Reflecting on recovery in energy markets, PSYOPS, PSO, gas transit, relations with Europe, and the enemy’s intentions
Author: Andrian Prokip, Doctor of Economics, Head of Energy Programs at the Ukrainian Institute for the Future
If a ceasefire does occur, it remains unclear how long it will last. It is uncertain whether shelling will resume and, if so, when it might happen. Therefore, any potential ceasefire period must be used to rapidly restore damaged infrastructure and prepare for winter.
Unlike in previous years, we are facing serious challenges not only with electricity but also with gas production. It is doubtful that extraction levels can be restored in the short term to pre-strike volumes. This means we will have significantly more work than before. The key here is not to relax under the assumption that the end of shelling allows us to prepare for winter under “peacetime” conditions.
The main focus should be on restoring damaged infrastructure, stockpiling repair equipment in case of renewed strikes, and securing contracts for gas imports, given the decline in domestic production and the ongoing risk of attacks on gas infrastructure.
Time is short. Funds are scarce in light of continued damage. Problems of this magnitude cannot be solved using old methods. This raises the question: what needs to change in our approach to problem-solving amid the uncertainties of war?
In 2022, following the cessation of fuel supplies from hostile countries and subsequent attacks on oil depots and refineries, we found ourselves in a deep fuel crisis. It was resolved by market participants who achieved the seemingly impossible: in a very short time, they contracted and organized fuel imports from various continents via western and southern borders that had never before handled such volumes. Suppliers, funding, and transport were secured. Within a few months, the crisis was resolved. Without this, the country’s logistics could have been paralyzed.
How did they manage it? Simply put: the market was not burdened by excessive regulation. Yes, the state attempted to assert strict regulatory control, but this did not help resolve the crisis. Only liberalization enabled the resolution of the fuel shortage.
There is no budget funding for repairing energy and gas infrastructure. The scale of energy sector repair financing remains in question. It was officially announced that USAID is terminating its $75 million agreement with the Energy Support Fund of Ukraine. Of course, new donors will emerge, but even these funds will not cover all repair and import needs (after all, during the full-scale war, donor contributions have never fully met the requirements).
New PSOs (i.e., additional regulatory burdens) cannot resolve problems, especially within extremely short timeframes. In recent weeks, I have written about the challenge of securing gas supplies for the next winter and the expected heavy reliance on imports. In a regulated and closed market, we risk facing a gas shortage.
Thus, the issue must be addressed as it was during the fuel crisis. This means liberalization and lifting market-distorting restrictions. Without liberalized natural gas and electricity markets, there can be no meaningful recovery of infrastructure or preparation for winter. And given the uncertainty surrounding any pause in attacks, the resolution of this issue cannot be delayed.
Energy Will Remain Under Attack… Informationally
Regardless of whether a ceasefire is successful and leads to a lasting end to hostilities and eventually peace or proves to be only a brief respite, Ukraine’s energy sector will remain under threat — informationally. The enemy will not abandon its intent to destabilize Ukraine. The only question is the method.
Before the full-scale war, Ukraine’s energy sector was a colossus on shaky crutches. The infrastructure was physically worn and morally obsolete, except for the modern renewable energy segment. Years of energy terror have only worsened the situation. Therefore, the recovery and modernization of the energy sector is a matter of economic competitiveness for Ukraine. More importantly, it is a matter of survival if war and energy terror resume.
In the process of energy reconstruction, difficult decisions will be unavoidable. This will create fertile ground for Russian disinformation efforts, including through agents and “sleeper” voices: we will again hear claims that energy resources should be nearly free.
To preempt potential commentators, let me say this clearly: prices should be affordable within the income levels of households. This requires direct subsidies for certain categories, even if that includes 30% of consumers. However, claims that energy resources should be free or that the energy sector should fund other industries lead nowhere. A liberalized market is not about unchecked profiteering but about having mechanisms to support vulnerable consumers. At the same time, the energy sector cannot become a donor and sponsor of other sectors. Proper state programs must be in place to stimulate other industries and provide subsidies — but only when these generate positive macroeconomic effects.
In other words, restoring the energy sector will require decisions that, without proper communication, could become grounds for highly dangerous political speculation and manipulation. Therefore, a sound information policy must be integral to these changes to prevent and minimize attempts to destabilize society from within.
Russian Gas Exports and Ukraine
Russia is highly interested in increasing its gas exports. The only viable opportunity remaining is a partial return to the European market. This year, exports to China will increase from 31 to 38 billion cubic meters annually. Deliveries to Uzbekistan and Kazakhstan are already underway. However, this does not compensate for the volumes previously transited through Ukraine, nor does it provide the expected revenues, as the export price of Russian gas in Asian markets is significantly lower than what European buyers paid. For Gazprom and the Kremlin, resolving losses is crucial — and in the short term, this can only be done by partially restoring exports to the EU. And there are still willing buyers of Russian gas in Europe.
It is almost certain that during any ceasefire, the Russians will lobby for the resumption or expansion of gas supplies to the EU. This may well be acceptable to Washington within a broader U.S.-Russia agreement framework. One should not rely on the argument that this could undermine U.S. interests in LNG exports because global demand for LNG will grow faster over the next two to three years than U.S. export capacity. Additionally, Washington has recently clarified that the priority LNG export markets are in Asia, primarily Japan and South Korea.
Previously, even before the public discussion of “Azerbaijani gas transit” began, I repeatedly stated that in its attempt to return to European markets, Russia may look to use intermediary companies that simply re-sell Russian gas. Through such schemes, Gazprom can avoid fines for violating gas supply agreements in 2022 since, technically, other companies would be the sellers. It is also possible that U.S. companies may act as these intermediaries. Benefiting from the revenues and other gains, Washington could portray such arrangements as leverage over Russia to prevent renewed hostilities.
This leaves the question of Europe’s stated intent to abandon Russian energy resources by 2027–2030, a goal first announced in 2022. Incidentally, the European Commission has already postponed publishing its final plan to phase out Russian gas twice this year.
It is reasonable to assume that in seeking to restore lost European exports, Russia will focus on alternative transit routes — for example, the surviving Nord Stream 2 pipeline or the Yamal-Europe pipeline. This discussion is not about the condition of the “Sudzha” gas metering station after fierce fighting in the Kursk region. By doing so, Russia will pursue two objectives. First, a straightforward weakening of Ukraine by bypassing it for transit. Second, the enemy will continue to try to divide Europe by emphasizing the priority of certain countries as transit routes, offering them corresponding economic and political benefits. Against this backdrop of European division, Russia will hope to weaken its interest in supporting Ukraine.
Source: https://www.dsnews.ua/ukr/blog/yakshcho-zavtra-peremir-ya-shcho-bude-z-energetikoyu-13032025-518356
