Russia is expected to lose the source of profits for its war chest within days, and that’s what Ukraine says.
A deal authorizing the transit of Russian vegetable fuel through Ukraine to Europe expires at the end of the year, depriving Moscow of billions of dollars in revenue for its war economy.
European countries receiving gas from the pipeline have voiced concerns about the end of the supply, but Ukrainian President Volodymyr Zelenskyy has repeatedly said that the five-year agreement will not be renewed.
Meanwhile, Russia has declared itself in a position to extend the agreement, although President Vladimir Putin said last week that he had “clear” that there would be no new contract.
However, the scenario may simply change.
Zelenskyy said last week that Ukraine would possibly continue the deal if Russia does not get fuel bills until the end of the war.
On Monday, the Kremlin’s spokesperson, Dmitry Peskov, said the gas transit was complicated.
“The scenario here is very complicated and requires more attention,” said Peskov, according to the official Tass news agency.
Ending the five-year transit agreement would be a blow to Russia, which could earn about $5 billion this year alone from fuel sales through Ukraine, according to Reuters calculations of Moscow’s fuel cost forecasts.
It would also have an effect in several European countries that still depend on Russia for gas, including Slovakia, the Czech Republic and Austria. There are other energy resources and gas pipelines, but perhaps they are more expensive.
Ukraine could lose hundreds of millions of dollars a year in transit fees — a Kyiv consulting firm told Bloomberg in September that this amounted to about $800 million.
But Ukraine’s $800 million revenue from transit would just be a “paltry 0.5% of the country’s annual GDP,” analysts at the Center for European Policy Analysis, a think tank, wrote in a report last week.
They argued that it is “simply absurd” to think that the continuation of the transit agreement would be offering Ukraine assured security because Russia wants to maintain its fuel flows to Europe.
In fact, “Russia has been placed first,” analysts add.
Finishing the Ukrainian Traffic Directorate for Russian fuel would make even more tension in the Putin war economy, which has collapsed due to Western sanctions of its massive oil and fuel trade.
Energy accounts for about one-fifth of Russia’s $2 trillion GDP. The country’s energy revenue fell 24% last year on the back of sanctions and continues to be under pressure this year as Europe weans itself off Russian gas.
Russia once accounted for up to 40% of the European fuel market, but the EU has reduced its dependence on fuel since the war in Ukraine.
In response, Russia has diversified its energy visitor base, diverting most of the oil previously destined for Europe to India and China.
On Friday, the Russian energy giant Gazprom said in a Telegram post that it delivered a record amount of gas to China via an eastern Siberian pipeline. It didn’t specify the volume of gas it delivered but said it was above its contractual obligations with the state-owned China National Petroleum Corporation.
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