Double Blow: Russia enters a period of relatively low oil prices while simultaneously losing revenue from gas sales to Europe

Double blow

Data published recently by the Ministry of Finance on budget execution in December indicate a dramatic drop in Russian oil exports at the end of the year. For 2025, oil and gas revenues declined by 24%, while monthly revenues in December were only 57% of the level recorded in December 2024. These figures illustrate the scale of the contraction in export revenues. In December 2025, the price of Russia’s Urals crude fell below $40 per barrel. According to analysts’ forecasts, this year the Russian economy will have to operate with an effective oil price of around $40–45 per barrel, even though the budget assumes $59. At the same time, it remains impossible to predict what volumes of oil and petroleum products can be sold on external markets (→ Re:Russia: Oil Prices Have Fallen).

If no extraordinary shocks occur, which cannot be entirely ruled out, the surplus on the oil market will continue to put pressure on prices (→ Re:Russia: Cutting Off The Tail Piece by Piece), and in the coming years, the Russian economy will once again have to adapt to a period of relatively or even very low oil prices. This time, however, that adjustment will take place against the backdrop of a sharp reduction in Russian gas exports. In 2026–2027, Russia is likely to lose an additional €13–15 billion per year that it was still earning from gas exports to Europe in 2023–2025.

At the end of last year, as part of the REPowerEU strategy,the EU adopted an accelerated plan for a complete phase-out of Russian gas by the end of 2027. In December, the European Parliament approved the plan by a majority vote, with 500 votes in favour, 120 against and 32 abstentions. Now it requires the formal approval of the EU Council, but European officials are confident that the plan will be adopted without changes. Only a simple majority is needed, meaning Hungary and Slovakia, which still import Russian pipeline gas and oppose the ban, will not be able to block it.

Thus, Russia will enter a period of relatively low oil prices having lost the European gas market. Around 60% of these losses in value terms will fall precisely in 2026–2027.

How Russia lost Europe

Before the full-scale invasion of Ukraine in 2022, Russia was the EU’s main gas supplier, accounting for almost half of its purchases. In the last pre-war year of 2021, for example, Russia provided 45% of all supplies to Europe from abroad. Such a high level of dependence on Moscow constituted a political risk that was recognised within the EU and which materialised in the second half of 2021, when Russia began to cut supplies, using the threat of gas shortages during the winter of 2021 to 2022 to pressure Europe.

In 2022, after the outbreak of the war, Russian gas exports to Europe were halved, falling from 150.2 billion cubic metres to 78.8 billion cubic metres. This was the result of the suspension of supplies via the Yamal-Europe gas pipeline through Belarus and Poland and the sabotage of the Nord Stream gas pipelines. However, the sharp rise in gas prices more than compensated Russia for the loss of volumes. According to Eurostat, in 2022, Russia’s revenues from gas sales to Europe doubled year on year, reaching €47 billion. Russian officials did not hide their schadenfreude, suggesting that Europe was shooting itself in the foot. Already in 2023, however, prices fell by more than threefold, almost returning to pre-war levels, at around $400,000 per 1,000 cubic metres.

This decline was the result of EU efforts to cut gas consumption and secure alternative suppliers. In May 2022, European countries adopted the REPowerEU roadmap, aimed at ‘eliminating dependence on Russian energy sources’. The first stage involved a voluntary reduction in gas consumption of 15% compared with the average of previous years. By 2024, however, according to the Forum of Gas Exporting Countries (FGE), the plan had been overfulfilled. Consumption fell by more than 20%, from 400 billion cubic metres in 2021 to 313 billion cubic metres in 2024, driven by the accelerated deployment of renewable energy, improvements in energy efficiency and relatively mild winters.

