Who will win the Russian-Ukrainian energy war?

Wars are fought on two fronts. First (and foremost) the battlefield, as belligerents seek to inflict a decisive military defeat on their opponent, forcing it to surrender and meet their war objectives. But simultaneously war goes on within the home front as well. If the opponent’s economy can be weakened, its ability to produce war material and supplies constrained and the morale of the civilian population crushed, then governments come under pressure to stop fighting and at best seek a compromise peace, or at worst accept the reality of defeat to avoid further military destruction. During the Napoleonic Wars, France and the various European coalitions arraigned against it tried to exclude each other from foreign trade, investments and raw materials. In the First World War, the British blockade of Germany within three years of warfare drove the German population into the widespread hunger of the 1917 Turnip Winter. The Germans also attempted to starve Britain into submission by sending their U-boats into the Atlantic to torpedo merchant vessels delivering foodstuffs to British ports. In the Second World War, the Allies tried to grind Nazi Germany down through massive aerial bombardment. Raids on Cologne, Hamburg and Dresden killed many thousands of civilians in one night and by the end of the war the German death toll from the Allied air campaign was estimated at 660,000. By contrast the German Blitz bombardment of Britain caused 60,000 civilian fatalities. The Allied air campaign may have impacted German morale, but it was less successful in breaking German industrial production, which moved largely underground. Even during the Cold War, the NATO countries tried to undermine the Soviet Union by using export controls and blacklists to deny Moscow access to advanced computers and other cutting-edge technologies. Yet despite attacking the home front and inflicting misery on civilian populations, belligerents ultimately won or lost the war on the battlefield. It was Waterloo, the Allied counter-offensive of October 1918 on the Aisne and the Soviet occupation of Berlin in April 1945 that finally produced victory.

In the current war in Ukraine, we are witnessing the latest iteration of a war on two fronts (battlefield and domestic economy) and asking ourselves the age-old question as to which one will prove decisive. The answer to that question is which front will ultimately prove to be the most vulnerable for both Russia and Ukraine and who over the long term is able to inflict the most damage on the other? This struggle to dominate the home front has focused essentially on energy supplies. With Russian forces moving very slowly on the battlefield in Donetsk and taking heavy casualties for every village they capture and every kilometre they advance, Putin is trying to compensate by gaining more leverage over Kyiv on the domestic front. With the onset of winter, he has doubled down on the daily (and nighttime) strikes on Ukraine’s electricity grid and oil and gas storage and distribution networks. By turning the lights off in Ukraine’s major cities for several hours a day and disrupting industrial production (including in the armaments sector) he is hoping to displace more Ukrainians from their homes and reinforce the sense of war fatigue and “let’s make a compromise for peace now” sentiment among the Ukrainian population, which is already (and understandably) prevalent after nearly four years of war. There is no doubt that Russia is having some success with this strategy. About 50% of Ukraine’s power generation capacity has been put out of operation and Ukrainian engineers are struggling to find the spare parts and move quickly enough from one damaged switching station to the next to keep the grid functioning. Russia has also been attacking oil and gas terminals particularly on the Black Sea in and around Odessa and on the Turkish ship off the Danube estuary near Ukraine’s border with Romania. It has even attacked foreign tankers operating in the Black Sea, for instance, this past week setting ablaze a Turkish ship off the coast of Odessa. The problem for Ukraine is that the weapons supply that Moscow is using to maintain its current daily strike rate (around 400 drones and 20-50 glide bombs and ballistic missiles) is not about to dry up, despite Ukraine’s valiant efforts to use its air defences and counter drone technologies to shoot down these projectiles. President Zelensky has reported that Russia plans to manufacture 120,000 glide bombs in 2025, many of them a newer, longer-range version up to 500km. Russia also plans to ramp up its domestic drone production to 5 million per year. North Korea has also recently announced that it is starting drone production and many of these will undoubtedly go to Russia, as Iranian Shahed 36 drones have in recent times. So, do not expect the relentless Russian pressure on Ukraine’s critical energy and transportation infrastructure to ease up any time soon.

