EU crisis as Russia gas to Europe cut by Ukraine on January 1 sparking inflation fears | World | News

Russia is preparing to halt gas supplies via Ukraine from the early hours of January 1, with Kyiv refusing to extend a key transit deal.

The current five-year agreement is set to expire, marking a significant milestone in the near-total loss of Russia’s influence over Europe’s gas market, reports Euroactiv.

Once a dominant supplier commanding a 35% market share, Russia’s role has dwindled dramatically since Vladimir Putin’s invasion and the European Union’s consequent push to cut reliance on Russian energy.

Europe has replaced Russian supplies with gas from Norway, the United States, and Qatar.

The volumes transported via Ukraine in 2023 amounted to just 15 bcm – 8% of peak Russian flows in 2018-2019.

The end of the deal is unlikely to trigger a repeat of the 2022 gas price surge due to the smaller volumes involved, but fears of inflation persist as energy markets adjust.

The Soviet-era Urengoy-Pomary-Uzhgorod pipeline, which carries gas from Siberia to Slovakia via Ukraine, will cease operations, leaving limited alternatives like TurkStream to Europe.

Ukraine has hinted at continuing transit under conditions which freeze payments to Russia until the war ends, but no agreement has been struck.

The shutdown follows years of disruptions, disputes, and declining revenue for Gazprom, which reported a $7 billion loss in 2023 – its first in decades.

Political tensions have flared, with Slovakia warning of possible retaliatory measures against Ukraine, while Moldova faces its own supply crisis.

In a blog published by the Brookings Institute in June, analysts Samantha Gross and Constanze Stelzenmuller said: “The gas conflict came to a head in March and April of 2022, soon after Russia invaded Ukraine.”

At this point, Moscow demanded that its European customers open accounts at Gazprombank and pay for their gas in rubles, instead of the euros or dollars stipulated in contracts.

Such a move was an effort to use such payments to “prop up the ruble” and keep Russia connected to the global banking system after Western sanctions cut off Russia’s central bank and caused the ruble’s value to plummet, they explained.

The article continued: “Cutoffs began in earnest in May 2022 after buyers refused to pay in rubles. Russia cut off the gas supply through the Yamal pipeline to Poland and the Gryazovets-Vyborg pipeline to Finland.

“Russia suspended the supply of gas indefinitely through Nord Stream 1 on September 2, 2022, after the G7 countries committed to imposing a price cap on Russian oil.

“An additional cut to supply occurred when Ukraine’s gas operator (Gas Transmission Systems Operator Ukraine, or GTSOU) cut off supply through the Sokhranivka transit point, located in the Russian-occupied Luhansk region.”

The route previously carried about one-third of Russian gas supplied through Ukraine.

The blog concluded: “By late September, Russian supply was less than 20% of its previous level.

“Russia’s share in European gas supply declined to about 15% by the end of 2023. Some gas is still reaching Europe through Druzhba (Friendship), the main Ukrainian transit pipeline, and through the TurkStream pipeline, but the Nord Stream pipelines to Germany and the Yamal pipeline to Germany through Poland have ceased operation entirely.”