There has been a lot in the news lately about military tensions between Russia and the Western world, and although both NATO and Russian leaders claim that they do not want another cold war to start, concerns about Russian aggression persist. Last week, leaders in the European Union announced a unified defense fund that could be a precursor to a Europe-only replacement for NATO, such are the EU’S concerns about losing the backing of a defense power house, the United States, once Donald Trump takes office. Russia’s military might and its leader Vladimir Putin’s apparent willingness to use it has much of the globe on its toes, but no matter how many missiles, tanks, and planes he has at his disposal, the Russian president’s greatest weapon may be Europe’s utility bill.
Gazprom is one of the largest natural gas distributors in the world, and its home base in Moscow affords the Kremlin with unprecedented power over the price and distribution methods the company utilizes in trade deals with foreign powers. The utility giant provides about a third of the natural gas utilized by nations within the European Union, and up to eighty-two percent of the gas consumption in Western Europe.
The power Gazprom allots the Russian government is not lost on the leadership in the EU, who have been taking proactive measures to establish a more independent posture both socially and militarily in recent months after shakeup elections in both Britain and the United States have left many Europeans questioning the level of support they can expect from NATO’s two largest defense spenders.
In February, the European Commission announced plans to shift its energy policies in a way that would limit any single provider from exerting too much influence over the continent. These changes could make it easier for non-member nations to bid on natural gas contracts as well as encouraging member nations within the EU to distribute natural gas from one nation to another. Allowing such distribution within the European Union would prevent Russia from cutting individual nations off due to political disagreements.
“We are still far too vulnerable” to a major disruption of gas supplies, Miguel Arias Cañete, the European commissioner for climate action and energy, told a news conference in February, “With political tensions on our borders still on a knife’s edge, this is a sharp reminder that this problem is not just going to go away.”
The changes will also force member nations to look closely at existing natural gas supply methods. Nations will now be required to notify the European Commission if they receive more than forty percent of their supply of natural gas from any single source. The Commission will then look over the information and provide alternative suggestions that must be “seriously considered” before moving forward with any deals. Failing to do so could result in being taken to court by the EU and having fines levied.
“By all means, this is positive,” said Linas Linkevicius, the foreign minister of Lithuania, about the EU’s efforts to leave Gazprom behind. “Energy was always used as a tool by Russia” for “blackmailing” and “leverage,” he continued.
Earlier this week, Ukrainian courts fined the Russian gas distributor a whopping $6.8 billion for alleged violations of the nation’s anti-trust laws. While Gazprom is likely to appeal the decision, Gazprom has never won a case brought against it in a Ukrainian court room. In July of this year, the same courts denied Gazprom’s appeal for an earlier $3.4 billion fine for their abuse of “a monopoly position” in natural gas pricing from 2009 to 2015.
Concerns about Russia using Gazprom for leverage in a military confrontation are not without basis. Last year, Gazprom cut the Ukraine off from natural gas supplies, citing defaulted bills, leaving millions in the cold while many in the region were also without power. Tensions between the two nations erupted due to the 2014 annexation of the Black Sea Peninsula of Ukraine by Russia.
On Sunday, Poland’s state-owned natural gas distributor, PFNiG, filed a formal complaint with the European Court of Justice due to the EU’s decision to grant “unique” rights to Gazprom in the use of the Opal gas pipeline in Germany. Under the existing agreement, Gazprom would be granted increased capacity in the German pipeline, upping Germany’s reliance on the Russian company and “violating EU antitrust rules.” It also permits Gazprom to bypass both the Ukraine and Poland as transportation routes.
EU rules clearly state that no gas-trading company can have exclusive use of the pipeline, but in 2009, they also ruled that Gazprom could have half of the total capacity allowed in the Opal pipeline for their exclusive use.
“They are destroying the development of the competitive gas market and expanding the privileges enjoyed by Gazprom, which can in turn lead to the Russian company acquiring a monopoly in the supply of gas to Central and Eastern Europe,” PGNiG managing director Piotr Wozniak said to the commission.
Although the European Union has made it clear in statements that they aim to diminish their reliance on Russia’s natural gas supply, the deals they’ve been brokering with Gazprom have yet to reflect their newly adopted stance. In fact, 2016 promises to be a record year for the Moscow based company.
“Exports to the European market has been steadily growing this year. You know the current record of 160 billion cubic meters of gas was set last year. In the eleven months in 2016, Gazprom has exported more than 160 billion cubic meters. In December, the company can deliver at least 10 billion cubic meters and gas exports will exceed 170 billion cubic meters. This is an absolute record,” said the president of the Russian gas society, Pavel Zavalny.
Russia’s natural gas, as supplied through Gazprom, may be one of the most powerful weapons in Putin’s arsenal, and although the leadership at the EU seem to be aware of the severity of their dependency on it, they have yet to enact any real change. If anything, their dependence has grown 10% since this same time last year. With tensions continuing to boil, Gazprom may find itself playing a larger role in Russian foreign relations, and with so much leverage over the people living within the European continent, Putin may be able to wreak havoc on American allies without so much as firing a single round.
Image courtesy of Reuters