Ukraine's gas transit: end of the line?

More than a week has passed since the Russian gas transit via Ukraine stopped.

The European gas market has not descended into chaos, nor has the Ukrainian gas transmission system crumbled.

In fact, despite some initial volatility, which had been expected, prices have been ticking lower and flows across central Europe are adjusting well to the new reality.

Admittedly, demand has been low between December’s end-of-year celebrations and January’s religious holidays across most of continental Europe and an extended cold spell could still create problems.

Nevertheless, those who think Ukraine may have turned a page once and for all on its turbulent gas relationship with Russia should not rush to conclusions.

The European Commission said it had cancelled a ministerial get-together scheduled for 7 January between Ukrainian and Slovak representatives to solve a dispute over the transit only to confirm a new meeting between energy commissioner Dan Joergensen and the Slovak prime minister Robert Fico on the very same topic for 9 January (without the Ukrainians).

It’s not clear why Ukraine pulled the plug on the 7 January meeting at the last minute, just as it’s not clear why it accepted to take part in the first place?

What is odd is that the halt of the transit failed to provoke a furious reaction in Moscow, accompanied by its customary missile attacks on the Ukrainian energy infrastructure.

Surprisingly, everything has been smooth, which could be an indication that Russia may be waiting for gas prices to tick up and consumers to start kicking and screaming about the loss of Europe’s economic competitiveness before bringing the transit issue back to the table.

Winter has barely started and it’s obvious that the Ukrainian government’s resolve to turn a page on the Russian transit may be tested in the upcoming weeks if an energy crisis now brewing in Transnistria boils over and there is an extended cold snap in Ukraine.

It’s hard to gauge how the Ukrainian government will react at this point or how the authorities in Chisinau will handle the Transnistrian crisis.

It’s clear, however, that the political stakes are incredibly high for all parties involved: Ukraine, Moldova, Europe and Russia.

How they manoeuvre now will determine Europe’s security and energy supply outlook.

The halt of the transit has already busted two myths - that the Ukrainian system just can’t operate without the Russian transit and that European gas prices would soar once there are no more Russian molecules entering the EU.

In the future, even if the issue of resuming the transit resurfaces, those two arguments could be discarded as could the ludicrous pretext that Ukraine would be transiting gas of non-Russian origin entering the country via Russia.

In any case, if Ukraine does ever intend to revisit the issue of transit the only justification that might fly with the public would be to allow shipments as part of war-related reparations following a peace agreement with Russia.

In this context, in addition to paying Ukraine transport fees, Russia would be forced to relinquish the proceeds from gas transiting Ukraine and sold in Europe, retaining only the equivalent amount of its production cost, export-related fees and a symbolic margin.

Meanwhile, those countries which are currently pushing for the transit should be requested to support Ukraine’s EU membership bid.

Ukraine would be in a strong position to ask for all other sources of Russian gas - LNG or pipeline imports into Europe - to be banned.

Under the Ukrainian war compensation claim, Russian gas should enter Europe only via Ukraine, in limited quantities, for a short period of time and under strict EU monitoring. The same should apply to the Russian oil transit, particularly if a recent bill in the Ukrainian parliament to ban it passes.

Given a long history of corruption in the gas sector, Ukraine should be discouraged from considering imports of Russian gas for its own needs but supported to boost its domestic output and, if needed, to seek alternative imports via other regional routes.

In Moldova’s case, the transit loss may provide a historic opportunity for the government to integrate the two banks of the River Nistru.

Russia’s Gazprom stopped supplies to the Russian-speaking population when the Ukrainian transit agreement expired on 1 January 2025, refusing since then to make alternative arrangements for deliveries from the south.

Moldovan authorities have offered to help, partly out of self-interest because the province operates a large power plant which had historically covered around 70% of Moldova’s own electricity demand and partly out of goodwill to stave off a humanitarian crisis.

Nevertheless, authorities in Tiraspol declined the offer to import gas from Bulgaria, including, potentially, gas delivered by Russia via Turkey, opting instead to shiver in their homes.

If Transnistria agrees to work with Moldova to secure alternative supplies and funding to pay for them, Russia would lose its influence in the region, while Ukraine would consolidate its southern flank around the Odesa region and implicitly the security of the western Black Sea coast.

Logistically speaking, there are no problems to source and move gas south to north. Prices in the Balkans have been around €5.00/MWh cheaper than in western Europe and there is sufficient capacity to move the gas northwards.

The only problem is the cost of buying and delivering the gas. Transmission costs are estimated at anything between €20million-€45million via the south and cash-strapped Transnistria says it cannot afford it. Even here, the issue could be solved through EU grants or, possibly through the generosity of Nordic-Baltic countries which have yet again pledged their unwavering support.

Meanwhile, Moldovan authorities on the right bank could reach out to the less hawkish individuals in the Transnistrian political elite and remind them that the breakaway province depends for 80% of its export revenue on the EU, Moldova and Ukraine.

The rise in Transnistria’s exports to the EU is linked to the implementation of the registration of Transnistrian enterprises in Moldova as a prerequisite for engaging in foreign economic activities.

Since Moldova exercises full control over Transnistrian exports, the local elite should be reminded they could risk losing their export benefits if they refuse to cooperate with the right bank to solve the Russian-induced energy crisis.

With Moldova approaching parliamentary elections this year and its pro-EU government facing the threat of losing its majority, the country has very little time left to use this unique opportunity to integrate both banks and put an end to the frozen separatist war started by Russia in the early 1990s.

Depending on how events unfold over the upcoming months, the security of Europe’s northern flank could also be at stake.

In an ideal scenario, the Nordic and Baltic countries should work with Poland and Ukraine to establish a northern transit corridor that would see North Sea gas and regasified LNG imported in Poland and Lithuania reaching Ukraine and Moldova.

This route could merge with the Vertical Gas Corridor expected to ship gas in reverse from the Balkans to Moldova or Ukraine.

The two joined-up corridors could form an arc of European security along the Baltic and Black Sea coastlines, help Ukraine and Moldova earn transit revenue and ensure flexible access to multiple sources of supply, particularly at a time when more LNG production is set to reach global markets.

Finally, the failure of all the plans highlighted above would mean Russia’s unequivocal gains.

Moscow knows, it too, has a closing window of opportunity to get its foot back in the door and regain at least some of its lost market share in the EU, Ukraine and Moldova.

Recording significant financial losses since stopping supplies to Europe in 2022 and facing the prospect of multi-billion arbitration claims from European buyers, Gazprom faces a very difficult situation and will arguably do everything it can to put itself back on an even keel. Freezing Russian-speaking Transnistrians by cutting their gas supplies is just a minor part of that goal.

If pipeline politics ever came close to a zero-sum game, this would be it.