Kiev turns off the Russian gas tap
But also — Germany, Hungary, Planes, Crypto
Hello! Today is January 8, and here is the first edition of What’s up EU for the year 2025. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
The Briefing
January 1, 2025 marks a turning point in Europe’s energy geopolitics: the transit of Russian gas via Ukraine has finally come to an end.
Kiev has chosen to not renew the transit deal signed in 2019 with Gazprom, which accounted for around 5% of European gas demand.
TURNING OFF THE TAP • This decision, which has been a long time coming, was announced by Ukrainian President Volodymyr Zelensky as part of his strategy aimed at reducing Russia’s revenues.
According to the Brussels-based think tank Bruegel, this measure could deprive Russia of up to $6.5 billion in revenue if Moscow fails to redirect the gas flow.
Shutting down this pipeline will also have financial consequences for Ukraine, which earns nearly $1 billion annually in transit fees.
Despite this loss, Volodymyr Zelensky celebrated an historic turning point. “More than 25 years ago, when Putin was appointed president of Russia, annual gas transit through Ukraine to Europe amounted to over 130 billion cubic meters. Today, this figure is 0. This is one of Moscow's greatest defeats,” he stated on X on January 1.
According to the International Energy Agency (IEA), the non-renewal of the gas transit contract between Ukraine and Gazprom could lead to “a loss of around 6 billion cubic meters of gas supply to the EU in the first quarter of 2025.”
NO IMMEDIATE RISK • Central and Eastern European countries will be particularly affected by Kiev’s decision, especially Austria, Hungary, and Slovakia, which covered 65% of their gas needs through this pipeline in 2023.
However, the end of this transit does not pose an "immediate risk" to the supply security of these countries, given their significant storage capacity, the IEA notes.
These stocks, currently filled to 72% (a rate significantly lower than the 86% recorded at the same time in 2023) along with “new LNG import capacities put in place in 2022,” will allow the EU to guarantee its gas supply, the European Commission stated.
SLOVAK THREATS • European countries have reacted in various ways to this decision. Warsaw, which has held the rotating presidency of the Council of the EU since January 1, hailed this decision as a “victory” against Russia.
In contrast, Slovak Prime Minister Robert Fico strongly condemned it, calling the end of transit a “sabotage,” and warned of a rise in energy prices, which surpassed €50/MWh (TTF) on December 31, their highest level since October 2023.
The pro-Russian leader also mentioned potential retaliatory measures against Kiev, including reducing aid to Ukrainian refugees and cutting electricity supplies.
Despite the EU’s efforts to reduce its dependence on Russian gas, LNG imports from Russia hit a record in 2024, accounting for 16% of European supply. France, Spain, and Belgium account for 87% of these imports, which are then redistributed to other Member States.
In light of this, the new European Commissioner for Energy, Dan Jørgensen, stated that his priority would be to develop a plan to phase out all Russian energy imports, including LNG.
The transition could benefit the United States, already the EU’s top supplier with a 47% market share in 2023. Last November, Ursula von der Leyen discussed the possibility of increasing American imports to replace Russian gas.
WEAPONISATION • Meanwhile, US President-elect Donald Trump threatened to impose tariffs if Europe does not close its trade deficit with the US by increasing its purchases of gas and oil.
Other countries, such as Qatar, which also supplies LNG to the EU, are using gas as a weapon to express opposition to certain European policies.
Qatari Energy Minister Saad Sherida al-Kaabi warned in late December that Doha could suspend its gas exports to Europe if sanctions were applied under the European Corporate Sustainability Due Diligence (CSDD) Directive.
In Case You Missed It
GERMANY • Friedrich Merz, leader of the CDU/CSU group in the Bundestag and tipped to become Germany's next chancellor, has raised the idea of opening negotiations on a free trade agreement between the EU and the United States after Donald Trump comes to power.
Transatlantic trade is a major concern for Berlin: the US is Germany's (and the EU's) biggest trading partner in terms of exports, and the German economy is in the doldrums.
Shortly after the start of his first term in office, Donald Trump put negotiations on the free trade agreement between the EU and the United States, also known as TTIP (Transatlantic Trade and Investment Partnership), on hold. The latter never saw the light of day, and a trade dispute between the two blocs, initiated by Washington, subsequently erupted.
A new push for a free trade deal with the US could ‘prevent a dangerous spiral of tariffs’, said Friedrich Merz.
Reread our briefing on transatlantic trade here.
HUNGARY • Hungary has permanently lost access to 1 billion euros in EU funds. These funds needed to be allocated before 31 December 2024.
This amount of money is part of the 6.3 billion euros earmarked for Hungary and frozen by a Council decision in 2022, on the basis of the conditionality regulation. The purpose of this regulation is to protect the EU budget against breaches of the rule of law — notably corruption — that could undermine sound budgetary management.
This loss is likely to exacerbate the economic difficulties of the country, whose budget deficit will exceed 4.5% of GDP in 2024.
Viktor Orbán's government has also received other financial sanctions, such as in June 2024, when the EU Court of Justice fined Hungary €200 million — with a penalty payment of €1 million per day — for violating asylum rules.
To date, a total of €19 billion in funds intended for Hungary — notably from the post-Covid recovery fund — are frozen.
PLANES • Climate Commissioner Wopke Hoekstra is taking on the aviation sector’s carbon emissions, Politico reports.
The airline industry is responsible for 13.9% of the transport sector's greenhouse gas emissions, which should be reduced by 90% by 2050 under the Green Deal. It benefits from numerous exemptions: airlines pay no tax on kerosene, for example.
Wopke Hoekstra wants to be stricter with the airline industry, introducing a tax on fossil aviation fuel, VAT on international travel, and a carbon price on emissions for non-European airlines.
Willie Walsh, Director General of the International Air Transport Association, argues that taxation would not change the behaviour of the wealthiest passengers, who are the ones who pollute the most, and that it would not help airlines invest in less polluting technologies.
As a reminder, unanimity in the Council is required for the adoption of texts in the field of taxation. On 10 December 2024, several southern European countries, fearing for their tourist industry, rejected the Commission's proposal to tax kerosene at the Ecofin Council.
CRYPTO • On 30 December, the Markets in Crypto-Assets Regulation (MiCA) came into application in the EU.
MiCA aims to regulate the crypto assets market, in response to the bankruptcies of several crypto giants such as FTX, Genesis and Celsius, which highlighted the risks associated with a lack of supervision. MiCA’s security provisions have been positively received by some experts in the field.
Donald Trump's arrival at the White House could change all that. The next president of the US wants to make the country the ‘crypto capital of the planet’ — he has already appointed several crypto advocates to high positions, and has talked about creating a strategic Bitcoin reserve.
Within the industry, the concern is that Donald Trump's return will lead to a migration of crypto activities — particularly those of start-ups — from Europe to the US, in a bid to avoid the costs of complying with MiCA.
What We’ve Been Reading
In a speech delivered on December 15 at a symposium organised by the CEPR, Mario Draghi pointed to a shortfall in demand as a root cause of Europe's economic stagnation. Martin Sandbu, writing in the Financial Times, argues that if this thesis gains traction among the continent’s elites, it would represent a 'Copernican revolution'.
This edition was prepared by Augustin Bourleaud, Antonia Przybyslawski, Antoine Langrée, Lidia Bilali, Luna Ricci, Hana Rajabally, Lucie Ronchewski, Antoine Ognibene and Maxence de La Rochère. See you next week!