Yet apart from importing more spare parts, switching stations and generators from its European partners, Ukraine has not been idle when it comes to replacing domestic oil and gas production with more foreign-supplied energy. This past week, Zelensky was in Greece to conclude an LNG supply agreement between the Ukrainian Naftogaz and the Greek company, DEPA. This has been possible because of the improvements that Europe has made to its own energy security. The LNG will come from the United States via a new offloading and storage terminal at Alexandroupolis, near the border with Turkey. Greece and Bulgaria have also recently completed a connector for the Trans-Adriatic Pipeline, which means that US LNG and gas that Greece is now extracting from offshore drilling in the Aegean Sea can be sent north to Romania, Moldova, Hungary, Slovakia and now Ukraine. The LNG supply will help to cover the €2bn of foreign gas supply that Zelensky has calculated Ukraine needs to get through the winter. Ukraine’s DTEK, the country’s largest electricity operator, has also started to import its first US-supplied LNG from Lithuania’s port of Klaipeda. It amounts to 100mn cubic meters of gas, still a far cry from the estimated 4 billion cubic meters that Ukraine will need in the next four months to heat homes and power its industries. But Ukraine is diversifying its supply routes. DTEK has also been using the Revithoussa terminal in Greece. Previous EU initiatives, such as reversing the flow of east-west pipelines to allow Ukraine to access gas from Germany and Central Europe and bringing Ukraine fully into the EU Energy Market by the end of 2026 can equally help to ensure Kyiv a degree of reliability in its gas and oil supplies.

This winter, like the three previous ones, will undoubtedly be difficult for Ukrainians.

But if they can continue to garner enough Western financial support to offset the cost of more imports, they should be able to pull through once more. It is here that two political issues have surged to the forefront to complicate Kyiv’s planning. The first concerns long term financial assistance. The €40bn loan backstopped by the G7 will run out next year. Ukraine’s needs are calculated by the EU to be in the ballpark of €148bn for the next two years (€80bn of this for weapons needs) and its budget deficit for 2025 is around €30bn. There are only three ways for the EU to raise this money: by persuading member states to give more from national budgets, by allowing the European Commission to take on more collective debt to access the bond markets, or by using the Russian Central Bank assets deposited with Euroclear in Brussels as collateral to raise a new loan for Ukraine, to be repaid by Russia after the war or forfeited. The Central Bank funds amount to €180bn so this would be the most painless way for the EU to cover Ukraine’s requirements. And it would reflect the principle that Russia, as the aggressor, must be liable for reparations vis-à-vis Ukraine.

But Belgium has been holding up consensus in the European Council out of concerns that it would be liable for these funds should Russia take Belgium to court in the future for unlawful confiscation of assets. It is demanding joint liability from its European partners before lifting its veto. Many European Councils have been held with this issue on the agenda with no resolution thus far, and the Commission has been asked to identify funding options for Ukraine. It is now urgent that it be resolved before Christmas so that Ukraine can pay its energy bills without disruption. Yet if the Russian Central Bank assets are used, there will be the added problem of how much discretion Kyiv will be given on how the funds will be allocated. Some EU governments are insisting that the funds be used to buy weapons rather than fund the government itself. France would like the funds to buy European weapons whereas Ukraine is heavily dependent on US systems and believes (not unfairly) that it can procure what it needs faster from US defence contractors. France and others may also have reservations if Kyiv sources more of its energy from US LNG although this begs the question of how much Europe can supply Ukraine from its own domestic resources (essentially Norway, the North Sea and the Eastern Aegean). The US is the largest supplier of LNG to Europe with 45% of its total LNG imports.

The second issue concerns a collapse of confidence in the energy policy of the Ukrainian government both at home and abroad. At the very moment when Zelensky has been asking for more help from Europe (and visiting Greece, France, Spain and Turkey), he has been hit by a massive scandal within his own Ministry of Energy. The National Anti-Corruption Bureau (NABU) has accused officials within this Ministry of demanding up to $100mn in “pay to play” schemes for procurement contracts at the state run nuclear power company, which is managed by the Energy Ministry. Five suspects have been detained and two are still at large, including a former business associate of Zelensky who has fled abroad. The Rada has demanded the sacking of the Energy Minister, Svitlana Hrynchuk, and her predecessor, German Galushchenko, who now serves as the Justice Minister. Yet for many of the political parties in the Rada this measure does not go far enough. They want the entire government to resign. Corruption has long been an endemic problem in Ukraine and Zelensky did not help his credibility when he tried to crimp the independence of NABU during the summer only to retreat in the face of vigorous criticism, and even street demonstrations in Ukraine’s big cities. Yet Ukrainians suffering daily power cuts are especially outraged at this latest instance of corruption and it has given new fodder to Ukraine’s adversaries in Europe who have cited it, like Italian Deputy Prime Minister, Salvini, or the Hungarian Prime Minister, Orbán, to call for reducing financial assistance for Kyiv. Even a strong supporter of Ukraine, such as Polish Prime Minister Tusk, have called on Zelensky to clean up the Energy Ministry fast or risk losing support. The EU, which is moving to introduce greater oversight and safeguard measures for its various candidate countries, may well insist on international supervision of the Energy Ministry in exchange for future financing of its oil and gas imports from the bloc. Meanwhile, Zelensky has moved fast to try to contain the damage by swiftly appointing a new head of the hydropower generating company and promising reforms of the oil and gas operators. His aide, Andriy Yermak, has claimed that this quick reaction shows how effective Kyiv’s anti-corruption system now is; but few will be convinced.

