Russian gas flows through Ukraine ground to a halt in the early hours of Wednesday following the expiration of a crucial transit agreement between the two nations, marking a significant shift in European energy dynamics amidst ongoing conflict.
The pipeline, one of only two remaining routes carrying Russian gas to Europe since Moscow’s invasion, has left EU countries facing a 5% reduction in gas imports during peak winter demand. Slovakia emerges as the most severely impacted nation, whilst traders had largely anticipated this development.
The transit arrangement, originally finalised in late 2019, received strong backing from the European Commission at its inception. However, following Russia’s 2022 invasion, the Commission actively encouraged member states to diversify their energy sources as part of a broader strategy to reduce dependence on Russian fossil fuels.
Ukraine’s decision not to extend the agreement aims to curtail Kremlin revenue from gas exports, potentially costing Russia £6.5 billion unless alternative routes are secured. The move also impacts Ukraine’s finances, with the nation forfeiting approximately £1 billion in annual transit fees.
Hungarian and Slovak leadership, maintaining Moscow-friendly positions, had sought to extend the agreement beyond its expiration. Slovak Prime Minister Robert Fico’s recent Moscow visit highlighted regional tensions, as he criticised Ukraine’s stance on the deal’s termination.
European officials maintain their confidence in the bloc’s ability to manage without Russian pipeline supplies, despite the likelihood of increased costs from alternative sources such as LNG. The European Commission emphasised the flexibility of existing infrastructure to accommodate non-Russian gas supplies to central and eastern Europe.
The Turkish pipeline, which continues to transport Russian gas to Europe, now accounts for roughly 5% of EU imports. Recent US sanctions on Gazprombank prompted Russian President Vladimir Putin to modify payment requirements for foreign buyers, whilst countries including Turkey and Hungary have secured US exemptions.
Market analysts suggest the possibility of future Russian gas flows returning to Europe, particularly following any potential peace agreement. The fundamental geographic advantages of Russian supply routes remain unchanged, though European governments may implement measures to prevent excessive reliance on Russian resources.
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