Early Wednesday morning, Russia halted its gas supplies to Ukraine following the expiration of a transit agreement. This pipeline was one of the last routes transporting Russian gas to Europe, and its closure is expected to impact EU gas supplies during the peak winter demand period, particularly affecting Slovakia, which is likely to lose about 5% of its gas imports.
Traders had anticipated the disruption, yet the immediate economic implications are significant. Aldo Spager from BNP Paribas indicated that while the decline in gas volumes was expected, the initial price reactions could be unpredictable. The original agreement for gas transit through Ukraine was concluded in 2019, influenced by the European Commission’s encouragement for stability in gas supplies. However, following Russia’s invasion of Ukraine and Ukraine’s decision to stop Russian energy imports, the EU has been guided to seek alternative energy sources.
Ukraine had previously communicated its stance against renewing the deal, aiming to cut off Russian revenues that are reliant on gas exports. Analysts from the Brussels-based think tank Bruegel estimate that the cessation of gas supplies could cost Russia around $6.5 billion if it remains in effect. Nonetheless, this situation poses economic challenges for Ukraine as well, which has been earning roughly $1 billion annually from gas transport with minimal profit margins. Additionally, there are concerns that without gas transit, Ukraine’s infrastructure may be more vulnerable to Russian attacks.
Following the cessation of supplies, Russian gas giant Gazprom announced that the agreement had expired due to Ukraine’s refusal to extend it. The developments have incited reactions from Slovak authorities, with Prime Minister Roberto Fico visiting Moscow to discuss gas contracts and voicing criticism of Ukraine’s position.
Hungary is exploring pathways to continue importing Russian gas, while Austria has pivoted towards alternative energy sources following legal disputes with Gazprom. Moldova, too, is grappling with the energy crisis, having declared a state of emergency in its energy sector due to uncertainties around Russian gas supplies.
As European nations brace for heightened demand, the European Commission asserts that the region is prepared to manage the loss of Russian pipeline gas, emphasizing the flexibility of gas infrastructure and the new import capacities established since 2022. Despite sanctions and regulatory hurdles, the possibility of future gas flows from Russia cannot be entirely discounted, as traders speculate that economic pressures may lead European companies back to sourcing Russian gas in the long term.