Has Transnistria just entered its last year with Russia’s gas subsidy?

A large share of Transnistria’s economy, including most of its budget, depends on a structural subsidy it receives from Russia in the form of free gas. As Ukraine has promised to stop all Russian pipelines going through its territory by the end of 2024, how will Transnistria cope?

Transnistria is the longest-lasting ongoing protracted conflict in continental Europe. For more than thirty years after the violent events of 1992, this region internationally recognised as part of Moldova has been ruled by de facto authorities in Tiraspol without attracting much international attention. Occasional tensions with authorities in Chișinău have been managed through negotiations, partly due to the fact that the status quo, while less than ideal, ultimately served well both sides.

From the socio-economic point of view, stability in Transnistria has largely been enabled by considerable assistance offered by the Russian Federation through different means, including a scheme known as the “gas subsidy ” which relies on Gazprom providing gas to the region effectively free of charge. The incomes generated by selling gas on the domestic market routinely cover for a large share of Tiraspol’s budget, while still allowing for subsidising supplies to both residents and enterprises in the region.

An active local economy relying on exports is however still needed to turn free gas into hard currency: this includes not only a considerable manufacturing and agricultural base, but also a small number of very large energy-consuming companies (such as a power plant , a metallurgic plant , and a cement plant). On top of this, Russia has been directly paying pensions to a considerable share of local residents and at different times has offered additional financing for social infrastructure.

Chișinău had a most active role in this scheme, not only because the vast majority of electricity consumed in right-bank Moldova is produced by a power plant based in Transnistria burning Russian gas, but also because Chișinău’s acquiescence was fundamental in ensuring export routes for Transnistrian goods, which are sold internationally with Moldova’s customs stamps. Implementation details have changed through the years and difficulties have recurrently emerged in particular in relation to changes to trade policies stemming from Chișinău, but overall this arrangement has proved remarkably stable as it provided benefits for all involved.

A convenient arrangement

This arrangement has enabled authorities in Tiraspol to offer to Transnistria’s residents public goods and services in line with regional standards, and in some instances offer even better conditions than in neighbouring countries (for many years, for example, pensions in Transnistria had been considerably more generous than in Ukraine or right-bank Moldova). The local economy has certainly not been flourishing, but Transnistria is not unique in the region in recording considerable outward migration and a shrinking and ageing population. With residents content, local political and economic elites can reap the benefits of being in control of resource flows stemming from Russian subsidies and access to external markets. In other words, as more theoretically-inclined observers put it, “the ruling elite operates as a ‘monopoly mediator ’, controlling the interface between exogenous resource opportunities and local society”.

Chișinău could never be entirely satisfied with the evident challenge to its sovereignty stemming from Tiraspol, but had few reasons - either political or economic - to rock the boat. Even as Tiraspol denounced as “blockade” measures introduced by Chișinău at different points in time (most actively in 2006 ) to regulate exports of Transnistria-based companies, Moldovan authorities eventually always enabled and often facilitated transit and further export of Transnistrian goods. In 2019 they went as far as requesting to Ukrainian authorities that they dropped sanctions against a major Transnistria-based economic actor, as revealed by local investigative reporters . At other times, they did indeed introduce new measures that made business more difficult for Transnsitrian companies or for the local banking sector; at present, in the early weeks of 2024, new custom duties on goods bound for Transnistria and sanctions-related blocks of exports impacting local enterprises are at the object of intense contestation. But ultimately, leaders in Chișinău of all political colours have little interest in actually reintegrating Transnistria under present conditions, as conceivable solutions appear both politically and economically fraught. The current government has European integration as its main priority, and it makes no secret of the fact that it is ready and willing to proceed on this path without Transnistria.

The status quo mostly seems to serve well also external actors. Russia is happy to maintain a stronghold that gives it leverage in Moldova, and given Transnistria’s small size (less than half a million residents) the costs of patronage seem affordable even for a strained budget. Ukraine, sharing an extensive land border with Transnistria, would much rather not have a Russian client entity on its Western border, but for Kyiv it’s more important to have a stable and pro-European ally in Chișinău than to challenge the status quo. The European Union seems content with enabling pragmatic solutions to trade and customs issues involving Transnistria through its partners in Chișinău, rather than push for a change of affairs that may cause instability.