Nevertheless, Europe’s gas market remained unstable, with the approach of winter continuing to generate anxiety. One manifestation of this instability was the fact that deliveries to Europe of Russian LNG, which is more expensive than pipeline gas, increased by 50% in 2022 and 2023 compared with pre-war levels. In 2024, Europe was forced to increase imports of Russian gas through all three remaining channels, LNG supplies, TurkStream and transit via Ukraine, by a combined 27%. Owing to lower prices, however, the total value of these imports still declined slightly compared with 2023. Finally, in 2025, a definitive turning point was reached in the European gas market. In particular, it enabled the EU to refrain from extending the expired five-year contract for the transit of Russian gas through Ukraine. TurkStream, laid along the bed of the Black Sea, became the only remaining pipeline for Russian exports to Europe. As a result, according to Bruegel, supplies of Russian pipeline gas to the EU fell by 45% last year, to 18.1 billion cubic metres, while total gas exports including LNG declined by 30%, to 38 billion cubic metres. Revenues from gas sales to Europe in the first 11 months of 2025 amounted to €12.2 billion, according to Eurostat, only €2.6 billion less than in the whole of 2024.

Chart 1. Russian gas exports to the EU, 2021–2025, billion cubic metres

Chart 2. Russian gas exports, 2021–2025, billion euros

It is worth noting that the loss of the European market represents an irrecoverable blow for Russia’s gas sector. There is virtually nowhere to redirect the gas that is no longer sold to Europe. Pipeline infrastructure was built over 50 years, starting in the late 1960s, with long-term cooperation in mind and without any 'plan B'. The idea of diverting gas from the Yamal fields to China does not yet look realistic. Although a Russian-Chinese memorandum on the construction of a new gas pipeline, Power of Siberia 2 with a capacity of 50 billion cubic metres a year, was signed in Beijing last autumn, the document contains no specifics on project financing or supply pricing. In practical terms, it amounts to a declaration of intent. Even if agreement were eventually reached, construction would take at least five years, similar to the timeline for the first gas pipeline to China, launched at the end of 2019. In 2022, Vladimir Putin briefly floated the idea of creating a major gas hub in Turkey that could channel Russian gas to southern Europe, but the proposal was not pursued, and in the summer of 2025 Gazprom definitively abandoned the project.

Gas supplies provide a clear illustration of a typical 'sanctions cycle'. At the initial stage, a refusal to purchase a sanctioned commodity triggers a price shock that primarily hurts the sanctioning side. This is followed by an interim period of stabilisation as new suppliers expand volumes and new supply infrastructure is put in place. Eventually, the costs are borne exclusively by the sanctioned country.

A new hegemon and farewell to Russia

The main factor behind the stabilisation of Europe’s gas market, which became fully apparent in 2025, was the diversification of supplies driven by the expansion of European LNG import capacity. According to the Gas Exporting Countries Forum, between 2022 and 2024 twelve new terminals were commissioned and the capacity of six existing ones expanded. In 2025, two more terminals were launched and two others expanded. As a result, total LNG import capacity rose by almost 40%, from 180 billion cubic metres a year to 250 billion. Utilisation rates remain at around 50% because of bottlenecks, notably limited pipeline infrastructure. In Spain, which has the largest regasification capacity in the EU, the pipeline system lags behind and constrains the distribution of gas to regional markets.

As a consequence, both the structure and geography of Europe’s gas market have changed radically. In 2021, according to the Gas Exporting Countries Forum, pipeline gas accounted for around 80% of total EU purchases. By 2024, this share had fallen to 58%. In the first half of 2025, European LNG purchases exceeded pipeline imports for the first time, reaching 74.6 billion cubic metres, or 51%. Over the year as a whole, however, pipeline supplies still slightly predominated, at 54% versus 46%. Geographically, some of the missing Russian gas was replaced by Norway, but the main beneficiary of the gas rupture between Russia and Europe was the United States (Chart 3). According to the Gas Exporting Countries Forum, US gas accounted for 6% of total EU purchases in 2021, 19% in 2024, and almost 27% in 2025 according to Bruegel. This allowed the United States to take second place in the European market after Norway at 31%, mainly pipeline supplies, pushing Russia into third place at 12%. In LNG supplies to Europe, the US share has already reached 58%.

