What systemic risks and strategic opportunities arise from the stalled Russia‑Ukraine peace negotiations for European energy security and NATO cohesion?
The stalled Russia-Ukraine peace negotiations have created an intricate matrix of systemic risks and strategic opportunities that are fundamentally reshaping European energy security architecture and testing NATO's institutional cohesion. As of February 2026, the conflict's fourth year has accelerated structural transformations while exposing persistent vulnerabilities that will define the continent's security and economic trajectory for decades.
The termination of Russian gas transit through Ukraine on January 1, 2025, marked the definitive end of a supply relationship dating to 1964Russia's Gas Transit through Ukraine: End of an Era? - Wilson Centerwilsoncenter . This shutdown, which had delivered approximately 40 million cubic meters daily to Slovakia, Austria, Hungary, and Italy, forced the final stage of Europe's energy decouplingUkraine stops transit of Russian gas to EU | BBC Newsyoutube . Turkey's TurkStream pipeline now represents the sole remaining conduit for Russian pipeline gas to Europe, supplying approximately 5% of EU needsUkraine ends supply of Russian gas to Europeyoutube .
The EU has achieved remarkable diversification since 2022. Russian gas dependency has fallen from 45% of overall imports to 12% in 2025, with the remaining 35 billion cubic meters annually scheduled for complete phase-out by late 2027REPowerEU – phase out of Russian energy imports - Energyeuropa . The United States has emerged as Europe's dominant LNG supplier, accounting for 56-57% of EU LNG imports and replacing Russia as the marginal supplier for winter heating demandAnnual Review of EU's Gas Market in 2025 and the Outlook for 2026substack +1.
Europe's LNG regasification capacity has expanded dramatically, increasing by 32% since early 2022 to 338.9 bcmEuropean LNG Trackerieefa . Germany, which had no LNG infrastructure before the crisis, now operates multiple floating terminals contributing capacity exceeding 4.6 bcm annuallyEuropean LNG Trackerieefa . The International Energy Agency projects Europe will import a record 185 billion cubic meters of LNG in 2026, up from 175 bcm in 2025Europe set for record LNG imports in 2026hydrocarbonprocessing .
However, this transformation has introduced new dependencies and vulnerabilities. European gas storage levels stood at critically low 33-34% of capacity in mid-February 2026—the weakest for this time of year since 2022🇪🇺🔥EU natgas storage drops below 34%. We are tiny bit before showing worst result in history!⚠️#oott Here are my assumptions for the fertilizer affected natural gas: 📌Dutch TTF vere bearish for some time now. However, investors are underestimating mixed threat! 📌CBAM is creating fertilizer shortages - so there will be topped demand for EU natgas even in summer season (time when we usually top up for winter), 📌Storage is at historical lows, 📌Weather anomaly (30 day range) shows super freeze in Scandinavia, Poland, Baltics, Denmark, 📌Forecasted weather anomaly (7 day forecast) shows freeze to come in Scandinavia, Poland, Baltics, Denmark, Ukraine, Italy, Portugal, Balkans, Greece. 📌Someone decided to go into winter with small reserves for unknown math to me. Maybe expected Ukraine cease Not investment advice.x +1. Germany's storage is particularly depleted at 22-23%, with projections suggesting reserves could approach technical minimums by late MarchThe gas storage level in Germany according to the AGSI database (https://t.co/C9n1lKKz1y) for the 17th of February 2026 was at 22.33% and the gas reservoirs are (still) going to be (almost) completely empty on the 28th of March 2026 based on the prediction of the linear model: https://t.co/nKHoo9Qvasx . The EU's 90% fill target by November will require approximately 82 bcm of injections—8 bcm more than the record and well above historical averagesIf storage draws for the rest of Q1 tied record levels, European storage ends winter 17.6 Bcm, a tinge below the 2018 record. To reach 90% capacity by end Oct., 82 Bcm of injections are needed, 8 Bcm more than the record. Low German levels are an acute problem. @ColumbiaUEnergy https://t.co/8XLymFSgRux .
A paradox has emerged in Russian LNG flows: despite announced bans effective from 2027, EU imports of Russian LNG reached historic highs of 2.276 billion cubic meters in January 2026, up from 2.05 bcm the previous JanuaryEU ENERGY HYPOCRISY: Data reveals Brussels’ Record Russian LNG Imports in January 2026 | World Newsyoutube +1. Russia remained the EU's fourth-largest gas supplier in 2025 after Norway, the United States, and AlgeriaEU ENERGY HYPOCRISY: Data reveals Brussels’ Record Russian LNG Imports in January 2026 | World Newsyoutube .
The most acute internal EU friction stems from Hungary's and Slovakia's continued—and deepening—Russian energy dependence. Despite receiving temporary sanctions exemptions in 2022 intended for gradual diversification, both countries have moved in the opposite direction. Hungary increased its Russian crude oil reliance from 61% pre-invasion to 86-92% in 2024-2025, while Slovakia remained nearly 100% dependent on Russian crude via the Druzhba pipelineHungary and Slovakia can quit Russian energy, report findspolitico +1.
Research by the Center for the Study of Democracy found that Hungary and Slovakia have paid Russia €5.4-5.58 billion in tax revenues on crude oil alone since the full-scale invasion began—enough to finance approximately 1,800 Iskander-M missilesHungary and Slovakia can quit Russian energy, report findspolitico . Hungarian oil company MOL has seen operating income rise 30-34% since the invasion, purchasing Russian crude at 20% discounts while domestic fuel prices remained 18% higher than in the Czech Republic, which successfully diversified away from Russian suppliesBy buying Russia's oil, Hungary is fueling the Kremlin's war machinecnn .
