Vladimir Putin’s abusive stranglehold over European gas supplies has been laid bare by explosive EU documents, exposing deliberate violations of EU law and a pattern of political bullying over almost a decade.
The longest investigation in EU history found that the Kremlin-controlled energy giant Gazprom has used its enormous power to pressure vulnerable states in Eastern Europe, and to fragment the EU’s unified energy market with coercive pricing policies.
The report suggests that Germany has been enjoying a sweetheart deal with Gazprom, gaining a competitive advantage in gas costs at the expense of fellow EU economies and leaving front line states at the mercy of Moscow's strong-arm tactics.
Hundreds of pages leaked from the European Commission paint an extraordinary picture of predatory behaviour, with Gazprom acting as an enforcement arm of Russian foreign policy. Bulgaria was treated almost like a colony, while Poland was forced to pay exorbitant prices for imported flows of pipeline gas from Siberia.
The stash of files slipped to Euro-MPs – in a very rare breach of secrecy rules – amount a political bombshell. It is highly embarrassing for the EU's exalted competition directorate. The papers imply that Brussels learned the full truth but is nevertheless turning a blind eye as it prepares to reach a cosy understanding with Moscow, disregarding fundamental principles of EU law.
Leaked pages paint an extraordinary picture of Gazprom acting as an enforcement arm of Russian foreign policy
“This is a very big deal. What the documents show is that there was systematic abuse of dominant position, and that it was clearly done for political purposes,” said professor Alan Riley, an expert on EU energy law at the Atlantic Council.
“Gazprom was splitting the European energy market at every point. And now the Commission is minded to do a deal that treats the East Europeans as if they were not member states at all,” he said.
The political context is inflammatory. The competition commissioner, Margrethe Vestager, has pursued an aggressive and controversial campaign against US technology companies such as Google and Apple, openly vilifying the Silicon Valley leaders as a threat to European democracy.
The indictment document lays out systemic abuse
Critics say the double standards over Gazprom suggest that Commission has succumbed to "regulatory capture" or other forms of pressure, and has become ideologically unhinged.
The key report – called a ‘Statement of Objectives' – is a confidential indictment or charge sheet by the competition directorate. It was drawn-up in 2015 after four years of investigation, following the most spectacular "dawn raids" ever carried by the Commission’s elite swat team.
It states that Gazprom infringed multiple EU laws and had engaged in “abusive behaviour”, charging “unfair prices” and leveraging its “dominant position”. The Commission called for fines of 30pc of relevant sales, or up to 10pc of total turnover. “The Commission considers that the infringement has been committed intentionally. Gazprom is fully aware of the illegal nature of at least some of the various contractual and non-contractual measures,” it said.
Investigators found that Gazprom was charging Poland $350 per 1000 cubic meters of gas, compared with $200 further down the Yamal pipeline in Germany, where the cost should logically have been higher. The apparent reason was to punish Poland for refusing to cede control over that section of the infrastructure to the Russians. Germany’s privileged pricing may help explain why it has been the chief champion of Gazprom’s interests in Brussels despite the Kremlin's assault on Western democracies.
The episode exposes the emptiness of EU rhetoric and moral posturing, and risks mushrooming into a major Brussels scandal. Polish politicians say Germany has used its enormous influence over the EU institutions to suppress the full findings of the enquiry and to push for a friendly settlement with Gazprom that preserves much of the status quo.
“What we’re told is that the Commission wants an amicable settlement and has already decided to do this deal. It is disloyal and Poland is one of the victims, but not the only one,” said Jacek Saryusz-Wolski, a leading Polish MEP and the country’s former Europe minister.
“The documents show beyond any doubt that Gazprom has trespassed on EU law for years, and the Commission is about to issue a de facto acquittal anyway. They are they are doing this in the context of a silent war by Russia. This is all about vested interests,” he said.
At the time of the enquiry Russia had a near monopoly across the old Warsaw Pact region, accounting for over two-thirds of natural gas supply to a string of countries. Its three sets of pipelines provided 64pc of total EU gas imports. The advent of liquefied natural gas and the construction of LNG terminals in Poland and Lithuania has reduced this dependency slightly but the overall problem remains.
Although the 271-page document is heavily redacted, the thrust is clear: “Gazprom has been pursuing a strategy of market segmentation in CEE countries via contractual territorial restrictions and equivalent measures;
ii) Gazprom has been preventing intra-brand competition by prohibiting its contractual partners from re-selling Gazprom's gas outside their domestic countries;
(iii) Gazprom's market segmentation policy has the purpose of maintaining price differentials between Member States and allowing Gazprom to charge higher prices.”
It controls the metering and the storage points, and imposes clauses to stop "reverse flows" of gas from West to East, leaving the more vulnerable states at the mercy of a Kremlin squeeze. “The contracts in principle prohibit the re-sale of Gazprom's gas to other countries,” it said.
Gazprom actively stopped Poland obtaining emergency supplies of gas from Western wholesalers in the acute gas crisis of 2009.
Bulgaria is particularly isolated with no links to neighbouring gas networks. The document said the country was the victim of “exploitative abuse”. The state energy group BEH “had no choice but to accept its participation in imposed unfair trading conditions". Most of the details were blacked out but there have been allegations of outright intimidation and blackmail in the East European press.
The EU admits that Gazprom's promises change little, but it is willing to do a deal anyway and sacrifice the East Europeans
In the Baltics, gas prices differed capriciously from country to country, seeming to reflect rewards or punishments for policy shifts towards Russia by respective governments. The alleged abuses are a patent violation of both the spirit and the law of Europe’s integrated market.
Gazprom has since modified some policies but much remains unchanged. “Despite various requests by Gazprom’s customers to remove the restrictions, also in view of their illegality under EU competition rules, Gazprom did not agree to or ignored such requests,” it said.
One of the leaked documents reveals the Commission’s view on Gazprom’s offer of a settlement. It said the proposal would allow the company to “continue its pricing policy” and that it would not prevent other abuses from reoccurring.
The Commission admits that acceptance of the offer by the EU would “be seen as failure to exercise the EU law enforcement powers,” yet this appears to be exactly what was being planned until this week. The Commission may now be forced to take a tougher line.
The scandal is in one sense the political equivalent to the diesel affair in the car industry, and raises awkward questions about the integrity of the German political system. The saga has infuriated the Polish government, which is currently facing EU action over its court policy and accuses Berlin and Brussels of cherry-picking moral issues.
The Social Democrats (SPD) in the German coalition are close to Moscow and back the Nord Stream 2 pipeline project owned and controlled by Gazprom. Former Chancellor Gerhard Schroder is on the project’s board and therefore on the Kremlin payroll. The Nord Stream 2 leadership is peppered with ex-KGB and ex-Stasi officers.
The new pipeline further concentrates Gazprom’s power and leverage by switching gas flows from the Brotherhood pipeline through Ukraine, serving a key goal of Kremlin geostrategy. The leaked Commission report suggests that it is scarcely in the interests of all EU members or consistent the EU’s energy goals.
The project is increasingly at risk in any case. Gazprom’s chairman, Alexei Miller, is targeted in the latest draconian sanctions imposed by Washington. It is hard to see how Shell, Engie, and other firms in the Nord Stream 2 consortium can risk going ahead with a venture subject to such enormous political and legal risk.