According to Eurostat, in 2024 the United States sold LNG worth €15.1 billion to the EU, and €22.7 billion in the first 11 months of 2025, with December data not yet published. As a result, revenues from US supplies in 2025 have already matched Russia’s pre-war revenues of 2021. Estimates by the American Institute for Energy Economics and Financial Analysis (IEEFA) suggest that by 2030 the US share of Europe’s LNG market could rise to 75–80%, and its share of total European gas imports to 40%. The role of the United States in supplying Europe with gas would then approach that played by Russia before the war.

Chart 3. Largest gas suppliers to the EU, 2021–2025, billion cubic metres

Chart 4. Gas supplies from Russia and the US to the EU, 2021–2025, billion euros

Russia's losses, past and future

In the pre-war period. from 2015 to 2021, revenues from exports of oil and oil products accounted for just over 40% of Russia’s total exports, averaging $165 billion a year, while gas exports accounted for 12%, or about $45 billion a year. Gas therefore generated roughly a quarter of Russia’s total oil and gas export revenues. According to Eurostat, sales of gas to EU countries in 2010–2019 accounted for around one third of this amount, or about $15 billion a year.

In 2021, gas supplies to the EU generated €22.8 billion for Russia, or roughly $26 billion. In October 2025, the European Commission forecast that the value of gas purchased from Russia over the year would exceed €15 billion. These expectations now look overstated. According to Eurostat, the value of supplies in January to November 2025 amounted to €12.2 billion. Compared with 2021, this implies a decline in cash flow of about 40%, which is smaller than the fall in physical volumes. The reason is that in 2021 cheap pipeline gas accounted for 91% of supplies, whereas in 2025 its share was only 48%, with the share of more expensive LNG rising from 9% to 52%. In 2024 and 2025, this balance between the two types of supply acted as a buffer, softening the financial impact of Russia’s loss of market share in Europe. At the same time, it means that the main financial losses from the complete loss of the European market will fall in 2026 and 2027, amplifying the shock from declining oil revenues

Under the approved European plan, a ban on supplies of Russian LNG under short-term contracts will apply from the end of April 2026, and a ban on pipeline gas from mid-June 2026. For long-term LNG contracts, the embargo will take effect on 1 January 2027, and for pipeline gas on 30 September 2027, or from 1 November 2027 if EU member states face difficulties in filling storage. As a result, Russian gas supplies to the EU could fall by around 50–65% in 2026, to 12–18 billion cubic metres, according to Petras Katinas, an analyst at CREA, speaking to Re: Russia. LNG supplies could decline by 60–80% in 2026, to roughly 5–8 billion cubic metres, and almost cease altogether in 2027. Pipeline gas supplies are likely to decline more gradually, to about 7–10 billion cubic metres in 2026, and approach zero by the end of 2027. It is difficult to predict precisely how losses will be distributed between 2026 and 2027, but it is clear that supplies of more expensive LNG will be cut faster, while pipeline gas will decline more slowly. Overall, however, over the two years Russia will lose a further $15–17 billion a year in export revenues.

Can Russian gas return to Europe?

If these plans are implemented, 2027 will mark the definitive end of the 58-year history of the Russian European gas alliance. The landmark 'gas for pipes' agreement between the Soviet Union and West Germany was signed in Essen in February 1970. Over the decades that followed, the alliance survived periods of severe tension between the Soviet Union and the West in the early 1980s, pressure from the administration of Ronald Reagan to dismantle it in order to increase economic pressure on the Soviet Union, the disappearance from the map of both original signatories, and an extraordinary expansion in the 1990s and 2000s.

Some sceptics believe, however, that a complete EU phase-out of Russian gas will not take place, and that Hungary and Slovakia will find ways to continue receiving Russian natural gas in 2028. Even if this proves true, it would represent only a marginal niche in European supplies and in Russia’s export revenues. The more interesting question is what would happen to Russian gas exports if the war were to end and sanctions were eased in one form or another.

A return of Russia to the European gas market on anything even remotely comparable to pre-war volumes should not be expected under any circumstances. Vladimir Putin has permanently undermined the idea of the political neutrality of Russian gas supplies, an idea upheld both by Leonid Brezhnev and by the Cold War hawk Yuri Andropov. Having been forced to pay effectively double prices for Russian gas in 2022, Europeans will not forget this experience for a long time.

