What could a peace deal for Ukraine mean for Europe’s economy?
Whatever settlement emerges from current negotiations around Ukraine will shape not just Europe’s security future, but it’s economy too, says Andrew Hammond
Some three years since Russia’s invasion of Ukraine, action on the battlefield remains high pitched. Yet, the fundamental topic at the Munich Security Conference in recent days has been growing signals of a settlement to the conflict.
Yet, what has shocked US allies, especially Europe, is not that the Trump team has been developing a peace plan. That much was crystal clear from advance briefing from Washington.
The real surprise has come instead from US President Donald Trump’s apparent plans to negotiate one-to-one in coming months with Russian counterpart Vladimir Putin. While this had been predicted by some, it has nonetheless brought home a realisation across much of Europe how much the geopolitical landscape may be shifting away from the region with the change of power in Washington from the Biden administration.
So much so that Emmanual Macron is holding an emergency meeting of regional Presidents and Prime Ministers which includes key non-EU leaders such as Starmer. The agenda will be how the EU and other European nations should respond to Trump’s shock and awe tactics.
European leaders have huge stakes in the upcoming negotiations. This is not just over Ukraine’s future, including Trump’s reported plans to try to freeze current battle lines which would leave Moscow in control of around 20 per cent of the February 2022 geography of Ukraine.
Beyond the geopolitics of any eventual Ukraine settlement, which will shape Europe’s future security order, the economics matter too to the region. For instance, there is the huge issue of the future role of Russian gas in the post-war European energy mix.
Energy security
Since Moscow’s invasion, the EU has sharply increased its focus on energy security, reaching many new gas deals with the United States and Middle Eastern countries in particular. However, as EU leaders prepare for a potential deal between Moscow and Kyiv, the thorny question of cheaper Russian gas looms large again.
To be sure, the new EU energy commissioner Dan Jorgensen has pledged to end the bloc’s energy ties with Russia by 2027. Yet, there is a debate underway in Brussels on whether Russia gas pipeline sales to Europe should be re-started as part of any war settlement that might be agreed with Moscow.
Proponents of such a move assert it could help boost Europe’s competitiveness. Gas prices in Europe are often three to four times larger than in the United States so cheaper Russian gas could be an economic boon.
However, the discussions have already prompted fury from some key players who remain the staunchest opponents of Putin. This includes the Baltic states, Poland and Slovenia.
For as long as Putin remains in power, Russia will be seen by much of Europe as a pariah state. For sure, some EU countries including Hungary, Slovakia, and Bulgaria, may significantly increase their energy reliance again on Moscow. However, it is likely that many current European leaders will resist.
The backstory for this debate is the EU 27’s pivot away from Russian energy, even though Liquified Natural Gas (LNG) imports from Russia to Europe remain stubbornly high. Within a year of Moscow’s invasion, the EU’s energy consumption changed so rapidly that Russia was no longer the bloc’s main gas supplier.
Correspondingly, the EU 27 have taken on more aggressively the challenge of diversifying to new energy sources. The region has scaled up use of clean energy and reduced overall energy consumption. However, while the EU is eager to expand clean energy, current volumes fall far short of meeting full needs.
So to reduce reliance on Russian energy, the EU has secured many new deals since 2022. The European Council on Foreign Relations (ECFR) Energy Deals Tracker shows that the bloc has mostly focused on securing new gas supplies as a transitional energy source in a long-term movement toward clean energies. Around 45 per cent of the approximately 180 agreements that the bloc and its member states have struck since 2022 concern gas.
The ECFR tracker also shows, as of February 2025, that the EU country which has struck the most deals is Germany, more than double Italy and Hungary. This is unsurprising given Germany is the bloc’s largest economy and was the biggest importer of Russian gas before the war.
It is questionable if it would make sense for Trump to push in upcoming talks with Putin for Russian gas imports to the EU in any Moscow-Kyiv peace deal as it would go against US LNG export interests
Of the around 180 agreements, the leading national counterparties are the United States and the United Arab Emirates. That the United States tops this list, by some distance, is reflected in the significantly larger share of the EU’s LNG which the country now provides. This comes in a context too where Trump has urged Europe to buy even more US gas to ward off potential new US tariffs under his administration.
Trump is unpredictable, however in this context it is questionable if it would make sense for him to push in upcoming talks with Putin for Russian gas imports to the EU in any Moscow-Kyiv peace deal as it would go against US LNG export interests. With the United States having taken over as Europe’s top LNG supplier, letting more Russian gas back in would hurt US market share.
However, Europe cannot rely on the rationality, or otherwise, of Trump on this and other key Ukraine-related questions. This is why Europe needs a seat at the negotiating table with Russia, and regional leaders now need to decide urgently how to try to force Trump’s hand.
Andrew Hammond is an associate at LSE IDEAS at London School of Economics