After five decades, Russia's gas pipeline to Europe via Ukraine came to an end after Kyiv refused to let any passage that would finance Moscow's military machine.

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The end to the key route comes as the deal expired on December 31, increasing the risks to the European continent's energy security and forcing it to rely heavily on its reserves.

Both Europe and Russia confirmed the deal's expiry on Wednesday.

This comes as central European nations are depleting their winter stock at the quickest pace in years. The blockage forces them to acquire gas from elsewhere, which is more expensive. This puts more strain on supply.

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What will change?

A little over 5 per cent of Europe's energy needs comes from this route.

Yet some nations in the region are still feeling the effects of the energy crisis that Russia's invasion of Ukraine caused.

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In recent weeks, the impending supply restriction has contributed to energy prices surging 50 per cent year-on-year.

As the continent's reliance on worldwide liquefied natural gas grows, it is becoming increasingly vulnerable to market instability.

Ukraine has remained a vital route for gas deliveries into Europe for the past fifty years.

The cutoff puts more strain on supplies at a time when central Europe is already seeing the fastest depletion of its winter reserve in years since several nations that have depended on the flows will have to find more costly gas elsewhere.

Cost of the deal's expiry?

Bloomberg estimates that Russia would lose almost $6 billion in annual income if it were to cut off one of its two remaining gas pipeline lines to Europe.

Not only will Ukraine forego transit payments, but it will also relinquish its long-established geopolitical role as a cheap energy supplier to Western allies.

Even though it has come at a greater expense, most of Gazprom PJSC's central European clients have found other suppliers.

In a Telegram message, the Russian gas giant said, "Due to the repeated and explicit refusal of the Ukrainian side" to extend the deal, Gazprom PJSC "was deprived of the technical and legal opportunity to supply gas for transit through the territory of Ukraine from January 1, 2025."

Slovensky Plynarensky Priemysel, Slovakia's biggest gas utility, has announced that it will spend an additional €90 million ($93 million) annually to ensure more consistent imports through other channels.

Additionally, it cautioned that a harsh winter would put the entire continent of Europe at greater risk.

There won't be an urgent shortage in Europe, but it may make prepping for the upcoming heating season harder. Inventory levels in the region have been dropping sharply, and the capacity is currently less than 75 per cent.

Putin's goal gets a boost

Russian President Vladimir Putin is now expected to intensify his long-held goal of increasing LNG shipments in response to the decline in Moscow's piped supplies to Europe.

Russia continues to sell record quantities of liquefied gas to Europe despite demands from several European nations to cut off Russian imports for Mozcow's invasion of Ukraine.

Restrictions imposed by Western countries make it difficult for Russia to expand its LNG exports any further.

However, US President-elect Donald Trump may try to change these restrictions after possible peace talks.

As Europe fights to recover from the most significant cost-of-living crisis in decades, the reduction of essential Russian piped gas risks escalating prices for consumers and enterprises.

Slovaks hit the hardest

Numerous European countries have waged an intense campaign to maintain the supply.

Last month, Robert Fico, the prime minister of Slovakia, pleaded with his European colleagues to find a way to keep the gas flowing. Fico said Slovakia receives up to €500 million in transit fees annually.

Even more concerning for regional energy security, he dared to scare Ukraine with a potential power outage.

The gas stop, he said on Wednesday, would affect every EU member state "drastically."

Fico said, "Are we just going to let that pipeline dry up?"

He added, "In the name of what? Because you don't like the Russians? Fine, I like them."

Since his return to office last year, the prime minister has vocally criticised the European Union's military assistance to Ukraine, asserting that the backing extends the conflict.

However, Ukrainian President Volodymyr Zelenskiy has firmly rejected any deal that would send funds to Russia's coffers.

Last week, Putin said negotiating a new gas transportation arrangement via Ukraine would be difficult.

Ursula von der Leyen, President of the European Commission, has asserted that the end of transit will not substantially impact regional energy markets. She has also established a political objective to eradicate Russian fossil fuels by 2027.

What about Serbia, Hungary and Austria?

Russia continues supplying gas to countries like Serbia and Hungary through the TurkStream pipeline, which circumvents Ukraine.

However, that route is inadequate to offset the loss of Ukraine transit entirely.

Another route through Poland is currently obstructed. The Nord Stream pipeline connecting Germany to Russia sustained damage from explosions in 2022, and Berlin has yet to authorise the subsequent Nord Stream 2 connection.

Even though Austria was formerly one of Gazprom's clients, the country's main utility, OMV AG, terminated the long-term supply arrangement with the Russian company last month, saying that it hadn't received gas deliveries since mid-November.

History and the dynamics

Gas shipments to European clients during winter months have been hampered due to disputes between Moscow and Kyiv.

Moscow and Kyiv reached an agreement to settle their dispute in 2009, which caused Russian supplies via Ukraine to halt for about two weeks. The frigid temperatures affected more than 20 nations. The 2006 interruption was less severe.

The agreement that recently ended in 2019 was also the product of last-minute talks. Unfortunately, a speedy settlement is now improbable due to the war and the EU's overall unwillingness to purchase gas from Russia.

At what cost?

The end of the transit deal has caused European gas prices to surge to their highest level since November 2023.

On Tuesday, February, gas in the Netherlands, Europe's gas benchmark, reached €50 a megawatt-hour, an increase of about 4.5 per cent.

The benchmark futures have increased by more than 50 per cent due to the price volatility created by uncertainty over these supplies.

Just as central Europe is bracing for lower temperatures in January, Slovakia and a handful of other governments in the area are scheduled to cease receiving supplies.

It will be more difficult to meet storage goals for the upcoming heating season because inventories are also running out faster than normal.

(With inputs from agencies)