In a significant development, the gas transit from Russia to Europe via Ukraine has been terminated after operating for five decades. This move comes as Ukraine declines to support any transit that contributes to Moscow’s war efforts.
What Happened: Both Russia and Ukraine announced the cessation of gas flow on Wednesday. This follows the expiration of a crucial transit deal. The halt will compel central European countries, which have depended on these flows, to seek more costly gas alternatives. This will further strain supplies as the region’s winter storage rapidly depletes.
The transit route accounted for a small 5% of Europe’s gas needs. However, its closure comes at a time when countries are still grappling with an energy crisis sparked by Russia’s invasion of Ukraine. Gas prices have seen a 50% surge year-on-year, and the impending supply cutoff has further escalated these prices, reports Bloomberg.
The stoppage in gas transit will result in a loss of approximately $6 billion a year in revenue for Russia, according to Bloomberg’s estimates. Ukraine will also suffer a loss in transit fees and will lose its strategic position as a provider of affordable energy for Western allies.
Central European customers of Russia’s Gazprom PJSC GAZP have managed to secure alternative supplies, albeit at a higher cost. Slovakia’s largest gas utility, Slovensky Plynarensky Priemysel AS, will shell out an additional €90 million ($93 million) annually to ensure stable imports through different routes.
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On New Year’s Day, Gazprom halted supplies after the five-year transit deal expired. The company cited a lack of “technical and legal opportunities” for shipments amid Ukraine’s “repeated and explicit refusal” to extend these agreements.
This was confirmed by Ukraine’s Energy Ministry, which stated that Russian flows across its territory ceased as of 7 a.m. local time.
Why It Matters: The termination of gas transit from Russia to Europe via Ukraine marks a significant shift in the energy landscape. It underscores the geopolitical tensions and their impact on the global energy market.
This development is likely to exacerbate the ongoing energy crisis in Europe, further escalating gas prices and straining supplies. It also highlights the economic implications for both Russia and Ukraine, with significant revenue losses anticipated.
Furthermore, it underscores the strategic importance of Ukraine as a provider of affordable energy for Western allies, a position it now stands to lose.
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This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
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