Silicon Bites #73 - Russia's Ability to use Energy as a Cynical Weapon of Blackmail just got Reduced
Jan 4, 2025
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Volodymyr Zelenskyy, President of Ukraine, shares his insights on the recent termination of Russian gas transit through Ukraine, which he claims is a significant blow to Moscow. He discusses how this decision might shift European energy dynamics and undermine Russia's political leverage. Zelenskyy emphasizes the historical context, noting how Russian gas shipments have plummeted from over 130 billion cubic meters to zero in recent years. He also highlights the broader economic impacts on the region and the humanitarian situation in Transdenistria and Moldova.
Ukraine's halt of Russian gas transit marks a strategic victory, significantly weakening Moscow's energy leverage over Europe amidst ongoing conflict.
The cessation of gas exports will lead to long-term financial struggles for Gazprom, highlighting the waning impact of Russia's energy dominance.
Deep dives
Impact of Stopping Gas Transit
Ukraine's decision to halt the transit of Russian gas is a significant blow to Moscow, as stated by President Zelensky, who views it as one of Russia's greatest defeats. The gas transit, which had continued for three years amidst the ongoing conflict, had been a financial lifeline for Russia in funding its military aggression. With the cessation of this supply, European nations are forced to adapt and diversify their energy sources, leading to a shift away from reliance on Russian gas. The closure of this energy route marks a crucial turning point in Europe’s energy dynamics, reducing the Kremlin's power over its European partners.
Consequences for Regional Areas
The shutdown of gas transit has dire implications for Transdenistria, a pro-Russian region in Moldova, which has faced severe industrial decline as a result. Only food production remains operational, with all significant industries halted, highlighting the vulnerability of regions reliant on Moscow's energy supplies. Despite facing threats from local leaders, Slovakia continues to provide electricity support to Ukraine, illustrating complex regional dependencies. This situation serves as a stark reminder that alliances with Russia may lead to economic hardships and energy insecurity.
Long-Term Effects on Russian Economy
The end of Russian gas exports through Ukraine promises long-term financial repercussions for Russia, specifically for Gazprom, which has reported losses for the first time in over two decades. The company is now struggling due to a substantial decrease in gas sales, with European gas market share dropping dramatically since early 2022. Although Russia remains reliant on oil for funding its war efforts, the loss of gas transit income underscores the diminishing power of its energy leverage on the continent. However, without significant cuts to oil revenues, which continue to generate income through back channels despite sanctions, the Russian economy may not face immediate collapse.
1.
The Collapse of Russian Gas Transit: A Defeat for Moscow
Edition No73 | 04-01-2025 - Is the stopping of gas transit via Ukraine
'One of Moscow's biggest defeats'? That is what Zelensky is claiming,
as Ukraine terminated Russian natural gas transit on 1st Jan. 2025. Kyiv
has repeatedly warned it would not extend the agreement to allow
Russian natural gas to transit through its territory to Europe, and
indeed the expiry of that agreement was a natural point for Ukraine to
make good on its threats. It’s remarkable in fact that this gas transit
has continues for 3 years of the full-scale war, given how important gas
has been in the financing of Russia's war.
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"When Putin was handed power in Russia over 25 years ago, the annual gas
pumping through Ukraine to Europe stood at over 130 billion cubic
meters. Today, the transit of Russian gas is 0. This is one of Moscow's
biggest defeats," Zelensky said.
"Turning energy into a weapon and cynical energy blackmail of partners
is what deprived Russia of its most attractive and geographically
accessible market." Zelensky has suggested that three years is a long
enough period for European countries to adapt to the termination of
Russian gas supplies. For some countries it’s been easier than others,
and some have been more proactive in weaning themselves off Russia gas.
Zelensky also suggested that having a greater diversity of suppliers and
partners could increase competition in the market and help to drive
down prices. "The more gas from Europe's true partners is available on
the market, the sooner the last negative consequences of European energy
dependence on Russia will be overcome," Zelensky said. With a degree of
sarcasm, he added “it will be necessary to withstand the hysteria of
some European politicians who prefer mafia schemes with Moscow to
transparent energy policy."
Two examples of leaders that prefer to maintain so-called ‘mafia
relations’ with Russia, are Viktor Orban, the Hungarian Prime Minister,
and Slovak counterpart Robert Fico. As the most vocal opponents of
Ukraine's decision to stop Russian gas transit, they have also shown a
willingness to also pay homage at the court of the killer Tsar in the
Kremlin, despite Russia's invasion of Ukraine and are the main promoters
of pro-Russian narratives in Europe.
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NEWS SOURCES:
https://www.theguardian.com/world/2025/jan/01/breakaway-moldovan-region-cuts-heating-and-hot-water-as-russia-stops-gas-flow
https://www.independent.co.uk/news/world/europe/russian-gas-pipeline-ukraine-gazprom-b2673631.html
https://www.theguardian.com/world/2025/jan/02/moldovan-region-transnistria-shuts-down-its-industries-after-loss-of-russian-gas
https://kyivindependent.com/slovak-state-energy-company-to-continue-to-supply-electricity-to-ukraine-despite-ficos-threats/
https://kyivindependent.com/one-of-moscows-biggest-defeats-zelensky-on-stopping-russian-gas-transit-via-ukraine/
https://kyivindependent.com/transnistria-rejects-offer-to-buy-gas-from-europe-expects-russia-to-resume-supplies/
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