The February 2026 disruption of the Druzhba pipeline—whether from Russian drone strikes or deliberate Ukrainian action remains disputed—triggered immediate retaliationEU Considers Emergency Steps to Restore Russian Oil Through ...oilprice . Hungary suspended diesel exports to Ukraine and Slovakia threatened to cut emergency electricity supplies to Ukrainian cities🚨🇸🇰🇺🇦 SLOVAKIA DECLARES ENERGY WAR ON UKRAINE: "KEEP BLOCKING RUSSIAN OIL → WE TURN OFF YOUR LIGHTS AND LET YOU FREEZE"💥❄️⚡ Slovak PM Robert Fico just went full scorched-earth: he's threatening to **immediately cut emergency electricity** that keeps Ukrainian hospitals, homes and frontline positions from going dark — all because Ukraine won't restart Russian oil through Druzhba. In the middle of winter. During active war. - “If Zelensky thinks our electricity has no value… we can decide and **refuse to cooperate** in electricity supplies.” - “Zelenskyy is **playing games** with our support for Ukraine’s EU future.” - “This is **political blackmail** directed at Hungary — and we’re done being played.” - Declares national oil emergency → taps strategic reserves → bans diesel exports to Ukraine - Hungary instantly copies the move → joint fuel blockade against Kyiv - Fico openly calls Zelenskyy’s pipeline excuse a deliberate lie to punish Orbán’s veto on EU talks Normal people everywhere should wake up: This is no longer “supporting Ukraine at all costs.” This is one EU member openly threatening to **weaponize winter blackouts** against another — while both still claim to be on the same side against Russia. If Slovak electricity stops flowing, elderly people die, babies in incubators are at risk, soldiers lose comms. All over a pipeline fee dispute and Hungary’s EU veto. The mask is off: European “solidarity” is dead when national interest and Russian oil money are on the line. Watch the full presser clip. Quote this if it makes your blood boil. Reply: **treason** or **finally standing up**? Share if you believe this is the moment the EU **officially fractures** forever. #FicoDropsTheBomb #ZelenskyBlackmail #WinterBlackoutWeapon #EUCivilWar #ByeByeSolidarity 🇸🇰🔥🇺🇦🚫x +1. Both countries invoked sanctions exemptions to import Russian oil via Croatia's Adria pipeline while accusing Ukraine of "political blackmail" aimed at influencing Hungarian electionsHUNGARY STRIKES BACK AT UKRAINE: "NO MORE DIESEL FOR YOU – UNLESS YOU RESTART RUSSIAN OIL OR FACE OUR WRATH!"💥⛽🇭🇺🚫🇺🇦 Hungarian Foreign Minister Péter Szijjártó just went nuclear in a fiery press conference from Budapest: Hungary is **immediately halting all diesel fuel exports to Ukraine** until Kyiv restarts Russian crude flows through the Druzhba pipeline. He flat-out calls it "Ukrainian political blackmail" orchestrated by Zelenskyy himself to force Hungary into funding the war, backing EU membership for Ukraine, and ditching cheap Russian energy that keeps Hungarian families' utility bills the lowest in Europe. - “This is a political decision made by the Ukrainian president himself. This is clear Ukrainian political blackmail against Hungary.” - “The aim of this Ukrainian political blackmail is to make Hungary support the war, allow Hungarian people's money to be taken to Ukraine, agree to Ukraine's EU accession, and give up cheap Russian energy carriers – thus giving up price caps and the lowest utility costs in Europe.” - “We have stopped diesel fuel deliveries to Ukraine, and they will not resume until the Ukrainians restart crude oil shipments via the Druzhba pipeline to Hungary.” - Druzhba pipeline shut since Jan 27 Russian strike on Ukrainian section – but Szijjártó insists repairs done, all technical conditions met, so hold-up is pure politics to meddle in Hungarian elections and sovereignty. - Hungary & Slovakia jointly notified EU Commission they're invoking sanctions exemption to import Russian oil by sea (via Croatia's Adria route) – MOL already ordered 500k tons, first deliveries expected mid-March. - Over 3 months of strategic reserves tapped if needed – energy & fuel security "not endangered despite Ukrainian blackmail" – but Ukraine relies heavily on Hungarian routes for its own gas, electricity, and diesel imports. Normal people everywhere should wake up: This is escalation in the energy proxy war – Hungary (and Slovakia mirroring) weaponizing fuel supplies against war-torn Ukraine to protect cheap Russian oil and resist EU pressure. If diesel stops flowing from Hungary, Ukraine's military logistics, farms, and civilians could face shortages amid winter and ongoing Russian attacks. It exposes raw cracks in EU "unity": one member's veto power and energy self-interest trumping solidarity with Kyiv. Hungary says "our sovereignty first" – but at what cost to the front lines? Watch the full HírTV presser clip. Quote if this makes your blood boil. Reply: **based resistance** or **betraying Ukraine**? Share if you think this is the end of EU energy solidarity – or the start of more payback. #SzijjartoStrikesBack #UkraineBlackmail #DruzhbaDispute #HungaryVsZelensky #DieselWar 🇭🇺⛽🇺🇦🚫x .
Hungary and Slovakia have announced legal challenges to the EU's REPowerEU regulation at the European Court of JusticeENERGY WAR INSIDE EU: Hungary Sues EU Over Russian Gas Ban In Dramatic Legal Showdownyoutube +1. Hungarian Foreign Minister Péter Szijjártó characterized the legislation as "a massive legal fraud" and "a direct attack on Hungary's energy security"ENERGY WAR INSIDE EU: Hungary Sues EU Over Russian Gas Ban In Dramatic Legal Showdownyoutube . Slovakia's Prime Minister Robert Fico has threatened to block future EU sanctions renewals unless concessions are grantedEU countries move to pull plug on Russian gas to Hungary and Slovakiapolitico .
