The gas pipeline through Ukraine is used by Russia to transport about 50% of its total gas exports through its pipeline to Europe, including Turkey, and about 10% of Moscow's total gas exports.
Ukraine's political goal is to end economic relations with Russia as much as possible and limit Russia's gas revenue.
However, according to the Moscow Times, Ukraine does not benefit economically from the pipeline cut, although Kiev's losses are smaller than those of EU countries.
First, Ukraine loses annual transit fees from Russia, which will amount to about $800 million by 2023.
Second, Ukraine's gas production and consumption locations are not always in a favorable location, so Russian "real gas" is sent to some parts of the country via a transit pipeline network, gas analyst Sergei Vakulenko noted. The gas is not purchased directly from Russian oil giant Gazprom but from European traders.
However, Kiev will need to reform its pipeline system and these problems could get worse as the Ukrainian economy recovers and needs more energy.
What about Russia?
The loss of the Ukrainian transit route could cost Gazprom 15% of its revenue.
Russia seems to have accepted losing the European market for pipeline gas. Instead, Russia wants to use more gas for domestic consumption, increase pipeline gas exports to Central Asia and China, and invest in liquefied natural gas (LNG), which can be transported by LNG tankers and therefore rely less on on on shore infrastructure.
Can all of this be prevented?
In theory, yes.
Both Russia and EU gas importers have publicly supported the continued transportation of Russian gas through Ukraine, with talks reportedly underway with Azerbaijan to find feasible solutions.
One plan analysts are likely to discuss could involve maintaining Ukrainian transit through a swap deal between Moscow and Baku.
In fact, this means that Azerbaijan will pay Ukraine's transit fees and supply gas to Europe, but the actual Russian gas will still go through Ukraine's pipeline system.
In return, Russia would receive money for selling the same amount of Azerbaijani gas elsewhere, such as to Turkey or even to domestic consumers.
But the deal is complicated.
First, Russia may not want to sell Azerbaijani gas at a price much lower than it sells its own gas to Europe.
Second, Azerbaijan may not be able to export gas to match Russia's transit gas through Ukraine due to congestion, according to a report by the Energy Policy Center of Columbia University (USA).
Third, there are reputational risks for the EU and Ukraine, which have set out to end their dependence on Russian gas.
