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Why Russian Oil and Gas Still Flows Through Ukraine

It is, as A Ukrainian energy consultant, who asked not to be named, put it “sarcastically and absurdly”: Russian oil and gas continue to flow through Ukrainian pipelines amid Russia’s brutal war against Ukraine. Before the war, Europe depended on Russia for 40-45% of its imported natural gas and about a quarter of its oil. Russia has since tried to coerce Europe into dropping economic sanctions by restricting supplies. Europe in turn has almost completely cut itself off from Russian energy. But not quite. The constant flow is partly a hangover from the old system, partly due to contract law, market realities and political expediency.

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Get the oil first. In December, Europe banned seaborne oil imports from Russia (with a few temporary exceptions). But in a concession to the landlocked country, the pipeline was exempted. In retaliation, Russia shut down the North Druzhba pipeline to Poland and Germany. However, oil continues to flow through Ukraine via the South Druzhba pipeline to refineries in the Czech Republic, Slovakia and Hungary.The latter helped Vladimir Putin maintain a special relationship with Hungarian Prime Minister Viktor Orban, who has been lobbying against European Union sanctions.

The sanctions bar the three countries from exporting fuel they produce from Russian crude to other countries, with one ironic exception: They can ship the fuel to Ukraine. Ukrainian refineries, mostly in the country’s war-torn east, have been hit hard. With Black Sea ports blocked, the only other way Ukraine can get gasoline is by truck or train. “We still need this oil in terms of cynical military strategy,” said the Ukrainian energy adviser.

Meanwhile, Russian gas has never been blocked. However, as soon as Europe imposed sanctions, Russia started turning off the taps. Despite the mysterious sabotage of the Nord Stream pipeline in September, Russia could have been able to supply gas to European customers through the Ukrainian network. But when Ukraine closed the pipeline’s entry point into the occupied territory, Russia refused to pay the full transit fee and threatened to cut off the supply. Ukraine offered to change the gas route, but Russia rejected it. Ukrainian state energy company Naftogaz has taken Gazprom to an international arbitration court to settle the dispute.

Mr Putin’s warnings that Europe would “freeze” without Russian gas never worked: the winter was warm and Europe found other sources. By March, Russia’s share of European gas imports had fallen to just over 10%. About half of that is LNG purchased from a private Russian company; another quarter is sent to southern Europe via the TurkStream pipeline. The rest goes through Ukraine, mainly to Slovakia and Austria. Analysts expect Russia to reduce this reduced traffic. The contract between Naftogaz and Gazprom expires at the end of 2024 and it is difficult to imagine a renewal.

Ukrainian officials say that as long as the Europeans buy Russian gas, they will fulfill the transportation contract. It is not in their interest to make a fuss and endanger European support. Keeping Ukraine’s internet open would also help sue Gazprom for cutting off their European customers: otherwise the Russians could argue that the Nord Stream explosion made deliveries impossible.

Ukraine’s own demand for gas has been reduced and much of its industry has been destroyed. The country produces almost enough to meet its needs. But it imports most of its oil, especially diesel fuel for generators and military vehicles used during blackouts. Ukraine buys diesel from various traders, often of unknown origin. But a Ukrainian energy consultant confirmed with a half-smile that some of the fuel powering Ukrainian tanks could come from Russia.

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