Ukraine ends Russian fuel pipeline to Europe – however how a lot will it value Moscow? | EUROtoday

Russian fuel is not flowing to EU states via Ukraine following the expiration of a five-year deal, closing an power route that has existed for the reason that finish of the Soviet Union in 1991.

President Volodymyr Zelensky mentioned the transfer means Russia can not “earn billions on our blood”.

His power minister, Herman Halushchenko, confirmed on Wednesday morning that Kyiv had stopped the fuel flows “in the interest of national security”.

“This is a historic event,” he wrote on the social media platform Telegram. “Russia is losing markets and will incur financial losses.”

The deal had allowed for Russian fuel to journey via Ukraine’s pipeline networks into European international locations, primarily Hungary, Slovakia and Austria.

Its finish won’t lower off all Russian fuel to Europe, however considerably cut back it. Gas can nonetheless journey from Russia to Europe by way of the Turkstream pipeline, however not via Ukraine, reducing fuel imports to the EU by round 14 billion cubic metres.

The European Commission has mentioned that this quantity will be changed by liquefied pure fuel (LNG) and pipeline imports from different sources, corresponding to Norway and the United States.

However, the impression is already being felt in components of EU candidate nation Moldova, which was getting Russian fuel by way of Ukraine.

The breakaway Russian-speaking area of Transnistria, residence to round 45,000 individuals, lower provides to households. “There is no heating or hot water,” mentioned a employee at power firm Tirasteploenergo.

The monetary impression

Though Ukraine benefitted financially from the now-expired settlement to the tune of $800m (£640m) a yr, the fuel was not imported to Ukraine itself.

Latest estimates present that Russia is anticipated to lose round €5bn (£4.14bn) a yr from fuel transported to Europe by way of Ukraine.

According to its personal reviews, Gazprom’s market capitalisation stands at round £22bn (3 trillion roubles).

Gazprom is Russia’s largest firm, and has the most important fuel reserves on the earth. Since the invasion of Ukraine its enterprise has taken a number of blows.

By the top of 2024, Russian fuel exported to Europe by way of the Ukraine pipelines alone has already dropped by 78 per cent for the reason that contract began in 2020.

And for the primary time since 2001, Gazprom reported a web lack of £5.5bn (629 billion roubles) in 2023, after fuel gross sales plummeted.

Up up to now, the fuel big constantly raked in billions annually; together with even £14bn (1.9 trillion roubles) in 2022, throughout the first yr of the conflict.

Revenue decreased by round 27 per cent in 2023, to £61bn, whereas income from fuel gross sales specifically fell by 40 per cent.

In this context, a lack of £4.14bn in fuel gross sales with out the Ukraine transit deal might set off an additional 6.7 per cent lower in revenues for Gazprom and Russia.

The Russian oil and fuel conflict chest

Gazprom is majority state-owned, which implies that the Russian state receives a sizeable sum of its earnings.

Russia depends on oil and fuel enterprise partly to fund its ongoing conflict in Ukraine; with revenues accounting for 30 to 50 per cent of the Russian federal price range, in keeping with The Oxford Institute for Energy Studies (OIES). Other than the EU, Russia’s greatest pipeline fuel exports go to Turkey and Belarus, whereas LNG exports are largely reliant on gross sales to China and Japan.

According to Bloomberg, Russian fuel exports to China are discounted as closely as -28 per cent in comparison with European exports, which means that they’re much less worthwhile for Russia total. But in the end, the overwhelming majority of Russian state oil and fuel revenues come from oil gross sales, quite than fuel gross sales, in keeping with the OIES.

Although the EU has banned oil imports from Russia, quite a few reviews counsel that Russian oil continues to be reaching the EU by way of again channels.

A Global Witness investigation discovered that 130 million barrels of refined merchandise have been imported into the EU from refineries that course of Russian crude oil in 2023, value an estimated €1.1bn in tax income to the Kremlin.

Russia is the most important crude oil provider to China and India. The UK and EU international locations import billions in refined oil from these two international locations, a part of which is probably going originating from Russia regardless of sanctions.

The hassle with Russian fuel

Separately to sanctions from the invasion of Ukraine, European international locations’ reliance on Russian fuel has been a tough problem to deal with.

Russia has traditionally used its fuel pipeline exports to exert political management over dependent international locations, from Ukraine to Armenia.

As of at present, Gazprom can also be weaponising the identical tactic in Moldova, reducing off fuel provides over an alleged $709m (£565m) debt.

Yet the choice to not lengthen fuel transit by way of Ukraine confronted some pushback.

Slovakia’s prime minister threatened to chop electrical energy provides to Ukraine in retaliation, as he mentioned that ending Russian fuel transit would improve power costs.

Nonetheless, fuel transit by way of Ukraine’s pipelines has now ceased.