The European Union’s anti-trust case against Gazprom levels several sets of charges against the Russian natural gas monopoly. On the one hand, it alleges that Gazprom used its dominant market position in Eastern Europe to drive out competitors and set prices above normal market levels. On the other hand, it says the state-owned gas giant worked to impede free trade within the EU by invoking the take-or-pay terms of its supply contracts.

European Competition Commissioner Margrethe Vestager declared last week that the charges against Gazprom were not politically motivated. She stressed that Brussels’ goal was to ensure that the Russian firm complied with EU norms and was willing to negotiate a settlement.

Politics or trade policy?

Unfortunately, Russia is unlikely to take such statements at face value.

Removing politics from the equation is virtually impossible at the moment. Brussels and Moscow have spent the last year at odds over the latter’s seizure of Crimea and meddling in the Ukrainian crisis. Sharp words have been exchanged, and Russia has responded to the EU’s imposition of punitive sanctions by introducing trade restrictions of its own.

In short, relations between the two sides are sufficiently tense that any anti-trust disputes would be difficult to resolve. But on a more specific level, Russia is likely to view the charges against Gazprom as evidence that the EU is siding with Ukraine. 

Russia’s interpretation

As noted above, Brussels has alleged that Gazprom stymied free trade within the EU by enforcing the take-or-pay provisions of its supply contracts with Eastern European countries. Under these provisions, the company’s clients must take delivery of minimum amounts of Russian gas, regardless of whether they want that much. Additionally, they cannot re-sell the gas to third parties, irrespective of whether they can use or store the surplus volumes.

According to Brussels, these practices constitute a violation of EU law – specifically, of the anti-trust provisions of the Third Energy Package. Russia has maintained, though, that Gazprom was merely enforcing its own legally binding contracts. Foreign Minister Sergei Lavrov took this argument a step further last week, saying that the EU was applying current legal norms retroactively to supply deals signed before the introduction of the Third Energy Package.

For Russia, the problem is that the EU is taking this stance in order to facilitate efforts to supply gas to Ukraine, which is not a member of the union. That is, Brussels does not appear to be motivated by the desire to uphold its own internal standards but by the desire to help European companies execute reverse-flow supply agreements, under which gas is pumped eastward from the EU to Ukraine via existing pipelines.

These Soviet-built pipes were put in place to deliver Russian gas to the Eastern Bloc and Germany, but they are now working in reverse to help Ukraine reduce its dependence on Russian fuel. Under a deal with Germany’s RWE, Ukraine began importing small amounts of gas from Hungary and Poland in late 2013. It stepped up delivery volumes in 2014 and also struck a deal with Slovakia, which is capable of supplying up to 10 billion cubic metres per year.

 

The same tactics

Likewise, Russia does not seem to be driven primarily by the desire to uphold the principle of contractual integrity – especially since it has shown itself willing to be flexible on the enforcement of take-or-pay in negotiations with European clients (and sometimes even with Ukraine). Rather, it is probably looking to safeguard its position as Ukraine’s primary supplier, with an eye to maintaining its hold over Ukrainian transit pipelines until such time as new delivery routes can be established.

As such, it will probably interpret the EU’s charges as a politically motivated attack on Gazprom. This means that tensions between Moscow and Brussels will increase overall in the short term.

These tensions may not be confined to the realm of diplomacy. NewsBase believes that Russia is likely to take concrete (though limited) action, probably in the form of unannounced gas supply cuts to the EU member states involved in reverse-flow shipments to Ukraine.

There is precedent for such a development. Poland, Slovakia and Hungary, along with other EU members, have already experienced a number of delivery reductions of this sort over the last year. Western observers have speculated darkly about the Kremlin’s possible political motives for such cuts, which have often come closely on the heels of upsurges in political tensions or increases in reverse-flow delivery volumes. But each time, Gazprom has upheld the standards of plausible deniability by attributing the fluctuations to technical factors of various kinds.

As such, there are good reasons to believe Moscow will use this tactic again. This time, it may make a point of singling out Romania, which is reportedly in talks with Ukraine on reverse-flow gas shipments. Andriy Kobolev, the head of Ukraine’s national oil and gas company Naftohaz Ukrainy, said on April 23 that Kiev and Bucharest had resumed negotiations on the opening of a new delivery corridor.

Lithuania may also be targeted, as Russia has accused it of originating the charges against Gazprom. Vladimir Chizhov, Russia’s ambassador to the EU, said on April 27 that Brussels’ case had been initiated not by “EU-based energy companies, which could have theoretically complained about those contracts, but by the government of a member state.”