The European Commission has circumvented potential vetoes by classifying the Russian gas phase-out as a trade measure requiring only qualified majority approval rather than unanimityEU countries move to pull plug on Russian gas to Hungary and Slovakiapolitico . Brussels plans to use additional tariffs to make Russian oil commercially unattractive for Hungarian buyers by the end of 2025 or early 2026Hungary, Slovakia now facing consequences of Russian oil dependenceespreso .
While energy security has improved, European industrial competitiveness has suffered structural damage. Industrial electricity prices in the EU remain two to three times higher than in the United States and ChinaClosing the European competitiveness gapdeloitte +1. Energy-intensive industries face natural gas prices four to five times US levelsClosing the European competitiveness gapdeloitte .
The consequences have been severe: 1.5 million jobs lost in energy-intensive industries since 2008, with 200,000 lost in 2025 aloneEurope Must Act Now on Energy and Carbon Costscepi . Production levels in most sectors have declined by over 14% compared to 2018, with some sectors experiencing 40% contractionsEurope Must Act Now on Energy and Carbon Costscepi . The chemical industry reports 101 facility closures since February 2024, eliminating 75,000 jobs and 25 million tonnes of production capacityHigh carbon costs, negative energy prices: EU confronts ...euronews .
Wood Mackenzie projects that new global LNG supply could deliver €39 billion in annual energy cost savings by 2032 and cumulative savings of €180 billion, potentially reversing a decade of European industrial declineWood Mackenzie estimates that energy costs across all ...woodmac . European traded gas prices are forecast to nearly halve by 2030 compared to 2025 levels as global LNG supply grows faster than demandWood Mackenzie estimates that energy costs across all ...woodmac .
The 2025 NATO Summit in The Hague produced a landmark commitment: allies pledged to invest 5% of GDP annually on defense by 2035, including at least 3.5% on core military requirements and up to 1.5% on defense-and-security-related spending such as critical infrastructure protectionDeterrence and defence | NATO Topicnato . This represents a dramatic escalation from the 2014 Wales Summit's 2% target, which only 23 of 32 members had achieved by 2025NATO mulls US demand for a big increase in defense spending as some struggle to meet today's goalapnews .
The Trump administration has made burden-sharing central to alliance relations. The 2026 National Defense Strategy explicitly states that "Europe must assume primary responsibility for its own conventional defense"Remarks by Under Secretary of War for Policy Elbridge ...war . The Pentagon has privately informed European allies that it expects Europe to assume most of NATO's conventional defense responsibilities by 2027, with U.S. forces becoming "thinner, more rotational, and more conditional"U.S. Sets 2027 Deadline for Europe to Take Lead in NATO’s Conventional Defensethedefensenews .
The scale of the imbalance is stark: the United States spent nearly $980-997 billion on defense in 2024-2025, representing almost 70% of all NATO members' combined military expenditure, while European NATO members collectively spent approximately $454-550 billionU.S. Sets 2027 Deadline for Europe to Take Lead in NATO’s Conventional Defensethedefensenews +1. The US contribution to NATO's common budget is approximately $520 million (15.88% of the total), far below the 47% it would contribute under the standard Gross National Income formulaNATO SECURITY INVESTMENT PROGRAMdefense .
Spain's resistance to the 5% target exposed internal divisions. Prime Minister Pedro Sánchez described the goal as "unreasonable and counterproductive," arguing that "rushing to get to 5% would only reinforce our dependence [on foreign suppliers] and harm national economic growth"Agreement on 5% NATO defence spending by 2035wikipedia . Spain received a formal exemption in the summit text, though President Trump threatened that "Spain will pay double" in future trade negotiationsAgreement on 5% NATO defence spending by 2035wikipedia . Italy, Belgium, and Germany also voiced reservations during negotiationsAgreement on 5% NATO defence spending by 2035wikipedia .
The peace negotiation process has exposed significant policy differences among NATO allies. The United States has explicitly stated that "NATO membership for Ukraine is not a realistic outcome of a negotiated settlement" and that any security guarantee must be backed by European troops deployed "as part of a non-NATO mission" without Article 5 coverage🇺🇦🇺🇸@SecDef Pete Hegseth outlined U.S. defense policy towards Ukraine: "We want, like you, a sovereign and prosperous Ukraine. But we must start by recognizing that returning to Ukraine's pre-2014 borders is an unrealistic objective. Chasing this illusionary goal will only prolong the war and cause more suffering. A durable peace for Ukraine must include robust security guarantees to ensure that the war will not begin again. This must not be Minsk 3.0. That said, the United States does not believe that NATO membership for Ukraine is a realistic outcome of a negotiated settlement. Instead, any security guarantee must be backed by capable European and non-European troops. If these troops are deployed as peacekeepers to Ukraine, at any point, they should be deployed as part of a non-NATO mission, and they should not be covered under Article Five. There also must be robust international oversight of the line of contact. To be clear: as part of any security guarantee, there will not be US troops deployed to Ukraine. To further enable effective diplomacy and drive down energy prices that fund the Russian war machine, President Trump is unleashing American energy production and encouraging other nations to do the same. Lower energy prices, coupled with more effective enforcement of energy sanctions will help bring Russia to the table. Safeguarding European security must be an imperative for European members of NATO as part of this Europe must provide the overwhelming share of future lethal and non-lethal aid to Ukraine. Members of this contact group must meet the moment. "x . Washington has ruled out deploying US troops to Ukraine under any circumstances🇺🇦🇺🇸@SecDef Pete Hegseth outlined U.S. defense policy towards Ukraine: "We want, like you, a sovereign and prosperous Ukraine. But we must start by recognizing that returning to Ukraine's pre-2014 borders is an unrealistic objective. Chasing this illusionary goal will only prolong the war and cause more suffering. A durable peace for Ukraine must include robust security guarantees to ensure that the war will not begin again. This must not be Minsk 3.0. That said, the United States does not believe that NATO membership for Ukraine is a realistic outcome of a negotiated settlement. Instead, any security guarantee must be backed by capable European and non-European troops. If these troops are deployed as peacekeepers to Ukraine, at any point, they should be deployed as part of a non-NATO mission, and they should not be covered under Article Five. There also must be robust international oversight of the line of contact. To be clear: as part of any security guarantee, there will not be US troops deployed to Ukraine. To further enable effective diplomacy and drive down energy prices that fund the Russian war machine, President Trump is unleashing American energy production and encouraging other nations to do the same. Lower energy prices, coupled with more effective enforcement of energy sanctions will help bring Russia to the table. Safeguarding European security must be an imperative for European members of NATO as part of this Europe must provide the overwhelming share of future lethal and non-lethal aid to Ukraine. Members of this contact group must meet the moment. "x .
