Photo: An inside of the oil shale-fired power plant is seen in Auvere, Estonia February 28, 2023. Credit: REUTERS/Ints Kalnins

How an Energy Ceasefire Might Help Ukraine

The energy sector is badly battered but there are opportunities amid the destruction, if Ukraine has the wisdom to exploit them.

By Andrian Prokip

April 14, 2025

There is a lull, of sorts, in Russian attacks on Ukraine’s energy infrastructure, though not the full ceasefire promised in March (and broken in April) by Vladimir Putin. Even so, the lessening of such strikes represents an important opportunity for Ukraine to prepare for the near and long-term future.

The lower tempo of attacks mean Ukraine can quickly repair damaged facilities and prepare for new rounds of strikes should negotiations fail.

For the first time in the war, Ukraine is facing not only electricity shortages but also significant challenges in natural gas production following massive Russian attacks on gas facilities earlier this year. Considerable work needs to be done, especially given the uncertainty about how long the pause might last. The key point is to avoid complacency and thinking that because the attacks stopped for a moment, Ukraine has the time to prepare for winter as if it were peacetime.

If time is a limiting factor, funds are in even shorter supply. The state has nowhere near the money needed to meet the challenge of rebuilding Ukraine’s energy sector, and foreign donor contributions are likewise currently inadequate to the scale of the task.

Something has to change and that something is the state’s market-distorting regulatory interference with the free market.

Price caps and cross-subsidization are heavily used in energy markets. Excessive price regulation inevitably limits company revenues, which means funds are diverted to repairs and away from new investments.

In the electricity sector, price caps have at times limited the ability to import (because prices are above the cap), which poses a barrier to future coupling with the European market. In the gas market, import dependency resulting from Russian strikes on gas production mean losses for state-owned companies forced to supply at prices lower than the market rate to a broad range of customers. Insufficient funds will also severely impact oil and gas exploration and drilling to enhance production.

Market liberalization, with at least a partial lifting of price regulation, would improve the financial conditions of companies in the energy sector and provide more opportunities for rapid renovation and modernization projects.

This is not the first time Ukraine has found itself confronting an existential energy crisis. In February 2022, fuel supplies from Belarus and Russia, which had accounted for half of Ukraine’s consumption, were stopped following the full-scale invasion. Since that moment, Russian forces targeted Ukraine’s oil refineries and fuel depots, creating a fuel crisis that threatened to paralyze logistics within the country.

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Ukrainian companies responded by achieving the practically impossible: In a short time, they secured the importation of petroleum products on the international market and rapidly established the capacity to receive them at the western and southern borders — areas that had never handled such volumes of fuel before. Remarkably, within just a few months, the immediate crisis was resolved.

This was made possible by the government’s liberalization of Ukraine’s fuel market under conditions of war. And while ministers also attempted to enforce restrictions to prevent fuel shortages, it was only through liberalization that the crisis was averted.

Fuel market deregulation helped prevent a devastating crisis in the most desperate days of 2022 and offers clear lessons for the current situation. Liberalizing Ukraine’s electricity and gas sectors holds the same promise to meet national needs at a new moment of decision.

Russia’s most recent strikes against Ukraine’s energy infrastructure will greatly increase the demand for imported natural gas this year. Excessive market regulation will continue to impede the import of essential gas volumes and the creation of new infrastructure to accommodate it. The time frame for action is limited. The probably brief lull in Russian attacks that allows us to make repairs means replication of Ukraine’s 2022 fuel market transformation all the more urgent.

Before 2022, many Ukrainian energy assets were in desperate need of modernization. Much of that has not been destroyed by the Russians. Ukraine has been forced to upgrade and modernize while under fire — an upgrade that will prove vital for the nation’s eventual renovation and recovery.

Combining this process with additional market liberalization will inevitably lead to complicated decisions, such as the need to increase prices or reduce subsidies, and that can open the way for industrious Russian propagandists seeking to maximize discord and division.

A favored tactic among pro-Russian political forces within the country is to dangle the prospect of “cheap” Russian energy as an alternative within the nation’s reach if only we do a deal. A ceasefire and a halt to strikes on the energy sector may create a misleading sense that energy problems are in the past and that painful decisions are no longer needed. It’s easy to see how this might be exploited and adds to the government’s headaches.

This will require wise, comprehensive, and systematic information policies to safeguard its society from hostile propaganda.

But the primary consideration must be to pluck an opportunity from a dilemma. It is up to Ukraine’s leaders in the government and the private sector to throw their weight behind the systemic change that is now needed. And meanwhile to take full advantage of the lessening in attacks, while keeping a watchful eye on the Kremlin’s attempts to mislead.

Andrian Prokip, Ph.D., Dr. habil., Senior Advisor at the Kennan Institute, Director of Energy Programs at the Ukrainian Institute for the Future.

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.