Russian gas is about to stop flowing in Ukraine.

Russian gas flows through Ukraine are set to stop on Wednesday as a transit contract between the two countries expires following Moscow’s all-out invasion.

The pipeline was one of the last two routes to transport Russian gas to Europe, nearly three years old. War. European Union countries lose about 5 percent of their gas imports in the middle of winter.

While traders had long expected flows to stop, the end of the pipeline through Ukraine will affect Europe’s gas balance, where demand for heat is high. Slovakia is the most affected country.

Aldo Spanger, senior commodities strategist at BNP Paribas, said: “Even if we think losing those volumes (is a price), a strong price reaction is not out of the question initially.”

The agreement to allow Russian gas to pass through Ukraine It was signed a day before the 10-year contract between the national gas companies expired at the end of 2019. At the time, the European Commission strongly promoted the agreement.

In the year But as the bloc moves to wean itself off Russian fossil fuel imports after Russia fully invades Ukraine in 2022, the commission has encouraged member states to look for alternative supplies. The governments of Moscow-friendly Hungary and Slovakia opposed that change and sought to extend the deal beyond January 1.

The Ukrainian government telegraphed months ago that it was unwilling to negotiate an extension of the deal because it wanted to deprive the Kremlin of revenue from gas exports. According to Brussels-based think tank Bruegel, ending the flow would cost Russia $6.5 billion.

But it would be a financial problem for Ukraine, which earns $1 billion a year in gas payments, though only a fifth of that was a huge profit. Analysts say that without Russian gas flowing through Ukraine’s vast pipeline infrastructure, Russia’s aggression could escalate.

Slovak Prime Minister Robert Fico visited Moscow on 22 December. To discuss the gas transmission contract. Condemning Ukraine’s intransigence on the deal, he questioned whether the country “has the right to harm the economic national interests of a (AH) member state.”

Shortly before the end of the agreement, Fico posted on Facebook: “Other gas transmissions Options Instead of Russian gas, they were offered to Ukrainian partners, but these were rejected by the Ukrainian president. “Slovak Prime Minister threatens to cut back-up electricity supply from Slovakia to Ukraine in retaliation.”

Hungarian Prime Minister Viktor Orbán has also tried to find a solution to allow Russian gas to flow through Ukraine. His government has turned to supplementing supplies by shipping the remaining Russian gas through Turkey and to neighboring Romania.

Austria, which imports Russian gas until 2024, has switched to alternative sources such as liquefied natural gas imports. Energy company OMV terminated its long-term contract with Russia’s Gazprom in mid-December due to legal disputes.

The gas cut will also have a significant impact on neighboring Moldova, which introduced a state of emergency in the energy sector in mid-December due to uncertainty surrounding Russian gas transport.

The suspension of Russian gas flowing through Ukraine will increase European demand for cheaper LNG, for which Asia is also competing.

EU officials have insisted that the bloc can live without Russian pipeline supplies, even if it means receiving more expensive gas from elsewhere.

The European Commission said on Tuesday it did not expect disruption. “The European gas infrastructure is flexible enough to supply gas outside of Russia via alternative routes to Central and Eastern Europe,” he said. It is bolstered by significant new LNG import capacity from 2022.

Still, the Turkish pipeline, which transports Russian gas to Europe, contributes 5 percent of the EU’s revenues. The US recently imposed sanctions on Gazprombank.The main gateway for Russian energy payments.

But to soften the impact of the sanctions, Russian President Vladimir Putin in early December waived the requirement that foreign buyers of Russian gas pay through the bank. Countries such as Turkey and Hungary have also said that the US has been exempted from sanctions.

Natasha Fielding, head of European gas prices at Argus Media, said: “The sanctions have already added further uncertainty to the fate of remaining Russian gas supplies in Europe as we head into the new year.” Agency. The US price cut means “buyers of Russian gas sent through the Turkish Stream pipeline can breathe a sigh of relief,” she said.

Traders are not ruling out an increase in Russian gas flows to Europe in the future. European companies reeling from high gas and energy prices, forcing them to cut production, will return to buying Russian gas, which is cheaper than LNG, a senior trader said.

“At some point there will be a peace agreement. . . People want to stop the war, so they have to sign a peace treaty. One of the things Russia will gain is the ability to supply Europe with gas, the businessman said.

While European governments may impose sanctions to prevent the continent from becoming overly dependent on Russian gas again, the trader said, “You expect some Russian gas to return to Europe, because basically, the geography has not changed.”

Additional reporting by Andrew Bounds