European allies have developed a 28-point counterproposal to the initial US draft plan, introducing significant modifications. Where the US proposal called for Ukraine to "enshrine in its constitution that it will not join NATO," the European version states only that "Ukraine joining NATO depends on consensus of NATO members, which does not exist"The Unfinished Plan for Peace in Ukraine: Provision by ... - CSIScsis . On troop deployments, while the US draft prohibited NATO forces in Ukraine entirely, the European counterproposal permits forces "not under NATO command" during peacetime and allows NATO forces during wartimeThe Unfinished Plan for Peace in Ukraine: Provision by ... - CSIScsis .
Poland has been notably excluded from core diplomatic formats. When UK, France, Germany, and Ukraine gathered in London to align positions, Poland was absent from the guest listPoland fumes about being cut out of Ukraine peace talkspolitico . Former Prime Minister Leszek Miller observed: "Americans don't want us, European leaders don't want us, Kyiv doesn't want us — so who does?"Poland fumes about being cut out of Ukraine peace talkspolitico . Poland's depleted Soviet-era weapons stocks and inability to contribute troops to potential peacekeeping missions have reduced its diplomatic leverage, despite its geographic proximity and historical advocacy for UkrainePoland fumes about being cut out of Ukraine peace talkspolitico .
NATO countries are demanding greater consultation on alliance-related provisions in any peace agreement. Finnish Foreign Minister Elina Valtonen stated: "At the end of the day, it will be NATO deciding for NATO's issues. Now we are working out the red lines together with our partners and allies"NATO strains for a seat at the table on Ukraine peace talkspolitico . Some allies privately criticized the US for delayed briefings on peace talks, with Ambassador Whitaker formally briefing NATO envoys for the first time almost two weeks after the initial draft proposal leakedNATO strains for a seat at the table on Ukraine peace talkspolitico .
The conflict has catalyzed unprecedented defense industrial mobilization. NATO allies committed to an updated Defence Production Action Plan in February 2025, addressing raw materials, supply chains, and capability targetsNATO's role in defence industry productionnato . The EU's Security Action for Europe (SAFE) program provides €150 billion in loans to member states for urgent procurement[PDF] To Build European Defense Tech Champions, Political Challenges ...skadden .
Defense expenditure by EU member states climbed to €343 billion in 2024, representing a 19% real-term increase from 2023Private capital in European defence: from peripheral sector ... - Deloittedeloitte . The UK committed to its highest level of military aid ever—over £3 billion in 2026—and is spending more on defense than at any point in 15 years (£270 billion this parliament)Joint press conference following the meeting of the Ukraine Defence Contact Group, 12 February 2026youtube . Germany earmarked €11.5 billion for Ukraine support in 2026Joint press conference following the meeting of the Ukraine Defence Contact Group, 12 February 2026youtube .
Production capacity is expanding rapidly. Germany's Rheinmetall plans to produce 700,000 artillery shells annually by 20263. A Nammo consultation estimated it would take 40 years to replenish depleted NATO stockpiles at 2024 production rates. Forty years to replace what Russia burned through in less than four. Russia, meanwhile per Estonian Foreign Intelligence produced 7 million artillery shells - the real figure is higher, mortar rounds, and rockets in 2025 alone. A seventeen-fold increase from 2021’s 400,000. While Europe built bike lanes, Russia built shell factories. NATO’s combined 2025 output? Approximately 1.7 million shells across the United States and all of Europe. Russia produces in under three months what NATO produces in twelve, while Russia occupies only one theater of war - to say nothing for the losses faced during the 12 day war with Iran or the losses dating back to 2019 with the Houthis. The Industrial Collapse We Called Strategy NATO Secretary General Mark Rutte has stood at podiums across Europe repeating one warning with increasing desperation: “Russia produces in three months what the whole of NATO produces in a year.” NATO, whose combined GDP is supposedly 25 times larger than Russia’s, produces in twelve months what Russia produces in ninety days. Russia’s ammunition production exceeds the entire Western alliance by factors of four to seven. The US aims for 100,000 shells monthly by late 2026. Russia already produces approximately 600,000 per month. Germany’s Rheinmetall plans to hit 700,000 shells per year by 2026. Russia produces that in five weeks. But this, Kallas assures those true believers in Munich — none of whom have ever operated a lathe or understood that power flows from making things, is the output of a nation “in shreds.” Germany lost 245,000 manufacturing jobs since 2019. The hemorrhaging accelerated through 2025: over 10,000 manufacturing jobs lost monthly. Jobs not coming back. Skills disappearing. Knowledge dying (the irony of building a knowledge economy) with the last generation that knew how to make things. Walk through the Ruhr Valley and see what we chose. Shuttered steel plants turned into “cultural spaces” where people sip overpriced coffee. Dormant blast furnaces converted into museums, as if industry were archaeology. The great forges of Thyssen and Krupp, silent. The rolling mills, cold. “Innovation hubs” where nothing is produced except AI presentations about circular economy and sustainable disruption. Nobody forced this. The high priests sat in boardrooms and government ministries and chose it, deliberately, with full knowledge. Germany’s industrial production has fallen for seven consecutive quarters as of early 2026. Manufacturing output shrinking since 2017 — before