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Russian gas no longer flows to EU states through Ukraine following the expiration of a five-year agreement, closing an energy route that has existed since the end of the Soviet Union in 1991.
President Volodymyr Zelensky said the move means Russia can no longer “earn billions from our blood.”
Its Energy Minister Herman Halushchenko confirmed on Wednesday morning that kyiv had stopped gas flows “in the interests of national security.”
“This is a historic event,” he wrote on the social media platform Telegram. “Russia is losing markets and will suffer financial losses.”
The agreement had allowed Russian gas to travel through Ukraine's pipeline networks to European countries, mainly Hungary, Slovakia and Austria.
Its end will not cut off all Russian gas to Europe, but it will reduce it significantly. Gas can still travel from Russia to Europe via the Turkstream gas pipeline, but no longer through Ukraine, reducing gas imports to the EU by around 14 billion cubic meters.
The European Commission has said that this volume can be replaced by liquefied natural gas (LNG) and pipeline imports from other sources, such as Norway and the United States.
However, the impact is already being felt in parts of EU candidate country Moldova, which was receiving Russian gas via Ukraine.
The Russian-speaking breakaway region of Transnistria, where about 45,000 people live, cut off supplies to homes. “There is no heating or hot water,” said a worker at the energy company Tirasteploenergo.
The financial impact
Although Ukraine benefited financially from the now-expired deal to the tune of $800m (£640m) a year, the gas was not imported into Ukraine.
The latest estimates show that Russia is expected to lose around €5bn (£4.14bn) a year from gas transported to Europe via Ukraine.
According to its own reports, Gazprom's market capitalization is around £22 billion (3 trillion rubles).
Gazprom is Russia's largest company and has the largest gas reserves in the world. Since the invasion of Ukraine, his business has taken several hits.
By the end of 2024, Russian gas exported to Europe through Ukraine's pipelines alone had already decreased by 78 percent since the contract began in 2020.
And for the first time since 2001, Gazprom reported a net loss of 5.5 billion pounds (629 billion rubles) in 2023, after gas sales plummeted.
Until that point, the gas giant was consistently raking in billions each year; including even £14 billion (1.9 trillion rubles) in 2022, during the first year of the war.
Revenue fell by around 27 per cent in 2023, to £61 billion, while revenue from gas sales in particular fell by 40 per cent.
In this context, a loss of 4.14 billion pounds in gas sales without the Ukraine transit agreement could lead to a further 6.7 percent decline in revenues for Gazprom and Russia.
The Russian oil and gas war chest
Gazprom is majority state-owned, meaning the Russian state receives a considerable sum of its profits.
Russia depends in part on the oil and gas business to finance its ongoing war in Ukraine; whose revenues represent between 30 and 50 percent of the Russian federal budget, according to the Oxford Institute of Energy Studies (OIES). Besides the EU, Russia's largest pipeline gas exports go to Turkey and Belarus, while LNG exports rely heavily on sales to China and Japan.
According to Bloomberg, Russian gas exports to China are at a discount of up to -28 percent compared to European exports, meaning they are less profitable for Russia overall. But ultimately the vast majority of Russian state oil and gas revenue comes from oil sales, rather than gas sales, according to the OIES.
Although the EU has banned oil imports from Russia, numerous reports suggest that Russian oil still reaches the EU through secondary channels.
A Global Witness investigation found that 130 million barrels of refined products were imported into the EU in 2023 from refineries processing Russian crude oil, worth an estimated €1.1 billion in tax revenue to the Kremlin.
Russia is the largest supplier of crude oil to China and India. The UK and EU countries import billions of dollars of refined oil from these two countries, some of which is likely to come from Russia despite sanctions.
The Russian gas problem
Aside from sanctions over the invasion of Ukraine, European countries' dependence on Russian gas has been a difficult challenge to address.
Historically, Russia has used its pipeline exports to exert political control over dependent countries, from Ukraine to Armenia.
Today, Gazprom is also weaponizing the same tactic in Moldova, cutting off gas supplies over an alleged debt of $709m (£565m).
However, the decision not to expand gas transit through Ukraine faced some pushback.
Slovakia's prime minister threatened to cut off electricity supplies to Ukraine in retaliation, saying ending Russian gas transit would increase energy prices.
However, gas transit through Ukraine's gas pipelines has already ceased.