In sum, Ukraine faces major problems of network maintenance and repair, diversifying its supplies, international financing and anti-corruption oversight of its energy markets going forward. Yet does this mean that Russia now has the upper hand in the Russia-Ukraine energy war?

Not yet, because it has vulnerabilities of its own. Ukraine has also taken the energy war directly to Russia. Its long-range drones and missiles, such as the Flamingo and the Poseidon, have struck oil refineries deep inside Russian territory and as far afield as Siberia. This campaign has intensified over the summer and autumn and begun to inflict serious damage on Russian oil and gas stocks and refinery and port capacity. One single strike on the oil terminal in Novorossiysk caused Russia to suspend oil exports equivalent to 2% of global oil supplies. Ukraine has carried out over 40 attacks on Russian refineries and oil infrastructure since August. Russian refinery output as a result has dropped by over 10% or nearly 5 million barrels per day in mid-September. This has increased the price differential between refined and crude oil and forced Russia to try to export more crude. It has also led to shortages for Russian motorists at the petrol pump with retail prices up 10% since the end of 2024, according to the Finance Ministry and the Russian statistics agency, Rosstat, occurring in parallel with an over-supply of oil on international markets. Russia is the world’s third largest oil producer and second largest exporter of crude. Its oil revenues accounted for 30% of the state’s budget in 2024. Together with gas revenues they largely finance Russia’s war against Ukraine. Yet due to Ukrainian strikes, Russia has been obliged to cut back on its petroleum exports until the end of the year and has banned gasoline exports. Damaged infrastructure takes months to repair. The Ukrainian strikes have also brought the reality of war home to the Russian population, including the inhabitants of Russian-occupied Donbas. Kyiv has knocked out two thermal power plants there, denying electricity to 500,000 inhabitants.

Beyond the war, the international screws on Russia’s energy revenues are finally tightening. In its 19th package of sanctions on Russia, adopted by the European Council last October, the EU agreed to end Russian oil and gas imports by the end of 2028. European oil importers will need to demonstrate that there is no Russian crude in the mix. Short term contracts will be phased out from June 2026. Russian LNG imports will cease from January 2027, a year earlier than initially planned. Hungary, Belgium, the Netherlands, Spain and France still import Russian gas or LNG; although across the entire EU, Russian gas now accounts for 12% of the bloc’s gas consumption compared to 45% before the Russian invasion of Ukraine in 2022. The EU still gets 14% of its LNG from Russia compared to 22% three years ago. But Europeans (as President Trump has not hesitated to point out) have been bankrolling Putin’s war. In 2024, the EU spent €22bn on Russian fossil fuels, 75% of Moscow’s official military budget. In all, EU purchases of Russian fossil fuels since 2022 are not far short of what the EU has supplied to Kyiv in armaments. The 19th sanctions package also imposed additional sanctions on Russia’s shadow fleet of oil tankers (a further 117 bringing the total to 560 vessels) and on 17 companies abroad, notably in India and China, which have been trading in Russian oil, including two Chinese refineries accounting for 3% of the domestic market. Both countries have now said that they will curtail Russian oil imports but we will need to see if they actually do so. The US Congress has been debating additional sanctions against China for its purchases of Russian LNG and joint Russian-Chinese drilling projects in the Arctic. The EU efforts could be passed by qualified majority voting, thereby circumventing a Hungarian veto. They have finally been complemented by energy sanctions adopted by the Trump Administration against Russia’s two largest oil companies, Rosneft and Lukoil (a move somewhat diluted by Trump’s agreement to give Orbán’s Hungary a one year exemption from these sanctions). US sanctions have made it more difficult for Russia’s oil majors to operate abroad. The recent sale of the European assets of Lukoil to Geneva based Gunvor collapsed. This said, the US has not yet followed the other G7 countries in agreeing to lower the international price for Russian oil carried in western insured vessels to $47 compared to the previous price of $60.

