No More Gas
As of January 1, the Ukrainian government decided to cut the flow of Russian natural gas through its territory to the rest of Europe. Although it may seem odd that two nations engaged in a bitter conflict with over one million casualties both sides had an agreement for the uninterrupted flow of natural gas from the one warring country, through the second warring country, to third countries, Ukraine and Russia had such an agreement in place to facilitate cheaper energy for the European Union.
Now, despite the Kremlin’s arguments that the cessation of natural gas from Russia will only harm Europe but not Russia, it is very likely that Moscow will suffer significant financial damage.
“Ukraine’s decision to not renew its contract to transport Russian gas through Ukrainian territory will likely significantly impact Russian gas revenues despite Kremlin posturing to the contrary,” the Institute for the Study of War assessed in its latest estimate of the conflict.
According to an analysis by Bloomberg, Gazprom, the Russian state energy company, is set to lose up to $6 billion per year in lost gas revenues following Kyiv’s decision. Gazprom had already been struggling with decreased revenues from the sale of natural gas to Europe since the large-scale invasion of Ukraine began on February 24, 2022.
The drying up of gas revenues comes at a period in which the Russian economy is struggling under heavy international sanctions and the cost of a prolonged war.
An Economy on the Brink
“On December 20, 2024, the Russian Central Bank (CBR) decided to hold interest rates at twenty-one percent, marking a shift from its recent approach to tackling inflation,” the British Military Intelligence assessed in its latest update on the war.
After almost three years of fighting, the Russian economy is showing real signs of war and sanctions fatigue.
“At its last meeting in October 2024, the CBR hiked interest rates from nineteen percent to twenty-one percent, the highest rate since the beginning of the war in 2022. Criticism of high interest rates is growing amongst Russian businesses; however inflationary pressures are also likely intensifying, in part due to the recent depreciation of the Ruble,” the British Military Intelligence added.
In November, the Ruble was decimated, hitting its lowest exchange rate against the U.S. dollar (114 rubles for $1) since the large-scale invasion began. This depreciation of the Russian currency was the result of sanctions against the Gazprombank.
Although all these might seem foreign to the men fighting and dying in the trenches of Ukraine, the economy plays an important part in any war. Even Adolf Hitler, who held complete sway over Germany during World War Two, was forced to pay attention to the Reich economy amid a total war.
Stavros Atlamazoglou is a seasoned defense journalist specializing in special operations and a Hellenic Army veteran (national service with the 575th Marine Battalion and Army HQ). He holds a BA from Johns Hopkins University and an MA from Johns Hopkins School of Advanced International Studies (SAIS). His work has been featured in Business Insider, Sandboxx, and SOFREP.
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