the war, before COVID. This was policy. This was ideology. Volkswagen announced factory closures in Germany for the first time in 87 years. Through World War II. Through division and reunification. Through 2008. Never closed. Until now. North of Thirty-five thousand positions cut. The German Chamber of Commerce reports 82% of German companies face acute skilled labor shortages. You can’t build shells without people who know how to build shells. Industrial share of Germany’s economy collapsed from 40% in 1990 to 27% today—and falling. ThyssenKrupp Steel Europe announced workforce reduction from 27,000 to 16,000. Bosch, Schaeffler, Siemens, BASF: an industrial obituary for a continent that convinced itself it could replace manufacturing with consulting. Europe shed 800,000 manufacturing jobs since the pandemic. Russia added 520,000 defense sector jobs since February 2022. By early 2026, Russia’s defense sector employs 4.5 million people building tanks, missiles, shells, drones, electronic warfare systems, artillery, armored vehicles. This is not the differential between superpower and nation “in shreds.” This is the differential between a civilization retaining capacity to make things and one that financialized itself into post-industrial irrelevance. >>>>>x . Ukraine announced it will produce 1,000 Octopus interceptor drones monthly from February 2026War for Ukraine Day 1,415: When Winter First Begins To Biteballoon-juice . However, NATO Secretary General Rutte acknowledged a stark reality: "Russia now produces in 3 months what NATO makes in a year—1,500 tanks, 3,000 armored vehicles, 200 Iskanders"Rutte: Russia now produces in 3 months what NATO makes in a year—1,500 tanks, 3,000 armored vehicles, 200 Iskanders. In 5 years, it could strike NATO directly. Hypersonics make European distances minutes apart There’s no East or West anymore. Only NATO. 1/ https://t.co/rCHqu6Axxbx .
Private capital is increasingly flowing into defense. Tikehau Capital is raising an €800 million aerospace and defense fund backed by Airbus, Safran, and ThalesPrivate capital in European defence: from peripheral sector ... - Deloittedeloitte . Since 2019, venture capital investment in defense start-ups in NATO countries has risen fourfoldKey considerations for stakeholders as Europe's defence ...whitecase . The European Investment Bank tripled intermediated financing for Europe's defense industry to €3 billion in mid-2025 and secured approval to increase its financing limit to €100 billion[PDF] Defence Financingiiss .
ESG barriers to defense financing are eroding. Danske Bank revised exclusionary policies in April 2025 to include more defense firms "in light of the new geopolitical reality"[PDF] Defence Financingiiss . Allianz announced it would evolve "some of the defence-related exclusions in most of our Article 8 mutual funds" in response to changing attitudes[PDF] Defence Financingiiss .
The December 2025 cyberattack on Poland's energy sector represented a significant escalation. Coordinated attacks targeted over 30 wind and solar farms, a manufacturing company, and a combined heat and power plant supplying nearly half a million customersEnergy Sector Incident Report - 29 December 2025 | CERT Polskacert . The attack damaged remote terminal units, corrupted firmware on industrial devices, and wiped data on human-machine interfaces, though Polish authorities successfully prevented operational disruptionEnergy Sector Incident Report - 29 December 2025 | CERT Polskacert .
Dragos confirmed with "moderate confidence" that the threat group ELECTRUM (also known as Sandworm) was responsible, marking "the first major coordinated attack targeting distributed energy resources at scale"Poland Power Grid Attack Targets Distributed Energy Facilitiesdragos . CISA subsequently issued alerts warning that "vulnerable edge devices remain a prime target" and that "OT devices without firmware verification can be permanently damaged"Poland Energy Sector Cyber Incident Highlights OT and ICS ... - CISAcisa .
Russian cyberattacks against NATO countries increased by 25% in 2025Cyberdefense Enters a Dangerous New Phaseforeignpolicy . Poland's three national CSIRTs handled over 224,000 cyber incidents by November 2025, more than double the 110,000 handled throughout 2024Cyberdefense Enters a Dangerous New Phaseforeignpolicy . The energy sector has witnessed at least 23 cyberattacks since 2022, with 11 attacks damaging critical infrastructure in 2024 alone'EU energy infrastructure as vulnerable as defence,' industry warnseuronews .
In the Baltic Sea, NATO launched "Baltic Sentry" in January 2025 following multiple incidents of undersea cable sabotageNATO launches 'Baltic Sentry' to increase critical infrastructure securitynato . Between November and December 2024, anchor-dragging incidents involving the China-flagged Yi Peng 3 and Cook Islands-flagged Eagle S damaged telecommunications cables linking Finland-Germany, Sweden-Lithuania, and the Finland-Estonia power line (Estlink 2)Baltic Sentry: NATO’s enhanced activity in the Baltic Seaosw . Finland seized the Eagle S tanker, demonstrating that "firm action within the law is possible"NATO launches 'Baltic Sentry' to increase critical infrastructure securitynato .
The Baltic states successfully synchronized with the continental European grid in February 2025, severing electricity connections with Russia and BelarusThe Baltic Sea’s energy infrastructure is under attack. NATO must actkyivindependent . Lithuania accelerated protection measures for the LitPol Link cable from April to January 15 following the Estlink 2 incidentThe Baltic Sea’s energy infrastructure is under attack. NATO must actkyivindependent . Poland and Lithuania are now planning the Harmony Link as a subsoil cable instead of a sea route, as "land-based infrastructure is easier to secure and—more importantly—can be repaired faster"The Baltic Sea’s energy infrastructure is under attack. NATO must actkyivindependent .
