Russia Economy Facing $6.5B Yearly Loss After Ukraine Blocks Gas Transit

A deal that allows Russian natural gas to flow to Europe through Ukraine is set to end this year, delivering a "painful blow" to Moscow, which is already losing billions of dollars in revenues due to sanctions, an energy expert told Newsweek.

However, the expiry of the five-year gas transit agreement signed in 2019 between Ukraine's state-run Naftogaz and Russia's Gazprom could also see Kyiv lose a key revenue generator and add to uncertainty to Europe's energy supply this winter.

Putin had been trying to make Europe more dependent on Russian gas. Since invading Ukraine in 2022, he used access to the fuel both to pressure Kyiv's allies over their support in the war and to retaliate against Western sanctions.

However, Europe has found other long-term sources of gas imports, with Norway and liquefied natural gas (LNG) from the United States and elsewhere filling the gap.

Europe's gas imports from Russia have fallen more than 90 percent and deprived of its most lucrative market. Gazprom Group, which includes oil and power businesses, has paid a heavy cost for Putin's war, posting a net 2023 loss of $7 billion, its first in a quarter of a century.

Last year, Russia shipped 14.6 billion cubic meters across Ukraine in 2023, down almost two-thirds from the 41.6 bcm transited in 2021.

Although Putin has expressed willingness to continue the transit deal, his Ukrainian counterpart, Volodymyr Zelensky, has vowed to exclude "Russian molecules" from the country's transit network.

Meanwhile, Bloomberg reported this week that it had calculated the loss of Ukrainian volumes equates to roughly $6.5 billion annually at current prices.

"Zelensky is finally severing its reliance on Russia by turning off the taps," James Hill, CEO of MCF Energy, told Newsweek, "Gazprom is set to lose nearly $7 billion in revenues from this move, on top of last year's $7 billion loss—a painful blow to Moscow."

"While this represents a bold move and a step in the right direction on Zelensky's part, it also presents a significant challenge which Europe must address before the contract expiration date in December," Hill said, adding that Europe's gas supply "may be at risk."

Newsweek reached out to Gazprom and Naftogaz for comment.

Gas flows through Ukraine provide less than 5 percent of the continent's supplies, but no renewed deal would not just hurt Ukraine's status as a reliable conduit but also risk losing $800 million a year in transit fees, according to Bloomberg, citing estimates from Mykhailo Svyshcho, from Kyiv-based ExPro Consulting.

Ukraine has held transit talks with Azerbaijan, which supplies gas to eight European countries, but as yet, there are "no concrete proposals from traders to be discussed," Ukraine's Energy Minister, German Galushchenko, said according to Bloomberg.

Deals with Kazakhstan and other Central Asian suppliers could also be possibilities, but time is running out before the end of the year.

"The five-year contract signed in 2019, prior to the war, has generated an extraordinary amount of monetary benefit for Kyiv and Moscow," said Hill.

He said Ukraine and Europe must take an "aggressive" approach before and after the contract expires to ensure energy security and stability and to protect themselves from Moscow's retaliation if it is not renewed.

"Moscow may consider an attack on the Ukrainian gas pipeline network, which to date has been largely left alone," he said, "should this ensue, it could be catastrophic to Europe's energy landscape."

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