At the same time, Russian gas, and above all pipeline gas, remains a highly competitive product. Replacing it with LNG, especially the more expensive US supplies, significantly reduces the competitiveness of European industry, and German industry in particular. According to estimates by Berliner Zeitung based on Eurostat data, at the beginning of 2025 US LNG cost the EU twice as much as Russian gas, at €1,080 per 1,000 cubic metres compared with €510, while the price of Russian pipeline gas was three times lower, at €320 per 1,000 cubic metres. In 2021, before the war, when Russia supplied gas to the EU directly via pipelines, primarily Nord Stream, rather than via Turkey through TurkStream, which entails higher transport costs, Gazprom estimated the average export price to Europe at around €200 per 1,000 cubic metres. Based on CREA data, the average price of Russian pipeline gas in the EU rose to €360 per 1,000 cubic metres in 2025. Even so, it remains well below any LNG prices, especially those for US supplies. It is therefore no coincidence that opportunistic Hungary has clung so tightly to Russian gas.

At the end of 2024 , Gazprom CEO Alexei Miller insisted that measures to reduce dependence on Russian gas were in effect leading to the 'deindustrialisation' of the EU. Output in some European industries had fallen by almost 10% over the previous 18 months, while production costs had risen by 25%, he claimed. Regardless of whether these figures are fully accurate, Miller was largely right in substance. Abandoning Russian gas poses a challenge for European industry and delivers another blow to its ability to compete with China. This creates a strong incentive to consider restoring this advantage, even despite geopolitical risks, especially if at some point Russia were to undergo a change in political course.

Moreover, the geography of Europe’s geopolitical risks has become even more complex. The sharp increase in US LNG supplies to Europe in 2025 took place against the backdrop of pressure from Donald Trump. Under the trade agreement with the US reached under his pressure, European countries signalled their willingness to purchase US energy resources worth $750 billion by 2028, or $250 billion a year over the next three years. This clause does not impose binding obligations on the EU and looks highly unrealistic. In the whole of 2024, the EU purchased just over $400 billion worth of energy resources, of which only $70 billion came from the United States. Total US oil and gas exports in 2024 amounted to just $166 billion.

At the same time, the rapid growth of dependence on US gas is occurring amid increasingly deep disagreements between the EU and Washington. Europeans now believe that the United States could also use strong energy dependence to pursue its foreign policy objectives and exert pressure, notes Politico. Europe has limited options when it comes to politically 'clean' gas. It can source gas from three places: the United States, non-democratic regimes in the Middle East, and Russia. In this 'lesser of three evils' situation, considerations of supply diversification and price dynamics will strengthen the position of lobbyists arguing for a return of Russian gas to the European market.

At the same time, Europe’s accelerated phase-out of Russian gas is taking place against expectations of an era of surplus on the global gas market, driven by the launch of new LNG projects in the United States, Qatar, Canada, Mexico and a number of African countries. According to the Bloomberg NEF Global LNG Market Outlook 2030, the LNG surplus will amount to 1.7 million tonnes, or 2.3 billion cubic metres, in 2026, 8.3 million tonnes, or 11.5 billion cubic metres, in 2027, and will continue to double thereafter, reaching almost 30 million tonnes, or 41 billion cubic metres, by 2029. This surplus reduces the risk that abandoning Russian gas will lead to fuel shortages in Europe and sharp price increases, a key factor for the EU when determining the timing of a full phase-out of Russian energy imports, Bloomberg notes. It also means, however, that prices will remain under downward pressure in the coming years. This will reduce incentives for a return of Russian gas to Europe, as well as the potential revenues Russia could earn if such a return were to occur.

For now, Vladimir Putin, who began his presidency with the idea of turning Russia into an 'energy superpower', has succeeded in inflicting maximum damage on its traditional competitive advantages in global markets. Russia is entering a period of low oil prices for the first time in more than half a century, having lost the stabilising effect of long-term gas contracts in the premium European market.

@ Re: Russia / Timothy Dziadko