The News
Russian gas stopped flowing through Ukraine for the first time in decades after a transit deal expired in the early hours of New Year’s Day.
Ukrainian President Volodymyr Zelenskyy previously warned he would not allow Russia to “earn additional billions on our blood,” and had given the European Union a year to prepare for the change.
Though most EU countries divested from Russian gas when Moscow invaded Ukraine in 2022, some will feel the pinch: Slovakia’s President Robert Fico made a surprise visit to Moscow last week in which he railed against the decision. Meanwhile, Moldova has already seen significant shortages, as one of its main power stations is fueled by Russian gas.
SIGNALS
Most European countries will avoid major energy upheaval
That most of Europe will not overly suffer from Ukraine’s move is a sign of how much the continent’s energy market has changed: Before Russia’s 2022 invasion, 40% of the European Union’s gas came from the country. By 2023, that had declined to 10%. Instead, US and Qatari natural gas projects flooded the market, and much of Europe fared better than expected: By Nov. 2024, gas storage facilities were 94% full — 4% higher than the continent’s goal, The Economist wrote. However, natural gas is not a silver bullet solution to the continent’s fuel problems: A cold winter ahead, the bankruptcy of a major US terminal meant to come online in 2025, and Europe’s short-term LNG contracts leave the continent vulnerable.
Energy sector changes leave lasting scars on some EU economies
Russia has a long history of using its monopolization of the European gas market for political ends, US-based think tank The Brookings Institute wrote, with German-Russian energy relations a notable case in point: The Nord Stream pipeline projects — brokered in 2005 between Russian President Vladimir Putin and Germany’s then-Chancellor Gerhard Schröder — brought Russian gas directly to Germany, benefiting both countries’ respective economies. But Germany’s dependence on Russia had largely backfired by 2022: Since Germany’s boycott of Russian fuel as a result of the Ukraine war, the country has been in varying degrees of political and economic turmoil. In November, Chancellor Olaf Scholz — whose government collapsed last month — conducted an emergency call with Putin, a move widely condemned by Scholz’ allies.
Russia could feel impact more than Ukraine
While both Ukraine and Russia benefitted from the transit deal in the past, its cessation could have a greater impact on Russia, The Independent wrote. Ukraine earned around $800 million a year transporting Russian gas, while Russia stands to lose around $5.1 billion — equating to a 6.7% decrease in revenue for state-backed gas company Gazprom, the outlet wrote. Russia needs its fossil fuel business to help fund its war in Ukraine, and the country’s already flagging economy now faces increased pressure. The return of Donald Trump in the US could soften the blow: The president-elect has said that he would “want to use sanctions as little as possible” to target Russia’s economy.