End of an Era: 50-Year Gas Transit Agreement Between Russia and Ukraine Concludes, Halting Gas Flow to Europe
Forex - A 50-year transit agreement for the flow of Russian gas through Ukraine to Europe has ended amid the Russia-Ukraine conflict. Following Ukraine's refusal to renew the agreement, the flow of Russian gas to Europe via Ukraine has stopped.
Both parties confirmed the decision to halt the transit on Wednesday after the expiration of a significant transit agreement. This halt means that Central European countries, which relied on this flow, will have to source gas from other, more expensive options, increasing pressure on supply during a period when the region's winter reserves are depleting at one of the fastest rates in recent years.
Although this route only accounts for 5% of Europe’s demand, countries continue to feel the aftershocks of the energy crisis triggered by Russia's invasion of its neighbor. Gas prices have risen by 50% year-on-year, and the upcoming cut in supply has further contributed to the price increase. The continent, increasingly dependent on global liquefied natural gas, is becoming more exposed to market fluctuations.
According to Bloomberg's estimates, losing one of the two natural gas pipelines to Europe will reduce Russia's revenue by approximately $6 billion per year. Ukraine will also lose its transit fees and will abandon its long-held strategic position as a key channel for affordable energy for its Western allies.
Tatiana Mitrova, a researcher at Columbia University's Center on Global Energy Policy, stated, "The end of gas transit is not just a supply chain adjustment but a symbolic collapse of an era. A significant portion of the Soviet-built gas pipeline network that once transported Siberian gas to Europe is now merely a shadow of its former self."
Most of Russia's Gazprom PJSC customers in Central Europe have managed to find alternative supplies, albeit at a higher cost. Slovakia's largest gas company, Slovensky Plynarensky Priemysel AS, indicated that it would pay approximately 90 million Euros ($93 million) more annually to secure stable imports from different routes. It also warned that all of Europe would remain more vulnerable in case of a cold winter.