European Union Halts Russian Gas Supplies via Ukraine

The year 2025 marks a significant turning point in the ongoing energy dynamics between Russia and the European Union (EU). As of midnight on January 1, 2025, Russian gas has ceased to flow into the EU via Ukraine for the first time since the onset of the invasion by Vladimir Putin nearly three years ago. This abrupt halt follows the Ukrainian government's decision not to extend its gas transit agreement with Russian state-owned company Gazprom, which expired on December 31, 2024.

The transit agreement, initially established in late 2019, predates the invasion and had allowed Russian gas to traverse Ukrainian territory even during the most intense phases of the conflict. Gazprom confirmed the supply interruption in a recent statement, marking a historic shift in the region's energy supply chain.

Despite the earlier claims by European Energy Commissioner Kadri Simson that the EU could function without Russian gas, the cessation of flows through Ukraine is still notable. The Ukraine Transit pipeline had a maximum capacity of 150 billion cubic meters (bcm) per year, although the actual volumes had dwindled significantly to approximately 15 bcm since May 2022, representing a small fraction of the gas consumed by EU member states.

On the final day of gas supply, Gazprom reported a dispatch of only 37.2 bcm, which dropped to zero as the new year commenced. This anticipated shutdown has contributed to rising gas prices across Europe, where this energy source is critical for industries, heating, and electricity generation.

With Ukraine's gas transit now concluded, the TurkStream pipeline, which runs through Turkey to Bulgaria, remains the last major route for Russian gas into the EU. Unlike oil, gas supplies from Russia continue to be exempt from EU sanctions, primarily due to concerns regarding energy security.

Historically, the gas that flowed through Ukraine has been essential for several Central and Eastern European nations, particularly landlocked countries such as Austria, Hungary, and Slovakia. These nations have relied heavily on Russian gas, especially as they lack direct access to liquefied natural gas (LNG) imports by sea.

However, the situation varies by country. Austria has not received any gas from Russia for over a month, following the collapse of its contract with Gazprom. In contrast, Hungary and Slovakia, whose governments maintain pro-Russian stances, continue to view Russian gas as the most cost-effective option, despite the impending cessation of flows.

In Slovakia, Prime Minister Robert Fico, a vocal supporter of Putin, had previously threatened to cut electricity supplies to Ukraine if it followed through on its decision not to renew the gas transit contract. Poland has offered to fill this gap by increasing its electricity exports to Ukraine, which faces a challenging winter with its energy infrastructure severely damaged by ongoing Russian bombings.

Interestingly, while the flow of gas through pipelines has ceased, Russian LNG shipments to the EU have reached record levels in 2024. Although the total volume of gas from Russia has decreased due to reduced pipeline supplies, the increase in LNG imports has compensated for the shortfall, allowing Russia to maintain a significant revenue stream from energy exports.

Since the invasion began in March 2022, Russia has reportedly earned over EUR813 billion from fossil fuel exports, with approximately EUR170 billion attributed to gas sales, a substantial portion of which has still been directed towards the EU.

The economic repercussions for Ukraine of this halted gas transit are considerable. Ukrainian analysts estimate that the income from allowing gas passage to the EU contributes around 0.5% of its GDP, equating to roughly $800 million annually. Conversely, Russia benefits significantly, with an annual revenue of about EUR6.28 billion from these transit fees.

Starting January 1, transportation costs for gas in Ukraine are projected to quadruple, which will further strain the country's economy. The National Commission for the Regulation of Energy and Public Utilities of Ukraine announced that transportation tariffs would increase from 124.6 hryvnias (EUR2.87) for 1,000 cubic meters to 501.97 hryvnias (EUR11.54). This increase may not adequately offset the losses incurred from the reduction in transit income.

Moreover, businesses have voiced concern over the rising costs. The industrial sector is expected to face an additional burden of approximately 6 billion hryvnias annually due to the increased gas transport tariffs. Electricity prices have also surged, doubling since June 2024, creating additional financial strain on households and businesses alike.

As the situation develops, the security of Ukraine's gas infrastructure may become an increasing target for Russian attacks, which could complicate future energy supply and recovery efforts.