, citing the Repower EU initiative, which aims to reduce reliance on Russian energy in favor of alternative sources.
Polish Foreign Minister Radek Sikorski also hailed the development as a political victory, accusing Putin of using gas supplies as a weapon to blackmail Eastern Europe.
Europe’s gas reserves and alternatives
Despite the disruption, Europe appears well-positioned to weather the immediate impact of the shutdown. Data from Gas Infrastructure Europe shows that EU gas storage facilities are approximately 73% full, with Germany—Europe’s largest gas consumer—at nearly 80% capacity.
To make up for the lost volumes, the EU will likely turn to liquefied natural gas (LNG) imports. Christoph Halser, a gas and LNG analyst at Rystad Energy, estimated that the bloc will need an additional 7.2 billion cubic meters of gas from the global LNG market. Terminals in Germany, Poland, Lithuania, and Italy could redirect these volumes to countries like Slovakia and Austria, which are most affected by the transit halt.
Market reaction and future outlook
Henning Gloystein, head of energy, climate, and resources at Eurasia Group, noted that the stoppage was widely expected and that the EU had taken steps to prepare for such a scenario.
“The expiration of the deal does not threaten the EU’s winter energy security,” Gloystein said, pointing to mild winter weather and EU importers’ efforts to diversify supplies.
However, gas prices could remain volatile in the coming months, influenced by both geopolitical developments in the Russia-Ukraine war and European weather conditions. Early Thursday, the price of gas at the Dutch TTF hub, a key European benchmark, rose by 1.2% to €49.49 ($50.78) per megawatt hour.
Gloystein also highlighted the possibility of political negotiations between EU member states, Russia, and Ukraine to allow some resumption of supplies. However, he noted that no progress had been made in talks as of the end of 2024.
Broader implications
The end of the gas transit deal represents a turning point in Europe’s energy strategy. With Russian gas flows dwindling, the EU has accelerated its transition to renewable energy and alternative suppliers. However, the shift has not been without challenges, as some member states remain more vulnerable than others to supply disruptions.
Ukraine’s decision to halt Russian gas transit underscores its commitment to reducing Moscow’s influence, even at a significant financial cost. For Russia, the loss of billions in gas sales comes as it faces mounting economic pressure from Western sanctions and the ongoing conflict in Ukraine.
As Europe adjusts to a new energy reality, the long-term implications of this historic shift will continue to reshape the continent’s geopolitical and economic landscape.
