Ukraine puts a break on Russia's gas supply on New Year, who will suffer losses?

Amid the Russia-Ukraine war, Kyiv has refused to renegotiate the transit agreement related to gas supply. Due to this the supply of Russian gas through Ukraine to European countries has been completely stopped from January 1, 2025.

On one hand, Kiev's decision has ended Russia's dominance in the European Union's energy market, while on the other hand, there is a possibility of an energy crisis in many European countries, especially Austria, Slovakia and Moldova, which were dependent on this transit route for their electricity supply.

Why did Russian gas supplies stop in Europe?

Russian energy giant Gazprom said on Wednesday it had halted gas supplies to Europe at 8 a.m. local time after Ukraine's state-owned oil and gas company Naftogaz refused to renew a five-year transit agreement.

Meanwhile, Ukraine's Energy Minister German Galushenko said in a statement, 'We have stopped the supply of Russian gas through Ukraine, this is a historic event. He said that Russia is losing its market, it will have to suffer huge losses. Europe has already decided to abandon Russian gas.

Who will suffer the most if gas supply is stopped?

Zelensky has refused to renew the transit deal between Russia and Ukraine for gas supplies to European countries in 2019, the Ukrainian president believes that by doing so he could take away revenue from Russia which Moscow could use to fund the war against his country. While this move by Kiev will end Russia's dominance over the European Union's energy market, there is a possibility of an energy crisis in Eastern Europe.

European countries like Austria, Slovakia and Moldova were dependent on this transit route for their electricity supply. Austria was getting most of its gas from Russia via Ukraine, while Slovakia was getting about 3 BCM of gas annually from this route, which is about two-thirds of its demand.

How much gas was Russia exporting to Europe?

Many European countries began reducing their dependence on Russian gas after Moscow's invasion of Ukraine in February 2022. Before the invasion of Ukraine in 2022, Russia supplied about 35 percent of Europe's pipeline natural gas exports. But now it has fallen to only about 8 percent.

As of December 1, the EU received less than 14 billion cubic metres (BCM) of gas from Russia through Ukraine, down from 65 BCM annually when the contract began in 2020.

Who earns how much from gas supply?

Ukrainian media quoted Serhiy Makohon, the former head of the Ukrainian GTS operator, as saying that Russia has earned much more than Ukraine through the transit deal. Makohon estimated that Russia was earning $5 billion annually. However, according to Bloomberg, Russia's earnings from this deal would have been even more, i.e. around $6.5 billion annually.

According to the former head of the Ukrainian GTS operator, Ukraine was receiving $800 million annually from this transit deal for gas supplies to Europe, but most of this money is spent on transit. He estimated that Ukraine gets only $100-200 million in revenue through this.