Russia’s Gazprom continues to supply gas despite Ukraine’s seizure of a key technical facility in Kursk. The consequences for the company and the Kremlin could be extremely serious.

As a gas transit expert and former head of the Ukrainian gas transmission network, I have been closely following the decision-making process on Gazprom’s continued use of pipelines through Ukraine, especially since Kyiv’s armed forces seized the key Sudzha gas metering station in Russia’s Kursk region two weeks ago.

To understand Gazprom’s approach, one must consider the strategic importance of Sudzha. It is the only remaining route through which gas can be delivered directly to Europe, and it will become even more important after the Yamal and Nord Stream 1 pipelines cease operations in 2022.

Currently, gas flows through Sudzha are 40-42 million cubic meters per day, making it an indispensable link in the chain of Russian gas exports to Europe. It is even more important for Gazprom, the once-lucrative gas giant that has been financially squeezed by the continent’s shift away from Kremlin energy.

Given the importance of the Sudzha gas field, the loss of control poses significant risks for the Russian company. Gazprom now has no control over the metering station where gas flow is measured, which creates a risk that third parties could tamper with the measuring equipment. In addition, Gazprom personnel cannot carry out standard maintenance work.

In short, Gazprom can no longer trust the system that records and details a large part of its exports and thus its income.

The company is also obliged to submit measuring instrument documentation to the Russian customs and tax authorities in order to pay the tax.

These questions alone could justify the declaration Force majeure and the cessation of gas supplies. But Gazprom has not taken this step, which has surprised analysts and industry experts.

With company employees no longer on-site and anyone able to tamper with the measurement technology, executives can no longer rely on the accuracy of the data produced. So why do they continue to exist in their company?

The financial impact on Gazprom is a key factor. The company reported a loss of 0.5 trillion rubles ($5.4 billion) in the first half of 2024 alone, and maintaining annual revenues of $5 billion from gas sales to the European Union (EU) is critical to its balance sheet.

There are no technical alternatives to divert the gas to other markets. Since each day of transit generates $14 million in revenue, transportation is a lifeline for the company.

Gazprom is well aware that even a short disruption in transit could force its customers to switch to alternative gas delivery routes, possibly permanently. The minimal fluctuations in gas prices in the EU in response to the recent Ukrainian military operation in the Kursk region indicate that the European market can increasingly function without Russian gas and Ukrainian transit.

Domestic political considerations also play a role. Export earnings are the main source of funding for subsidized gas prices for the Russian population, and the loss of the European gas market could force the government to raise prices for consumers, further fueling inflation and fomenting social tensions.

Outside Russia, the main recipients of the gas are Slovakia, Austria and Italy; since 2021, Hungary has also received a share indirectly via the Turkstream pipeline.

The Kremlin needs Gazprom to maintain supplies to pro-Russian Slovakia and Hungary, where there is cheaper gas than Consideration to politically sympathetic governments. This is a central element of Russian foreign policy as it seeks to divide the EU and block military and financial support for Ukraine. Without Russian gas, its leaders would have less incentive to support Russian interests.

Maintaining gas transit to the breakaway region of Transnistria is also crucial for the Kremlin. Without the provision of free gas, the reintegration of this region into the Republic of Moldova could become possible.

If Gazprom were to stop the transit, the company would not only lose revenue from gas sales, but would also have to face significant legal claims from its European customers for non-delivery. The company is contractually obliged to supply Slovakia and Austria with gas for its European customers. If it fails to do so, it could face massive claims for damages.

For example, the German company Uniper has already won an arbitration case against Gazprom for $14.5 billion, and many other lawsuits are still pending. The Austrian company OMV has a contract until 2040, and a lawsuit for non-delivery could amount to several billion dollars. Even Moldova would have legal grounds to sue Gazprom.

Given these considerations, it is likely that Gazprom will continue to operate as long as possible under the current circumstances. However, the military and commercial risks of a transit disruption remain significant.

There are no significant risks for either Ukraine or Europe if transit is interrupted. In fact, it might be wiser to end it in the summer rather than in January, when demand for gas is at its highest.

Sergiy Makogon was CEO of GasTSO of Ukraine (2019-2022) and is an energy expert with extensive experience in the European and Ukrainian gas markets.

Europe’s edge is CEPA’s online journal covering major foreign policy issues in Europe and North America. All opinions are those of the author and do not necessarily reflect the position or views of the institutions he represents or of the Center for European Policy Analysis.