The strains on the Russian economy are starting to show. The non-military sector of the economy contracted by 5.4% in 2025. After enjoying some years of GDP growth (3-4%) after the invasion of Ukraine, the Russian economy is now stagnating. The Economy Ministry puts growth in 2025 at barely 1%. Inflation is running at 7% and high interest rates are dampening consumer demand and the outlook for the non-military sector. A strong rouble has pulled in cheap Chinese imports and made it harder for Russian companies to gain export markets. Many Russian companies are cutting back on their activities, reducing staff or putting employees on 3 or 4 day working weeks. This is particularly the case in railways, automobiles, metals, coal, cement and diamonds. As less coal and metals are transported in a slowing economy, Russian Railways has asked its 700,000 staff to take off 3 extra days a month at their own expense. The car manufacturers, AvtoVAZ and Gorky, and the truck maker, Kamaz, have put their workforce on a 4-day week. The same has happened at the cement maker, Cemros, which produced only 60mn tons of cement this year following a slowdown in the construction industry. Non profitable coal mines are being closed. The diamond mining company, Alrosa, has imposed a 10% pay cut on its workers. At the end of August overdue salary arrears in Russia amounted to 1.64bn roubles, three times the 2024 figure. This information comes from Russia’s Centre for Macroeconomic Analysis and Short-Term Forecasting as reported by the Reuters news agency. It is all a far cry from Putin’s first term as President when between 2000 and 2008 the size of Russia’s economy grew from $200bn to $1.7tn. This is not the time to offer Moscow sanctions relief or to let up on the pressure. Putin is having to offer voluntary recruits to the Russian army four times the normal salary to replace his massive losses in Ukraine. The financial squeeze is now on.

Who on the balance of the evidence is winning the Russia-Ukraine energy war? Certainly not Ukraine, or at least not yet. Ukraine has the three major vulnerabilities of security of foreign financing and energy deliveries, being able to repair its network faster than Russia can demolish it and improving the governance of its energy sector. But Ukraine’s partners can help it to get the upper hand vis-à-vis Moscow. First by supplying more air defence systems. During his recent visit to Washington, Zelensky contracted to purchase 12 more Patriot batteries from Raytheon. Germany has donated another Patriot battery to Kyiv and in Paris this past week Zelensky discussed the acquisition of 8 SAMP-T missile defence batteries with the French government. Many experts believe that the Franco-Italian SAMP-T is more effective than the Patriot against the faster flying Russian ballistic missiles. France needs to transfer these systems quickly, perhaps using currently deployed systems and replacing these with new production later. In Madrid, Zelensky discussed with Prime Minister Sánchez the acquisition of Spanish long range LTR-25 radars to enhance Ukrainian tracking of incoming Russian drones and missiles. Yet the NATO allies also need to help Kyiv to reinforce its success in attacking Russia’s energy infrastructure. The Pentagon seems to have had a change of heart when it comes to allowing Kyiv to obtain Tomahawk cruise missiles although Ukraine would need special launchers to fire these from the ground (they are normally fired from warships) and it is not clear in which quantities and at which speed they could be delivered to the Ukrainians. It would be encouraging if the German government would change its position and give Kyiv its Taurus long-range missile. The UK-supplied Storm Shadows have been particularly successful at enabling Ukraine to hit targets at distance. New joint drone production ventures such as between Ukrainian companies and Danish, Romanian and American manufacturers can both share vital counter drone technology but also boost Ukrainian supplies, particularly as foreign plants are more secure from attack than those on Ukrainian territory (despite Moscow increasing its sabotage operations within Europe). Restrictions on allowing Kyiv to use these long-range systems against targets far from the front line need to be lifted too. Ukraine needs to be able to sustain the pressure on Russia’s energy grid, port terminals and refineries and, given the rate of Russian production of drones, missiles and glide bombs, it needs to be able to strike the armaments factories, chemical and explosives plants and launch sites as well.

The good news for Ukraine and its western partners is that the energy war has shown Russia’s vulnerabilities as well, a paradox when we consider that this was an area where Moscow seemed to have an overwhelming advantage. It is possible to massively reduce Moscow’s ability to refine, store, transport and ship oil, to lower its price on international markets and to fund the war with the proceeds of fossil fuel exports. A lack of advanced Western drilling technology due to the sanctions will also make it difficult for Moscow to sustain fossil fuel production over time. This is why Putin at the Alaska summit with Trump last August was so keen to do deals with US oil majors like Exxon Mobil. A window of opportunity has arisen, which Ukraine’s allies and friends must help it to exploit. Winning the energy war will not alas, allow Ukraine to win on the battlefield in the short term and recover all its lost territory. But by depriving Putin of money, the traditional lifeblood of all military campaigns, it can drive the Russian leader to the negotiation table and to accepting a durable ceasefire as he comes to understand that this is an unwinnable war for Russia. Putin’s wager all along is that he can win in Ukraine without wrecking the Russian economy or turning the Russian population against him. If Ukraine can keep it up in the energy war for a little longer, it can shatter those illusions.

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.