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 of European 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 8am local time on Wednesday, Russian state energy giant Gazprom confirmed that gas exports to Europe via Ukrainian pipelines had stopped. This development, which follows more than three decades of transit of Russian gas through Ukraine, highlights changing energy dynamics in Europe as the EU continues to push to reduce dependence on Russian supplies.
Ukrainian President Volodymyr Zelenskyy made clear last month that Kiev would not extend the gas transit deal, saying: “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 disruption of the Ukrainian route deals a major blow to Gazprom. It is estimated that Ukraine will lose $1 billion a year in transit fees, while Gazprom could see a $5 billion drop in lost gas sales.
Europe prepares for the impact
The European Commission has assured its 27 member states that preparations are 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 have relied heavily on the transit of Russian gas through Ukraine in 2023.
Austria, which imported 5.7 billion cubic meters of gas through Ukraine last year, 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, Slovak Prime Minister Robert Fico warned that terminating the transit deal could have a “drastic” impact on the EU, sparing Russia significant damage.
Fico, a strong critic of the EU's support for Ukraine during the war, even threatened to cut electricity supplies to Ukraine in retaliation. Just before Christmas, Fico made a surprise visit to Moscow to meet 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, will suffer financial losses,” Galushchenko said in a Telegram message. He linked the decision to the EU's broader push for energy independence, citing the Repower EU initiative, which aims to reduce dependence 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.
Gas reserves and alternatives in Europe
Despite the disruption, Europe appears well positioned to withstand the immediate impact of the lockdown. Data from Gas Infrastructure Europe shows the EU's gas storage facilities are about 73% full, with Germany, Europe's largest gas consumer, at almost 80% of capacity.
To make up for lost volumes, the EU will likely turn to imports of liquefied natural gas (LNG). Christoph Halser, gas and LNG analyst at Rystad Energy, estimated that the block 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 such as Slovakia and Austria, which are most affected by the transit stoppage.
Market reaction and future prospects
Henning Gloystein, head of energy, climate and resources at the Eurasia Group, noted that the disruption was widely expected and that the EU had taken measures to prepare for such a scenario.
“The expiry of the deal does not threaten the EU's winter energy security,” Gloystein said, highlighting the mild winter weather and efforts by EU importers 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. Late Thursday, the price of gas at the Dutch TTF hub, a key European benchmark, rose 1.2% to 49.49 euros ($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 as of the end of 2024, no progress had been made in the talks.
Wider implications
The end of the gas transit agreement represents a turning point in European energy strategy. As flows of Russian gas have declined, the EU has accelerated the transition to renewable energy and alternative suppliers. However, the change has not been without challenges, as some Member States remain more vulnerable than others to supply disruptions.
Ukraine's decision to stop the transit of Russian gas underlines 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 growing economic pressure from Western sanctions and the ongoing conflict in Ukraine.
As Europe adapts to a new energy reality, the long-term implications of this historic shift will continue to reshape the continent's geopolitical and economic landscape.
