The Wall Street Journal reports that the European Union’s antitrust commission will file charges against Gazprom, the Russian state-owned natural gas company, on Wednesday. Among the expected charges are levying higher prices on more dependent markets in southern and eastern Europe, prohibiting the resale of Russian gas from lower priced to higher priced customers, closing pipelines and infrastructure to other suppliers, and linking deliveries to infrastructure investments. The investigation has been underway since 2012, but has been delayed by intense lobbying and fear of Russian retribution.
If found guilty, Gazprom faces fines of up to 10% of its global revenues—that’s a crippling $17 billion at current (depressed) revenue levels. Even worse, Gazprom would be forced to open its pipelines to third party suppliers in keeping with the previously-ignored open-access rules of the European Energy Charter.
The Kremlin has tried to characterize the anti-trust investigation as a political witch hunt motivated by its intervention in Ukraine and its threats against the Baltic states and NATO. Indeed, the impending anti-trust charges cannot be devoid of political content because Gazprom has been run, not as a conventional international energy concern, but as an instrument of Kremlin foreign policy. The Kremlin has threatened supply cutoffs to Ukraine and countries reselling backflows to Ukraine, and also warning that Ukraine would siphon off gas—all the while insisting that Gazprom is a reliable supplier.
It is noteworthy that the EU gathered its courage to file these antitrust charges just as Gazprom was losing its hold over what used to be the captive European gas market. Stress tests show that a united Europe could withstand very significant losses of Russian gas. Financial sanctions have increased Russia’s dependence on gas earnings while sales to Europe are plummeting. Europe shrugged off Gazprom’s threats to close down Ukrainian deliveries in favor of Turkey with scarcely a second thought.
Thanks to Vladimir Putin, Russia has lost its gas stranglehold over Europe and with it, the vast economic rents flowing into its treasury and the pockets of corrupt oligarchs.
In 2007, Vladimir Putin boasted that Gazprom would be the world’s first trillion dollar company. Its low-cost gas fields were connected via reliable pipelines through Ukraine and under the Baltic Sea to the heart of the European market. With 15% of world gas reserves, Gazprom could undercut LNG prices and use its foreign policy clout to forestall alternate sources of supply from Central Asia, the Middle East, and other potential competitors. At the time of the trillion dollar claim, Gazprom had a market cap of near $350 billion and a stock price of $20. Its market cap has since shrunk to some $60 billion and its share price has hit lows of below $4. Investors realize that Gazprom is not a company bent on value creation but a ministry of the Kremlin charged with filling the bank accounts of Kremlin insiders and conducting Russian foreign policy.
The trashing of Russia’s most valuable economic asset adds to Putin’s growing list of major policy disasters. By attacking Ukraine, he has alienated the Ukrainian people for generations to come. By saber rattling beyond the borders of Ukraine, he has rejuvenated NATO and given it new purpose. Putin has succeeded in pushing traditional sympathizers in the European community, such as Germany’s foreign minister; they’ve decided that the danger he poses trumps their business interests. Instead of raising Russia’s prestige and national pride, he has turned the country into a pariah state with a tottering economy and declining living standards.
What more harm can Mr. Putin do to Russia? Do not count him out yet.
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