Why does Russian oil and gas continue to flow through Ukraine?

Before the conflict broke out in late February 2022, Europe relied on Russia for 40-45% of its imported gas and about a quarter of its imported oil. Moscow then tried to get Europe to lift economic sanctions against Russia by cutting off energy supplies to countries on the continent.

Europe, in turn, has sought to wean itself off Russian oil and gas, but not entirely. According to The Economist, the continued flow of energy is partly due to the legacy of the old system and partly due to contract law, market realities and political expediency.

On the oil front, last December the European Union (EU) banned imports of seaborne oil from Russia, with a few temporary exceptions. In addition, in a concession to landlocked countries, the EU exempted oil flowing through pipelines from sanctions.

In retaliation, Russia suspended the North Druzhba pipeline to Poland and Germany. However, oil continued to flow through the South Druzhba pipeline through Ukraine to refineries in the Czech Republic, Slovakia and Hungary. This helped Moscow maintain a special relationship with Hungarian Prime Minister Viktor Orban, who has lobbied against EU sanctions against Russia.

Notably, the sanctions prohibit the Czech Republic, Slovakia and Hungary from exporting fuel products made from Russian crude to other countries except Ukraine. Ukraine’s refineries, mainly in the war-torn eastern region, have been severely damaged. With its Black Sea ports blocked, the only way Ukraine can get fuel is by truck or train. “We still need this oil from a military strategic point of view,” the Ukrainian energy adviser admitted.

Meanwhile, Russian gas has never been cut off. However, as soon as the EU imposed sanctions, Russia began turning off the taps. Despite the mysterious destruction of the Nord Stream pipeline last September, Russia is still able to supply gas to European customers via the Ukrainian network.

But when Kiev shut down a pipeline entry point in Ukrainian territory controlled by Moscow forces, Russia refused to pay for transit and threatened to cut off supplies. Ukraine offered to reroute the gas, but Russia refused. Naftogaz, Ukraine’s national energy company, took the Russian company Gazprom to the International Court of Arbitration to resolve the dispute.

Moscow's warning that Europe would "freeze" without Russian gas has failed to materialize as winters have become warmer and the continent has found other sources of supply.

By March this year, Europe’s share of Russian gas imports had fallen to just over 10%. About half of that was liquefied natural gas purchased from a private Russian company; another quarter went via the TurkStream pipeline to southern Europe. The rest went through Ukraine, mainly to Slovakia and Austria.

Analysts say Russia will try to curtail this dwindling flow of fuel. The contract between Naftogaz and Gazprom expires at the end of 2024 and it is hard to imagine the deal being extended.

Ukrainian officials insist that as long as Europeans continue to buy Russian gas, they will honor their fuel transit contracts. For Kiev, it would be unprofitable to do otherwise, jeopardizing European support for the country.

Ukraine’s own gas demand has fallen as much of its industry has been devastated. The country produces almost all of its gas. However, it imports most of its oil, especially diesel for generators used during blackouts and for military vehicles.

Ukraine buys diesel from a variety of traders, and its origins are often unknown. However, Ukrainian energy advisers say some of the fuel used to power Kiev's tanks is likely Russian.