Since the start of Russia’s invasion of Ukraine, Europe has been trying to reduce its reliance on Russian oil and gas imports, forcing the continent to turn elsewhere to compensate. Imports of pricey liquefied natural gas (LNG) from the US, for instance, have grown from 19 billion cubic meters (bcm) in 2019 to 56 bcm in 2023.
However, after two years of war, Russian natural gas is still flowing into the EU. While the volume of Russia’s gas exports to Europe has dropped significantly, from 180 bcm in 2019 to just 28.3 bcm in 2023, July’s volumes actually saw an increase year-over-year. Roughly half of the Russian gas that entered Europe in 2023 did so via pipelines that cross Ukraine.
This is set to change at the end of this year, when Ukraine’s most recent five-year transit agreement with Russia, brokered by the EU in 2019, expires. Given that there are currently no negotiations to renew it, the expected result come December will be the termination of Russian gas transiting Ukraine.
It may be tempting to treat total European independence from Russian gas, and by extension the severance of Ukraine’s pipeline links with Russia, as a foregone conclusion given the current state of war. However, Russian, Ukrainian, and western policymakers should seriously consider the short- and long-term consequences of this development.
For one, Ukraine continues to benefit from the collection of transmission fees from Russian oil and gas transiting Ukraine at a time when every penny counts. Currently, these fees amount to $800 million annually.
Nowadays this money mostly goes towards operating costs and maintenance, according to the Center for European Policy Analysis. The conclusion drawn by some is that Ukraine is not profiting enough to justify preserving this economic link with Russia.
But Ukraine was collecting much more in the past. Before the war, when Ukraine’s pipelines were operating closer to capacity than they are today, the Ukrainian national gas company Naftogaz was bringing in closer to $3 billion per year.
Sergey Vakulenko, Senior Fellow at the Carnegie Russia Eurasia Center, notes that “it is much easier to return to previous volumes from a reduced level under a current contract than to restore ties that had been completely severed and enter into new contracts.”
However much the volumes being transported and the fees collected by Ukraine may have diminished, preserving Ukraine’s pipeline links with Russia means the option to increase volumes and collect greater transit fees remains on the table.
There are other financial costs associated with terminating the transit of Russian gas through Ukraine. If Ukraine and Russia don’t renew their transit agreement by the end of the year, Ukraine will also be saddled with the infrastructure, which will have to be maintained or abandoned.
Ukraine’s pipeline infrastructure could be repurposed once Ukraine’s contracts with Russia expire. A big problem, however, is that this infrastructure was purpose-built with Ukraine’s links to Russia in mind. If the supply of gas from Russia disappears, the infrastructure currently in place and its operation would have to undergo modifications.
If Ukraine’s infrastructure is repurposed to accommodate gas supplies from Azerbaijan as some have suggested, then it is likely that Ukraine will continue to receive Russian gas after all, albeit disguised as Azerbaijani gas. Such a scenario would partly offset the losses Russia’s state gas company Gazprom is expected to incur as a result of the end of the transit agreement with Ukraine.
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More broadly, the long-term trajectory of Europe’s relationship with Russia is also worth considering. For at least ten years, serious rapprochement between Europe and Russia has seemed unlikely. However unlikely such rapprochement may still seem today, there will come a time when it will be both possible and desirable. At that point, both sides will benefit from having decades-old economic links in place.
These economic links have been strained but not dismantled by the past two years of war, and this is one of many indicators that the current conflict is not a total war. Those who regard Europe’s severance from Russia as necessary or inevitable buy into a total war mindset, exemplified by the EU’s foreign policy position towards Russia, which “excludes official contacts between the EU and President Putin,” even as some European politicians try to facilitate talks.
If oil and gas trade is this war’s canary in the coal mine, then the expiration of Ukraine’s transit agreement with Russia this December should be viewed with alarm. Russian, Ukrainian, and western policymakers should therefore consider preserving this transit agreement, with the goal of averting further escalation and working towards a negotiated resolution of the war.
Julian Fisher is a PhD student at the University of Washington and a previous Global Politics Fellow at George Mason University. His research focuses on Global Politics and International Law.