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The EU vs. Gazprom: Is Russia running out of options?

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This week EU competition commissioner Margrethe Vestager issued a ‘statement of objections’ against Russian energy giant Gazprom. The formal document of accusations alleges market abuses by Gazprom, stating that the company has used its dominance of the energy market to prevent EU member states from reselling Russian gas and charging unfair prices to Bulgaria, Poland and the Baltic States.

Gazprom has 12 weeks to reply, by rebuttal, concessions or both. This could mean fines of €1 billion ($1.1 billion) or more—which represents about 10% of its turnover—and could force the company to change the way it does business. Gazprom insists that it hasn’t flouted any rules and that it was established “beyond the jurisdiction of the EU”.

Tension between the EU and Russia over Eastern Ukraine features in every dealing between the two sides. Earlier this year, the Commission published a framework strategy for the European Energy Union, proposed by European Council President Donald Tusk, which recognises the importance of foreign policy implications when it comes to gas supply; it attempts to fill gaps in the integration of the European energy market, keep an eye on the supplying companies and diversify away from Russia, which is the EU’s main supplier of crude oil and natural gas.

But Europe’s alternatives for gas supply, mostly the Middle East and North Africa, are plagued by political instability and turmoil. The lifting of sanctions on Iran may produce another possibility, and there has been talk of importing liquefied gas from the US, although nobody knows how to transport it yet.

At the same time Russia is also attempting to diversify its consumer base. The European Commission intervened in the Kremlin’s South Stream pipeline project, which intended to bring gas across the Black Sea into the EU through Bulgaria, eventually leading to its cancellation. Moscow is now boosting gas supplies to Turkey and is considering building a new hub on the Turkish-Greek border. Russia also signed a 30-year, $400bn gas deal with China last year.

But the economic sanctions imposed on Russia by the EU have weakened the Russian economy. Although it has not performed as badly as expected, with the forecast of a 5% contraction being revised to 3%, it is still shrinking. At home, Putin is using this as proof that the West is out to get him but is failing; he is also trying to convince Russians that the sanctions are a chance for Russian domestic industry to take off. But will Russia be able to stand a blow to Gazprom?


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