Ukraine halt of Russia gas transit sparks fears

The stoppage of Russian gas transit through Ukraine has sparked fears of supply shortages and spiraling energy costs, particularly in Central and Eastern Europe.

It's a no-win situation for the two countries and the European Union, but the United States is likely to gain from the situation, experts said.

Russia's gas exports to Europe via Ukraine through its pipelines came to a halt on Jan 1, with both Russia and Ukraine confirming the stoppage.

The five-year gas transit deal between Russia and Ukraine expired at the end of 2024, and the latter refused to renew the agreement.

"This was a political decision that did not take into account transit fees as a benefit for its own economics, nor the interests of European countries," Marian Duris, an international affairs analyst and adviser to a member of the European Parliament, told China Daily.

"Thus, these (impacted) countries got a disgraceful retribution," he said, adding, "It is shocking that the EU is not responding to this situation."

Wang Zhen, a researcher of international politics at the Shanghai Academy of Social Sciences' Institute of International Relations, said that Ukraine's refusal to extend the transit deal signals a stance of not willing to cooperate or compromise.

"It also prevents profits from gas sales from being used to fund military resources," Wang told China Daily.

"Russia loses sales, Ukraine forfeits transit fees, and the EU sacrifices access to cheap energy — no one gains in this scenario," he added.

Ukraine now faces losses to the tune of $800 million annually in transit fees, while Russia's Gazprom will lose $5 billion in gas sales.

The stoppage of gas supplies has evoked mixed reactions in Europe. While some countries have backed the move, others are wary of its potential impact on energy supplies.

Poland, which took over the EU's rotating presidency from Hungary on Jan 1, has hailed the decision, while Slovakia has strongly opposed it.

"The differing attitudes highlight significant divisions within the EU," Jian Junbo, deputy director of the Center for China-Europe Relations at Fudan University's Institute of International Studies, told China Daily.

"This is less about an energy crisis and more about political controversy within the EU," Jian said.

Hungary and Slovakia have alternative access to energy, but at a higher cost.

'Significant harm'

Slovak Prime Minister Robert Fico has said Ukraine's gas halt causes "significant harm" to the country and the EU. He said Slovakia will lose 500 million euros ($512 million) in onward transit fees.

"No one stood up to protect the member states that were harmed by this halting," Duris said.

Balint Kecskes, an international relations expert based in Budapest, Hungary, noted that Europe's economic strategy has long relied on three pillars: successful Western industry, strong European purchasing power, and cheap Russian raw materials.

The EU wants to completely end gas purchases from Russia by 2027, but the deadline "is clearly in danger", Kecskes told China Daily. "Europe can live without Russian raw material, but the price is already high."

Natural gas prices in Europe have surged by 20 percent after the latest stoppage in supply, Hungarian Minister of Foreign Affairs and Trade Peter Szijjarto said in a Facebook post on Tuesday.

He attributed the increase in natural gas prices to "artificially imposed reductions in supply".

Szijjarto warned the rising gas prices will "create new competitiveness challenges" for the EU.

Despite the EU's efforts in mitigating energy costs after shifting away from Russia, Europe has felt the impact, with higher energy costs hitting its industrial competitiveness, Wang said.

"Rising energy prices have forced some industries to scale back operations, especially in energy-intensive sectors like manufacturing, contributing to Europe's broader economic struggles," he added.

As Europe weans itself off Russian energy supplies, this vacuum has gradually been filled by alternative suppliers.

In 2023, the US was the largest supplier of liquefied natural gas to the EU, representing almost 50 percent of total LNG imports, according to the Council of the EU. In 2023, compared with 2021, imports from the US almost tripled.

"It is no secret that Russia's market share in Europe has been gradually taken over by the US since the beginning of the conflict," Duris said.

"Part of this increased import of so-called US LNG is just 'repackaged' Russian LNG," he added.

Jian said: "Objectively speaking, the US is indeed benefiting from this situation, as it increases Europe's reliance on US LNG", adding that this dependence is likely to deepen.