Why Did Ukraine Halt the Flow of Russia’s Natural Gas to Europe?

Natural gasstopped flowing through a pipeline that runs from Russia through Ukraine on Wednesday, according to officials in both countries. The effects of the halt, though long expected, could ripple through Europe’s energy sector and potentially affect Moscow’s ability to fund its war in Ukraine.

What happened? Ukraine refused to renew an agreement that allowed Russia to send natural gas through a pipeline to Europe. The deal was honored even after Russia invaded Ukraine in 2022, kicking off the bloodiest European conflict since World War II.

The Urengoy-Pomary-Uzhgorod pipeline was built in the Soviet era to carry Siberian gas to European markets. It became the main conduit to Ukraine’s border with Slovakia from Siberia, passing through the town of Sudzha — which is now under the control of Ukrainian military forces — in Russia’s Kursk region.

The pipeline was Russia’s last major gas corridor to Europe following the 2022 sabotage of the Nord Stream pipeline to Germany — probably by Ukraine — and the closure of a route through Belarus to Poland.

Why did this happen now? Ukrainian President Volodymyr Zelenskyy has warned for months that he would not renew the five-year contract, which expired at midnight Dec. 31. The deal was signed before Russia’s invasion of Ukraine, but after its seizure of Crimea.

Ukraine and its Western allies want to undermine Russia’s ability to fund its war effort and to limit the Russian government’s ability to use energy as leverage in Europe. Analysts say the closure of the pipeline could reduce Russia’s revenue from gas sales by about $6.5 billion a year.

But it carries some risks for Ukraine. Russia could decide to bomb Ukraine’s network of pipelines, which it has largely spared from attack so far, now that it has little incentive to leave them unharmed, military analysts said.

What will it mean for Europe? The expiration of the gas transit deal was long anticipated, giving European countries time to prepare. It is not expected to have a substantial effect on gas prices because there are alternative supplies available.

Moscow reduced gas supplies to Europe after invading Ukraine in 2022, pushing up energy bills and forcing many governments to unveil emergency packages to help struggling businesses and citizens. In response, most European Union member states reduced their reliance on Russian gas and scouted for alternative supplies from Azerbaijan and elsewhere.

In 2021, Russia supplied more than 40% of imported gas consumed in the European Union, but that has fallen sharply in the three years since the war in Ukraine began. Russia’s share of European gas imports fell to less than 15% last year, according to the European Union.

The pipeline through Ukraine accounted for only about 5% of Europe’s gas imports last year, but it could have an impact by taking away supply in what is already a tight market.

The disruption could also pile more pressure onto a sector already under strain. European natural gas markets have been on edge this year. Benchmark prices have risen more than 50% over the past year, although they remain far below the highs reached shortly after the Russian invasion.

What concerns market watchers is not so much that countries will run out of gas, but that supplying them with fuel will be more complex and expensive. European natural gas prices are roughly four times more than those in the United States.

“The real impact that I see is that it’s going to cost more to get alternative gas supply to the countries like Slovakia, Austria and the Czech Republic,” said Natasha Fielding, head of European gas pricing at Argus Media, a market research firm.

Which countries are most affected? Even after the Russian invasion, three European Union member states — Austria, Hungary and Slovakia — continued to buy large amounts of energy from Russia.

The Austrian government said in a statement Wednesday that it had prepared in advance and found suppliers outside Russia. OMV, the Austrian energy company, said last month that it had terminated its contracts with Gazprom and was “well-positioned” with alternative sources.

Hungary, which had pushed for the Ukrainian pipeline to remain open, receives most of its Russian gas via the separate TurkStream pipeline. Slovakia’s prime minister, Robert Fico, is friendly with Russia’s leader, Vladimir Putin, and the country is heavily reliant on Russian gas.

Fico had threatened to cut off electricity supplies in retaliation against Ukraine if it did not extend the gas transit deal. Slovakia’s economy minister said in a statement Tuesday that it would not face shortages.

Some other European countries outside the EU have also continued to buy from Russia, including Serbia and other countries in the Balkans. Moldova, which also borders Ukraine, is probably the most affected European country. In December it declared a state of emergency amid fears that an end to supplies of Russian gas through Ukraine could endanger its main source of electricity: a gas-fueled power plant in the breakaway Russian-backed region of Transnistria. Officials said this week that electricity from neighboring Romania should allow Moldova to avoid an energy crunch. The energy company in the breakaway region told its customers Wednesday that it would stop supplying gas for heating to private houses in cities, villages and towns. The company will provide gas for cooking “until the pressure in the network drops to a critical level,” it said in a statement on Telegram.

That Russia would risk hurting its own proxies in Transnistria, which has been occupied by Russian troops for more than three decades, is a measure of how the war in Ukraine has altered Moscow’s priorities.