Russia’s invasion of Ukraine

Russia’s invasion of Ukraine may well end up shaking irremediably some of the foundations that gave such remarkable stability to the current arrangement. Officials in Tiraspol continue to bring attention to short-term issues, such as the introduction of new customs duties or to gas shortages. But these shortages may only be an early sign of what is to come.

On 31 December 2024, the five-year deal that covers the transit of Russian gas through Ukraine towards Europe is due to end, and, in all likelihood , it won’t be renewed. EU countries have been preparing for this development since the beginning of the war in 2022, and even Moldova, until recently highly dependent on Russian supplies, now relies on alternative sources; 100% of the gas that Gazprom sells to Moldova is effectively passed on to Transnistria. Adaptation has been costly for residents of Chișinău-controlled Moldova, and European assistance has only partly softened the blow, but viable long-term arrangements are now within reach.

But what about Transnistria? The problem lies not even so much in gas supplies themselves, but in their fundamental enabling role for the local political economy: if more than half of the budget of the de facto authorities directly depends on free Russian gas and a substantial part of the rest depends on incomes from large enterprises which can realistically be profitable only with subsidised gas prices, it appears that an abrupt end to the Russia-sponsored gas supply would disrupt the prevalent socio-economic arrangements in Transnistria virtually overnight. Authorities would find themselves in short order without the resources to pay for public sectors workers, including in fundamental sectors such as health and education, and large energy-intensive plants would soon need to close. The long-term sustainability of these companies was anyway doubtful, but the economic shock would have much wider societal consequences already in the short term, creating a crisis situation that would be difficult to manage.

A realistic or a far-fetched scenario?

If, as outlined, all key actors are content with the current state of affairs, it would logically appear that some solution for preserving the status quo should be found in due time. Things, however, may not be so easy, as dynamics much bigger than Transnistria are at play. Ultimately, Gazprom’s supply to Tiraspol represents just a tiny part of the huge gas flows that until recently went from Russia, through Ukraine, towards central and western Europe. With less than 12 months to go, it is still very much unclear what the situation will be on 1 January 2025. Even if pragmatic short-term workarounds will eventually be found, it is not far-fetched to imagine that due to political or technical reasons Russia-sponsored gas supply to Transnistria may be terminated with little or no advance notice.

What to do then? The question has repeatedly emerged in local and regional media since Russia’s invasion of Ukraine has made this outcome increasingly plausible (e.g. here , here , here , here , and here ), but neither authorities in Chișinău nor others seem really to have a plan. The contours of some stopgap measures may be clear (e.g. the Transnistria-based power plant that produces most of Moldova’s electricity could be supplied by coal), but events could soon lead to both a political and humanitarian crisis unless adequate mitigating measures are in place.

These circumstances could in principle be seen as a “window of opportunity” for a negotiated settlement. And yet, force majeure events may not be enough for turning 2024 into a ripe moment for peaceful conflict settlement in Moldova. Besides thinking of crisis-mitigating initiatives, there is also a need to think more not only about elites in Tiraspol, but also about Transnistria’s residents, their livelihoods, as well as their hearts and minds. In some political and media circles, it may be tempting to depict them – oversimplifying variegated narratives – as hundreds of thousands of Kremlin stooges and an inherent threat to Moldova’s democracy and pro-European course. With the right guarantees in place and a serious long-term development plan, however, Transnistria’s residents of all ethnic and linguistic groups may be a more receptive audience than widely assumed. They should be actively engaged, and their needs and worries explicitly acknowledged and addressed.

It may be tempting for both Chișinău and Brussels to focus on their dialogue on European integration and just pretend that a business-as-usual approach towards Tiraspol can proceed indefinitely. But this is a luxury they can’t afford, as the situation may change abruptly and not at a time of their choice.

This article has been written within the project “Analysis of crisis scenarios in Moldova and Transnistria”, implemented in cooperation with the Agency for Peacebuilding .

This project is realized with the support of the Unit for Analysis, Policy Planning, Statistics and Historical Documentation - Directorate General for Public and Cultural Diplomacy of the Italian Ministry of Foreign Affairs and International Cooperation, in accordance with Article 23 ‒ bis of the Decree of the President of the Italian Republic 18/1967.

The views expressed in this report are solely those of the authors and do not necessarily reflect the views of the Ministry of Foreign Affairs and International Cooperation.