Rules Won't Fix Europe's Gazprom Problem

Putin's still-powerful leverage.

Photographer: Oliver Bunic/Bloomberg

If the Ukraine crisis has proved anything, it is that the European Union can't get Russia to play nice by trying to humor President Vladimir Putin. So though it was understandable for the EU to hold off on an anti-monopoly case against Gazprom when the conflict began last year, Wednesday's decision to go forward with it was overdue. 

No lawsuit can stop Putin from using natural gas as a political weapon to divide Europe. In the long term, the only real solution here is for Europe to diversify its energy supplies beyond Russia. 

In the meantime, however, there are a few things EU nations can do to resist Putin's bullying. One is to discover their inner Musketeer and sign on to Poland's plan for buying gas collectively -- all for one price, and one price for all. Then again, if the bloc showed that kind of unity, there would be no European debt crisis. So dream on. 

QuickTake Russia's Gas Politics

This lawsuit is a more realistic short-term response. The EU's case against Gazprom includes three complaints. The first and clearest is that Gazprom has written clauses into its bilateral supply contracts with eight EU nations, all from the former Soviet bloc, to prevent these buyers from reselling gas to neighbors that might be willing to pay more. The more isolated EU energy markets are, the easier it is for Putin to manipulate them. 

The second complaint charges Gazprom with unfair pricing, in part by using oil-linked formulas to favor some countries and penalize others -- specifically Bulgaria, Estonia, Latvia, Lithuania and Poland. The final objection concerns old-fashioned muscle politics; Gazprom has a tendency to make gas supplies and prices contingent on permitting Gazprom to build and operate the pipelines it wants. 

Paradoxically, this last concern over infrastructure has become less important since the Ukraine crisis began. Gazprom has changed its strategy in Europe: Instead of trying to own everything, from the extraction process in Siberia to the retail distribution system in Europe, Gazprom now wants to deliver gas for sale at the bloc's border. Indeed, were it not for the currently sour political atmosphere, a quick negotiated settlement would be all but certain. 

Slowly, the EU and Russia are becoming less dependent on each other. The EU has begun building the liquid natural gas terminals and network interconnectors that may eventually create a more diversified supply and a single, transparent and fluid market. Russia, meanwhile, has finally agreed to build a pipeline to China after a decade of prevarication, giving it a new mega-consumer to supply. Both steps should have been taken long ago and, once they actually materialize, will be healthy. 

Yet the need of the EU's eastern members for Russian energy today remains acute, giving Putin powerful leverage. The EU's lawsuit may help curb Gazprom's abuses. But ultimately, only better coordination among European nations over energy policy can free Europe from its dependence on Russian gas. 

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