Why Ukraine cutting off Russian gas supply can be a win for Türkiye

On January 1, Ukraine terminated the transit of Russian gas to Europe, ending 34 years of almost uninterrupted supply since the collapse of the Soviet Union. Some in the West have celebrated this as a victory over Russia.

If anything, it is a potential victory for Türkiye as the Southern Corridor – a 3,500 km-long route for transporting natural gas – rises in strategic importance to European industries rocked by high prices and low productivity.

For all practical purposes, the sale, purchase and supply of gas or any other commodity are entirely commercial matters.

However, Russian gas has long been politicised in the West, more so in the context of the crisis in Ukraine that started in 2014 and eventually led to Moscow launching what it called a “special military operation” against Kiev in 2022.

Ukraine’s recent decision to end the long-standing gas supply route to Europe seems just another minor twist in that soap opera.

In the big scheme, it won’t strike a major blow to Russia, despite Poland’s Foreign Minister declaring it a victory.

Gas, like oil, flows to where the demand is. The war in Ukraine has seen a huge increase in Russian oil supplies to India and a continued growth in Russian gas supplies to China. Meanwhile, Russia has also increased its LNG exports to Europe to replace cheaper piped gas supplies.

Numbers don’t lie. And export data shows that Russia hasn’t been weakened, although its economy has undoubtedly endured seismic shifts.

Since 2014, Russia has, on average, exported $420bn worth of goods each year, two-thirds of that oil and gas. After a hugely profitable year in 2022 when energy prices surged, Russia remained above that trend average in 2023 and looks set to repeat it when 2024 data is compiled. There’s nothing that suggests 2025 will be different, either.

Winners and losers

The two biggest losers here will be the unrecognised breakaway region of Transnistria within Moldova.

In a perverse arrangement, a major power station in Transnistrian supplied around one-third of all Moldovan electricity using Russian gas piped across Ukraine.

Authorities in Tiraspol – the biggest city of Transnistria – need to engage with the Moldovan government in Chisinau to resolve energy shortages in both places.

Specifically, Transnistria may have to bite the bullet on more expensive gas delivered from Europe to restart its power plant and provide electricity to Moldova in return.

Of greater strategic importance is Slovakia. By picking a fight with an EU and NATO member, Zelenskyy may have bitten off his nose to spite his face: Slovakia, with Hungary, will almost certainly act as a major spoiler against Ukraine’s efforts to join NATO and the EU.

It’s a timely reminder of how, in the war in Ukraine, statecraft has often been victim to the tyranny of short-term thinking.

Ukraine will lose up to $1bn per year in gas transit fees from its decision. It is one of the ironies of this long-running saga, that since the rise in tensions, Ukraine lobbied Western powers to pressure Russia into maintaining gas transit.

In 2014, Ukraine received around $3bn per year in gas transit fees, and in the face of huge economic challenges, wanted to retain this revenue.

Even in 2024, the idea of swapping Azeri gas for Russian gas through the Ukrainian transit system was also mooted, allowing Ukraine to retain its lucrative transit income.

Slovakia was a key partner to Ukraine in 2014, when the decision was taken to cease the purchase of gas directly from Russia and to replace it with a so-called reverse flow in which Europe would supply gas to Ukraine.

All the indications are that Slovakia will be able to resolve any gas supply issues over the winter from other sources, albeit at a much greater cost and with a reduction in income from gas transit. Prime Minister Robert Fico has warned that cutting gas transit via Ukraine would hurt the EU more than it hurts Russia.

For now, Europe has decisively turned its back on piped Russian gas regardless of the cost in economic self-harm. As for the potential political tremors, mainstream voters will likely abandon the centrist parties and choose the far-right and hard-left.

Russia is permanently placed on the European naughty list and is no longer the gas supplier of first resort.

Since 2014, there has been an enormous reduction in available gas pipelines from Russia to Europe. The destruction or suspensions of the Nordstream pipelines (110 billion cubic metres), the suspension of the Yamal Pipeline (33bcm) via Belarus and now the cutting of Ukrainian gas transit (42bcm) have together taken around 185 bcm of potentially yearly piped gas supply from Europe.

LNG imports into Europe have correspondingly tripled since 2014.

In 2014, LNG imports amounted to only 10 percent of total imports compared to 43 percent today. According to the European Commission, LNG imports from the US make up almost 50 percent of the total and tripled in volume between 2021 and 2023.

Shipped LNG from the US and other countries is more expensive than piped Russian gas by around 30-40 percent. And the reason for that is massive profiteering in Europe with large trading companies sealing long-term contracts with US suppliers and selling gas at a massive markup.

So the EU can’t blame the Americans, as the LNG in US ports costs four times less than when it reaches European consumers. Russian gas was largely cheaper because Gazprom fixed long-term contracts with gas suppliers in the countries supplied.

In the case of Slovakia, a long-term contract had been in place for gas supply until 2027.

The shift to LNG has been a political choice. No rational economic actor would impose a 30-40 percent levy on its domestic energy industry. This has been driven by a desire to weaken Russia’s export-dependent economy, but that hasn’t worked.

Advantage Ankara

The big choice for Europe now is how to rebalance its gas supply mix over the long term to bring down prices, moderate political radicalisation and reignite industrial competitiveness.

This presents a huge opportunity for Türkiye.

At a time of high energy prices in Europe, there remains considerable demand for cheaper piped gas.

Supplies to Europe via Turkstream hit an all-time high in July 2024 although that approached the maximum limit of the pipeline’s current capacity. The Southern Corridor is recording record growth in profits.

The Southern Corridor pipeline, linking gas in the South Caucasus and further afield, has the potential to increase to 120bcm per year over time.

Turkstream has a yearly capacity of 31.5bcm. Taken together, Türkiye has the potential to become the transit point for over 150 bcm of piped gas each year, not far short of the capacity of redundant Russian pipelines to Europe.

Ukraine, for one, appears to be already rattled by this turn of events. Russia this week claimed an attempt by Kiev to hit the Turkstream infrastructure with a swarm of drones, in what could be a desperate attempt to cut off the vital route.

The combination of the Southern Corridor and Turkstream provides for a hugely diversified gas transit mix from Iraq, Azerbaijan, Turkmenistan and, of course, Russia. Türkiye has also in recent years signed long-term LNG supply contracts.

European observers will watch developments like a hawk, looking for signs that Türkiye will offer a backdoor into Europe for Russian piped gas.

So, the idea of a Turkish blend of gas therefore appears a wise move, allowing Türkiye to arbitrage gas from a wide range of suppliers and create competitive contracts with European consumers.

Sat at the intersection of Europe and Asia and keen to maintain balanced relationships with all its partners, Türkiye may become Europe’s most important energy partner in a changed world order.