European Energy Crisis Worsens as Ukraine Severs Key Natural Gas Route to the European Union

The clear winner of yet another sabotage is the U.S. as it becomes the key supplier of natural gas and LNG to Europe and Ukraine

The war for energy resources is intensifying as Ukraine has refused to extend the bilateral 5-year natural gas transit agreement with the Russian Federation. On January 1st, 2025, a major contract governing the transit of Russian gas through Ukraine will end with quite serious implications for Ukraine as well as for the European Union - particularly for Hungary and Slovakia, and partially for Austria.

During the past five years, while the transit contract was in effect, Ukraine received substantial revenues for energy transport and storage services. In 2022, Ukraine collected $1.2 billion and received close to $800 million the following year.

Ukraine’s gas pipeline system connects Russia, Poland, Slovakia, Hungary, Romania and Moldova. After gas flows via Ukraine into Poland and Romania stopped, Slovakia remains the main entry point into the European Union. Along with Slovakia, Austria, Hungary, and Moldova have been the main gas flow recipients via Ukraine.

Moldova and Transnistria are severely impacted by Zelensky’s refusal to extend gas transit during the winter months. The authorities of Moldova and Transnistria even introduced a state of emergency last week. According to Moldova’s pro-EU President Maia Sandu, negotiations with Zelensky on continuing gas supplies for the country's needs have not yielded any results.

While Hungary could obtain gas via Turkstream, the Horgos entry point would need to operate continuously at a maximum capacity. If Italy could direct enough flows to Austria, Hungary could get additional gas through reverse flows from Austria. Slovakia would have fewer alternatives as it would find itself further down the gas flow chain. Additional supplies would depend on whether Austria, Czechia, and Hungary have enough gas to satisfy their demands.

The decision not to extend the contract is clearly against the best interest of Ukraine. At the same time, it serves the United States and its ambitions to sell more of its energy resources to the EU, therefore making Europeans even more dependent and ultimately subservient to its interests. Ukraine stands to lose fees equivalent to about 0.5 percent of its GDP from ending the transit contract and - perhaps even more importantly - the decision of Zelensky’s government undermines Ukraine’s strategic role as an energy partner for Europe.

For the United States, Zelensky’s move is a strategic win as it further supports the initiative to ensure that gas is bought exclusively from the United States. It is becoming crystal clear that the destruction of the Nord Stream pipeline, which Biden promised would be made inoperable, and later on, it mysteriously exploded, was just a piece to the puzzle.

The biggest loser here is Ukraine as it easily gives up not only guaranteed transit and storage revenue as its economy keeps its head above the water thanks to Western loans and credit facilities but also loses a considerable amount of leverage with international players. Typically, countries seek to secure transit agreements; for example, take Türkiye when it comes to Qatari gas exports into the EU. Ukraine’s regime, however, serves external interests instead of the interests of its population.

In response to Zelensky stopping the supply of natural gas to Slovakia, the country’s Prime Minister Robert Fico said that Slovakia would readily cut its electricity supply to Ukraine:

"After Jan. 1, we will consider the situation and the possibility of reciprocal measures against Ukraine.If it is unavoidable, we will stop the supply of electricity, which Ukraine urgently needs in the event of grid failures," he said.

Zelensky, in yet another juvenile rant on X, blamed Russian President Vladimir Putin for the fact that Slovakia, a sovereign European nation, considers reciprocating in kind and limiting electricity flows to Ukraine in an attempt to force Zelensky’s government to extend gas transport.

Even though the population of Ukraine will now face much higher energy costs as Ukraine is set to start purchasing LNG from the United States, Zelensky appears to have played an important role in helping the U.S. secure its control over gas sales to Europe. Not surprisingly, Ukraine just purchased its first 100 million cubic meters of LNG directly from the United States via Greece.

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