European energy decoupling has materially degraded Russia's war financing capacity. Oil and gas revenues fell 24% in 2025 to 8.48 trillion rubles ($108 billion)—the lowest since 2020Russia Meets Budget Targets Through Cuts as Oil Prices Slide – KSE Institutekyivpost . In January 2026, energy revenues collapsed to 393 billion rubles ($5.1 billion), down 50% year-on-year and the lowest since July 2020Stormy Weather Pummels Russia's Economy - CEPAcepa +1.
Russian Urals crude traded at approximately $34-41 per barrel in late 2025 and early 2026—roughly half the $59-60 baseline price assumed in the budget"Russi@'s 2026 Economic Crisis: Oil at $34, Banking Collapse Imminent"- Poulo Batistayoutube +1. Discounts to Brent widened to $20-27 per barrel following US sanctions on Rosneft and Lukoil in October-November 2025Why 2026 Probably Won’t be Good for Russia's Economyyoutube +1.
The federal budget deficit reached a record 5.6 trillion rubles ($73 billion) or 2.6% of GDP in 2025—63% higher than 2024Russia Meets Budget Targets Through Cuts as Oil Prices Slide – KSE Institutekyivpost . Estimates suggest the 2026 deficit could reach 3.5-4.4% of GDP, nearly triple the planned 1.6%, if current oil prices and exchange rates persistExclusive: Russia's budget deficit may almost triple this year as oil revenues declinereuters . The National Welfare Fund's liquid assets have depleted to approximately 3.8-4.1 trillion rubles ($40-50 billion) and could be largely exhausted within a year at current spending ratesExclusive: Russia's budget deficit may almost triple this year as oil revenues declinereuters +1.
Defense and security spending now consumes 38-40% of the federal budget—the highest share since the Soviet era🔥Oil/gas shrink to 22% of budget Fossil fuel revenues projected at just 22% of Russia's 2026 federal budget—half the 40%+ share in 2022—due to sanctions-forced discounts & Europe's import cuts, forcing Kremlin to hike taxes on citizens/businesses to fund military outlays 6/10 https://t.co/iP99OYP2n0x +1. The Kremlin has raised VAT from 20% to 22% (the highest since 1992), increased income taxes, and implemented other levies to compensate for declining energy revenuesSince the start of the full-scale invasion, Russia has been increasing its war spending every year. In the 2026 budget, the Kremlin plans to spend 12.93 trillion rubles ($163,4 billion) (almost 30%, a record since the Soviet era) on the war, the army, and weapons purchases. This rapid growth in spending is happening without an adequate revenue base. The Russian economy has rested on three main pillars: energy exports, gold and foreign exchange reserves, and the National Wealth Fund. ◾️ Oil and gas revenues account for about 25% of Russia's budget and are the main source of funding for the war against Ukraine. As of mid-December, prices for Russian Urals crude are at their lowest level since the start of the full-scale war, at just over $40 per barrel. In February 2022, Urals prices were in the range of $80-90 per barrel. ◾️ Russia's National Wealth Fund is rapidly losing liquid assets: from $113.5 billion in 2022 to $51.6 billion in 2025. It was used to finance the budget deficit, especially in 2022-2024. ◾️ Gold and foreign exchange reserves - at the end of November, according to Ukraine's Foreign Intelligence Service, in order to quickly patch up holes in the budget and support the ruble exchange rate, Russia's Central Bank began selling strategic gold reserves. The sale is taking place on the domestic market. Access to foreign markets is blocked by sanctions. In fact, Russia is "eating through" reserves that for decades were considered untouchable. ◾️ Even the Russian media are now openly writing about the possibility of the Russian economy entering a phase of stagnation. According to experts, the 1% GDP growth projected by the economic development ministry for 2025 will most likely not be achieved. Declines in industrial output have been recorded across all civilian sectors of the Russian economy. According to the latest data, there has even been a decline in production in the military sector, despite government contracts and financial backing from the budget. ◾️ Due to sanctions restrictions, declining international trust, and high risks, Russia has extremely limited access to external loans. There is little reason to expect a rise in energy prices. Therefore, social programs are being cut, payments to contract soldiers are being reduced, and further emissions and tax increases are being implemented. 🔷 From January 1, 2026, the VAT rate will increase from 20% to 22% - the highest level in Russia since 1992. 🔷 A radical tax reform for small businesses has been approved, affecting not only hundreds of thousands of entrepreneurs but also millions of their customers. 🔷 A law introducing a "technology levy" has been signed - a tax on equipment and electronics sold in Russian stores. However, even the usually reserved head of the Central Bank, Elvira Nabiullina, speaks bluntly - due to tariff and VAT increases in early 2026, the Russian economy will experience an acceleration of inflation. "In December, certain companies have already begun adjusting prices with this in mind, but the main impact is yet to come," she said. For now, the Kremlin is doing everything it can to sustain military spending, which it considers a priority. But the Russian economy may not be able to withstand the continuation of the hot phase of the war. Especially if sanctions are tightened further.x . Gazprom reported a net loss of $12.9 billion in 2024, with cash reserves collapsing from $27 billion in early 2022 to $6-8 billion"Russi@'s 2026 Economic Crisis: Oil at $34, Banking Collapse Imminent"- Poulo Batistayoutube .
However, sanctions effectiveness remains limited. Oil and gas revenues still constitute 22-25% of budget revenues🔥Oil/gas shrink to 22% of budget Fossil fuel revenues projected at just 22% of Russia's 2026 federal budget—half the 40%+ share in 2022—due to sanctions-forced discounts & Europe's import cuts, forcing Kremlin to hike taxes on citizens/businesses to fund military outlays 6/10 https://t.co/iP99OYP2n0x . Russia has adapted through alternative trade routes, sanctions circumvention via "shadow fleet" tankers, and expanded exports to China and India. OPEC+ production restrictions have had greater impact on federal revenues than Western sanctionsA budget without a future: How the Russian economy stays afloatnestcentre .
