Russia

Gazprom, The Latest Stage For EU-Russia Hostility

As the European Commission targets Russian state-owned energy giant Gazprom for antitrust violations, tensions between Europe and Russia over Ukraine are only bound to rise.

Gazprom pipeline
Gazprom pipeline
Markus Balser

MUNICH — It is highly unlikely that Russia's government will leave the European Commission's antitrust attack upon state-owned energy giant Gazprom unanswered. The company's vast domestic and international influence — a far-reaching network of more than 400,000 employees, 160,000 kilometers of pipeline, and some 1,000 subsidiaries with a combined turnover of more than 100 billion euros — is simply too vital to Moscow's interest for the Kremlin to not rush to its defense.

After taking on Google, this is now the second time in two weeks that Brussels is going up against an internationally dominant company. And by doing so, it will probably increase tensions between the EU and Russia over the simmering conflict in Ukraine. After more than two-and-a-half years of investigation, EU Competition Commission inspector Margrethe Vestager announced last week that it's pursuing a case against Gazprom, accusing the energy giant with cozy ties to the Kremlin of violating fair-competition laws. The company could face a fine of up to 10% of its annual revenue.

"We hope that a compromise will be found," Kremlin spokesman Dmitry Peskov told journalists during a conference call last week. "We are looking forward to an absolutely impartial attitude towards the Gazprom company. Of course, Gazprom will defend its interests and the state, as a major shareholder in the company, will also defend the interests of Gazprom."

Though Vestager has said several times that her investigations are driven purely by economic motivations, she has also acknowledged the explosive nature of the situation. "This case is more political than others," she said.

Claiming that "Gazprom has abused its market power," she says the "unfairly high" prices charged in five countries — Estonia, Latvia, Lithuania, Poland and Bulgaria — are up to 40% higher than those of other countries within the EU. The reason for this, among others, is supposedly existing export bans. It's contractually illegal for major customers in eight Eastern European countries to export bought natural gas to other countries.

But in addition to the highly priced gas export, Vestager also criticizes the binding oil prices, which means that the price of natural gas is connected to that of oil.

Despite this, the EU is leaving no one in doubt about its goal to fight the market power of the Moscow-based energy empire with increased vigor. The case has been formally investigated since 2012, and three accusations are of major concern: Gazprom is alleged to have hindered the free flow of natural gas to certain countries and prevented a reduction of Europe's dependency on Russian natural gas resources. In addition to this, Gazprom is accused of having operated a dishonest pricing policy to the disadvantage of European consumers.

Getting closer to Greece

If it can be proven that Gazprom has violated European law, the ensuing punishment could be severe. The fine in such a case could reach 10 billion euros.

Brussels is acutely aware of the importance of this case. Gazprom is responsible for providing approximately one-third of Europe’s natural gas imports. It's obviously also significant to Russia itself.

The Brussels decision follows a demonstration of power by Moscow. After years of fraught building works, Gazprom decided to scrap the building of the South Stream pipeline to Western Europe entirely, and divert the natural gas to Turkey instead. This latest Gazprom attempt to edge closer to Greece was seen as an effort to split Europe along its natural gas necessity fault line, using energy policy as leverage.

Greek Energy Minister Panagiotis Lafazanis explained after a visit by Gazprom director Alexey Miller that the negotiations between Athens and Moscow regarding the Turkish-Stream pipeline project are at a solid stage. "We have had very constructive and stimulating conversations," Lazafanis said.

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