Europe faces supply challenges as Russian gas transit through Ukraine ends

Russian natural gas flows through Ukraine ceased early Wednesday after a transit deal between the two nations expired, marking a significant shift in Europe’s energy landscape amidst ongoing geopolitical tensions. The pipeline was one of the last two routes transporting Russian gas to Europe, and its closure comes at a critical time—when winter demand for heating is at its peak.

The termination of the agreement, originally brokered in 2019 with the backing of the European Commission, leaves European Union (EU) nations short by approximately 5% of their gas imports. The halt was widely anticipated by markets, but the immediate impact on prices remains uncertain. Slovakia, heavily reliant on the pipeline, is expected to be the hardest hit.

“While losing these volumes may be priced in, an initial upward price response cannot be ruled out,” said Aldo Spanjer, senior commodities strategist at BNP Paribas.

The Ukrainian government had signaled months in advance that it would not renew the deal, citing a desire to cut Kremlin revenues from gas exports. The Brussels-based think tank Bruegel estimated this could result in a $6.5 billion revenue loss for Russia, which would need to find alternative export routes. Ukraine, however, stands to lose $1 billion annually in transit fees, further straining its economy amidst the war.

Russia’s state-owned Gazprom announced the cessation of gas flows via Telegram, blaming Ukraine’s refusal to extend the agreement. Ukrainian officials have voiced concerns that the end of gas transit may prompt Russian attacks on their pipeline infrastructure.

The deal’s expiry has stirred tensions within the EU. Slovak Prime Minister Robert Fico criticized Ukraine’s stance, claiming it jeopardized the economic interests of EU member states. Hungary, led by Prime Minister Viktor Orbán, has similarly sought to secure Russian gas through alternative routes, including the pipeline via Turkey.

EU officials remain confident that Europe can manage without Russian pipeline gas. The European Commission noted that since 2022, the bloc has significantly expanded its liquefied natural gas (LNG) import capacity, enabling greater reliance on non-Russian energy sources.

While Austria and Moldova have pivoted to alternative energy strategies, the halt in Russian gas transit highlights the EU’s ongoing energy challenges and the high stakes of its push for energy independence from Moscow.