The gas transit cutoff has created an acute humanitarian crisis in Transnistria, Moldova's Russian-backed breakaway region. Over 51,000 households lost gas and nearly 1,500 apartment buildings lacked heat or hot water during January-February 2026, forcing residents to burn wood or use overloaded electric heaters as temperatures approached freezing‘Everything Depends on Moscow’: In Separatist Transnistria, Residents Await End to Sweeping Energy Crisis - The Moscow Timesthemoscowtimes . More than 200 schools and kindergartens closed while rolling blackouts lasting up to eight hours daily were imposed‘Everything Depends on Moscow’: In Separatist Transnistria, Residents Await End to Sweeping Energy Crisis - The Moscow Timesthemoscowtimes .
Transnistria had received Russian gas free for decades, with the accumulated debt attributed to Moldova exceeding $700 million according to Gazprom (though Moldova disputes this, citing an international audit showing just $8.6 million owed)‘Everything Depends on Moscow’: In Separatist Transnistria, Residents Await End to Sweeping Energy Crisis - The Moscow Timesthemoscowtimes . Most factories shut down entirely, unemployment surged, and exports dropped 60% compared to January 2024Transnistria's Art of Survival: Navigating the 2025 Gas Crisis | GJIAgeorgetown .
The EU provided €30 million in emergency aid to restore gas supplies from February 1-10, 2026, with an additional €60 million conditional on Transnistria making "steps on fundamental freedoms and human rights"Transnistria Extends Energy Emergency Despite Renewed Gas Supplies - The Moscow Timesthemoscowtimes . Transnistrian authorities rejected this conditional aid, reportedly due to Russian pressureTransnistria Rejects EU Energy Aid Over ‘Russian Blackmail,’ Moldova Says - The Moscow Timesthemoscowtimes . Moldova's government has accused Russia of deliberately engineering the crisis to destabilize the country ahead of parliamentary elections, aiming to install a pro-Russian governmentTransnistria Extends Energy Emergency Despite Renewed Gas Supplies - The Moscow Timesthemoscowtimes .
Moldova itself has successfully diversified, securing alternative electricity from Romania despite prices increasing approximately 75% in a week‘Everything Depends on Moscow’: In Separatist Transnistria, Residents Await End to Sweeping Energy Crisis - The Moscow Timesthemoscowtimes . The EU pledged €250 million for 2025 under a two-year strategy to decouple Moldova entirely from Russian energy and integrate it into the EU energy market Gas Outlook | Moldova grapples with energy transition as shortages loom - Gas Outlook gasoutlook .
Turkey occupies a unique position as a NATO member maintaining cordial ties with both Moscow and Kyiv. Ankara has offered to host peace talks, with Foreign Minister Hakan Fidan stating: "I think we are quite close to a lasting peace in this war that has been going on for the last four years"Türkiye signals readiness to lead naval peacekeeping in potential Ukraine settlement - Türkiye Todayturkiyetoday . NATO Secretary General Rutte praised Turkish President Erdoğan as "an amazing leader within NATO and really respected by the colleagues"Türkiye key to NATO deterrence, southern stability, alliance official saysaa .
Turkey has signaled willingness to contribute troops to a peacekeeping mission. As the NATO member with the largest fleet in the Black Sea and governing authority under the Montreux Convention regime, Turkey views maritime security responsibilities as "a natural fit"Türkiye signals readiness to lead naval peacekeeping in potential Ukraine settlement - Türkiye Todayturkiyetoday +1. Turkish naval and air assets account for a large and growing proportion of NATO's maritime domain awareness in the Black SeaTurkey Stakes its Claim in the Ukraine Peace Process | Carnegie Endowment for International Peacecarnegieendowment .
However, Turkey remains dependent on Russian gas (approximately 40% of imports via TurkStream) and is proceeding with Russian-financed projects including the Akkuyu nuclear power plant, planned to cover 10% of Turkey's electricity needs with its first unit expected in 2026Erdoğan spoke with putin on the phone. Topics of discussion: War in Ukraine – Erdoğan emphasized the need for intensified diplomatic efforts for a just and lasting peace between Ukraine and Russia. Bilateral relations – The parties discussed trade and energy cooperation between Turkey and the Russian Federation. - Energy: Turkey is heavily dependent on Russian gas (approximately 40% of imports via the TurkStream pipeline). Projects such as the AKKUYU nuclear power plant (Russian-financed, under construction since 2018) and expanded gas supplies ensure stability. The discussion implicitly addressed export routes via Turkey (e.g., for fertilizer), which helps Russia circumvent sanctions. - Trade: Despite Western sanctions, trade is booming: Russia is Turkey's largest energy and tourism partner (over 7 million Russian tourists annually). Turkey acts as a "gray zone" for Russian exports (e.g., technology, metals), which has led to criticism from Brussels. - Current (2025): The war has disrupted supply chains, but cooperation such as joint investments in renewable energy and logistics (e.g., Bosphorus shipping) is being expanded. Erdoğan's statement emphasizes "mutual benefits," which indicates a stabilization. Strategic implications: - Economic: For Turkey, this ensures energy price stability and growth (trade expected to increase by 15% year-on-year). Russia gains a reliable sales market to close sanctions gaps. - Political: The cooperation balances Erdoğan's NATO commitments and strengthens his independence from the EU/US. However, it carries risks: The EU threatens penalties for "sanctions evasion," and internal opposition criticizes the dependence on Moscow. Because Erdogan can't stop the economic chaos, he clings to the mass murderer putin.x +1. This balancing act enables Turkey to serve as a mediator but also creates potential vulnerabilities if forced to choose between alliance obligations and energy security.
