(Jan 1): Russia stopped sending gas to Europe via Ukraine, shutting off a route that’s operated for five decades after Kyiv refused to allow any transit that funds Moscow’s war machine.

Both sides confirmed the halt on Wednesday after a key transit deal expired. The stoppage means a number of central European countries that have relied on the flows will be forced to source more expensive gas elsewhere, adding to pressure on supplies at a time when the region is depleting winter storage at the fastest pace in years.

Ukraine has been a key avenue for gas deliveries into Europe, even during the past three years of war. While the route accounts for just 5% of the region’s needs, countries are still reeling from the aftershocks of an energy crisis triggered by Russia’s invasion of its neighbour. The looming cut-off recently helped drive up gas prices in a market that’s up more than 50% year-on-year.

Russia’s Gazprom PJSC halted supplies on New Year’s Day after the five-year transit deal expired, citing a lack of “technical and legal opportunities” for shipments, amid “repeated and explicit refusal of the Ukrainian side to extend these agreements”.

The stop was confirmed by the Energy Ministry in Kyiv, which said Russian flows across its territory ceased as of 7am local time. Slovakia’s network operator also confirmed it wasn’t receiving gas.

The end of the deal has highlighted the European Union’s (EU) continued reliance on Russian piped gas and shipments of liquefied fuel, despite a plan to wean itself off supplies from Moscow. Several countries have sought an alternative arrangement, but months of political wrangling have failed to produce an agreement.

European Commission President Ursula von der Leyen has set a political objective to phase out Russian fossil fuels by 2027, and has said the end of transit will have little impact on regional energy markets. Still, countries such as Slovakia and Hungary have waged an increasingly bitter campaign to keep the fuel flowing.

“We knew that the transit agreement would not be renewed,” said Jonathan Stern, a distinguished research fellow at the Oxford Institute for Energy Studies. “The question is whether anybody in Europe — but especially the Slovaks, who will be hit the hardest by this — will be successful in making an agreement” to continue receiving some gas.

Europe is also facing an increasingly tight global gas market. Benchmark prices closed 2024 at the highest price in more than a year.

Ukrainian President Volodymyr Zelenskiy has rejected any arrangement that would ultimately send money to Russian coffers while the war continues. Meanwhile, Slovak Prime Minister Robert Fico has threatened Ukraine with a possible electricity cutoff, raising questions about broader energy security in the region.

In a last-ditch effort over the weekend, Fico urged the EU to address the looming halt of supplies via Ukraine, saying the economic effect on the bloc would outweigh the impact on Russia. He estimated European consumers could face as much as €50 billion (US$52 billion or RM231.61 billion) in extra gas prices every year and a further €70 billion in higher electricity costs. 

Slovakia and some other central European states have favored discounted gas from the east, and in recent months, key companies from the region have raced to build support for an alternative to the Russia-Ukraine deal.

“The stop of flow via Ukraine on Jan 1 is the expected situation and the EU is prepared for it,” a European Commission spokesperson said. The commission, the EU’s executive, has been working with member states for more than a year to prepare for such a scenario, she said.

The bloc has diversified its supplies since 2022, turning increasingly to imports of liquefied natural gas (LNG), notably from the US. There are “various options” for regulating gas transit to central and eastern Europe, including through another pipeline route and LNG terminals, the German Economy Ministry said on Tuesday.

Officials from Poland, which assumes the rotating presidency of the EU on Wednesday, said the nation is in close contact with the commission and “ready to coordinate further steps with member states, if needed as from Jan 1”.

Disputes between Moscow and Kyiv have previously disrupted gas shipments to European customers in winter months. 

In 2009, Russian flows via Ukraine to Europe stopped for almost two weeks, with more than 20 nations affected during freezing temperatures, until the two nations signed a deal ending their dispute. A shorter disruption occurred in 2006. The expiring agreement, set in 2019, was also a result of last-minute negotiations.

However, the war makes a quick resolution unlikely for now. Russian President Vladimir Putin last week indicated there was no time left to conclude an agreement before the end of the year. Separately, he said a lawsuit from Ukraine’s Naftogaz — alleging that Gazprom hasn’t fully paid for transit services — is another barrier. 

Some European nations have also warned against ideas that would brand Gazprom’s fuel as non-Russian. Energy companies in the region have previously floated options such as taking ownership of the fuel when it enters Ukraine, or resorting to a complex swap involving Azerbaijan’s energy company Socar as a mediator.

Russia still supplies gas to nations such as Serbia and Hungary via another pipeline, TurkStream, which bypasses Ukraine. But that link isn’t sufficient to fully compensate for the loss of the Ukraine route. Another pathway, across Poland, is now closed. The Nord Stream pipeline linking Germany to Russia was damaged in explosions in 2022, and the newer Nord Stream 2 link has never been authorised by Berlin.

Uploaded by Tham Yek Lee