The stalled negotiations have not diminished planning for Ukraine's reconstruction, which represents a massive investment opportunity. The World Bank estimates recovery needs exceed $500 billion, with the EU's Ukraine Facility providing up to €50 billion through 2027The Ukraine Facilityeuropa . The Ukraine Investment Framework, endowed with €9.5 billion in financial instruments, aims to mobilize €40 billion in investmentsUkraine Investment Frameworkeuropa .
By November 2025, EU commitments reached €6.9 billion, expected to leverage over €21 billion in investmentsThe Ukraine Facilityeuropa . A new European Flagship Fund for the Reconstruction of Ukraine, backed by France, Germany, Italy, Poland, and the European Commission, aims to mobilize €500 million by 2026 with an initial capital of €220 millionEU announces new €2.3 billion agreements package at the Ukraine ...europa .
The United States and Ukraine formalized the United States-Ukraine Reconstruction Investment Fund in April 2025, structured as a jointly governed vehicle to mobilize private and institutional capitalBuilding the framework for recovery in Ukraine: What 2025 changed ...dentons . The US Development Finance Corporation made a pilot commitment of $75 million, which Ukraine matchedThe US-Ukraine Reconstruction Investment Fund has begun its operational work with its first contribution. The US Development Finance Corporation @DFCgov has made a pilot commitment of $75 million, which Ukraine will match. This joint step launches the Fund’s practical activity, with initial focus on projects in energy, infrastructure, and critical minerals. Until the end on 2026, we plan to implement three large-scale projects. The Fund is built on the principle of equality. Ukraine assumes the same financial obligations as the American side, underlining both our responsibility and our vision of the Fund as a genuine instrument of shared recovery and long-term cooperation. This decision opens the way to financing modern industries, creating new jobs, and advancing technological solutions that strengthen Ukraine’s economy and security. The start-up capital also carries broader meaning: American investment in Ukraine becomes a guarantee of security for both Ukraine and American business operating here. I thank our American partners for their trust. Together, we are turning solidarity into real projects that will shape the future.x . In January 2026, Ukraine awarded development rights for the Dobra lithium deposit to a consortium expected to attract at least $179 million in initial capitalBuilding the framework for recovery in Ukraine: What 2025 changed ...dentons .
The EU agreed in December 2025 to provide €90 billion for 2026-2027 through joint borrowing backed by EU budget headroom, following the permanent immobilization of €210 billion in Russian sovereign assetseuropa +1. ECB President Christine Lagarde endorsed this "reparations loan" structure as "the closest I have seen to something that is in compliance with the international law principles"Will the next European Council seal the €210 billion Ukraine loan?euractiv .
The broader energy security picture shows significant progress in electricity diversification. Wind and solar generated a record 30% of EU electricity in 2025—higher than fossil power (29%) for the first timeEuropean Electricity Review 2026 - Emberember-energy . Renewables provided nearly half (48%) of EU power, with solar generation reaching 369 TWh (13% of EU electricity), higher than coal and hydroEuropean Electricity Review 2026 - Emberember-energy .
However, grid infrastructure constraints threaten to bottleneck the transition. Renewable curtailment cost €7.2-8.9 billion across Europe in 2024, with 72 TWh of mainly renewable electricity curtailed due to grid bottlenecks—roughly equivalent to Austria's annual consumptionQ&A: EU Grid Package – How Europe plans to bolster the energy ...cleanenergywire +1. Renewable projects totaling 1,700 GW across 16 European countries are stuck in connection queues—more than six times Germany's total installed generation capacityQ&A: EU Grid Package – How Europe plans to bolster the energy ...cleanenergywire .
The April 2025 blackout affecting 56 million people in Spain and Portugal for nearly six hours—costing an estimated €1.6 billion—demonstrated the risks of inadequate interconnectionFive Trends Shaping Energy Infrastructure in 2026energy-infrastructure-partners . The Iberian Peninsula's interconnection ratio of only 2.8% left it isolated and vulnerableFAQ: EU Grids Package - CAN Europecaneurope . Experts estimate Europe needs to invest €1.4 trillion in transmission and distribution grids by 2035, representing a 60-100% acceleration over the past decadeFive Trends Shaping Energy Infrastructure in 2026energy-infrastructure-partners .
The European Commission's December 2025 Grids Package proposes centralized planning of cross-border infrastructure, eight "energy highways" deemed strategically important, and mechanisms to fast-track permitting by exempting certain projects from environmental impact assessmentsQ&A: EU Grid Package – How Europe plans to bolster the energy ...cleanenergywire . Cross-border transmission capacity must double by 2030, with 180 new transmission projects and 51 storage projects planned across the continent in 2026Five Trends Shaping Energy Infrastructure in 2026energy-infrastructure-partners .
The stalled peace negotiations have crystallized Europe's strategic position at a critical inflection point. The systemic risks are concentrated in three areas: internal EU cohesion fractures driven by Hungary and Slovakia's Russian energy dependence; depleted gas storage levels creating potential winter supply vulnerabilities; and persistent industrial competitiveness erosion that undermines the economic foundation for sustained defense spending.
The strategic opportunities are equally significant: defense industrial expansion is attracting unprecedented public and private capital; energy diversification has structurally reduced Russian leverage; reconstruction financing mechanisms position European companies for substantial long-term contracts; and NATO's burden-sharing evolution—while contentious—is driving capability investments that enhance autonomous European defense capacity.
The trajectory of these developments depends heavily on three factors: whether peace negotiations produce an agreement with credible security guarantees; the pace at which global LNG supplies moderate European energy prices; and the degree to which NATO allies translate spending pledges into actual military capabilities before the 2027-2029 review windows. Europe has fundamentally strengthened its position since 2022, but the transformation remains incomplete and vulnerable to both external shocks and internal political fragmentation.