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OPINION

The Queen's Gambit. Mikhail Krutikhin on how the Kremlin sacrifices Gazprom's revenues to blackmail Europe

The abrupt reduction of Russian gas supplies to Europe is an obvious attempt by the Kremlin to use energy exports as its main weapon. Mikhail Krutikhin explains how the Kremlin is willing to sacrifice Gazprom and its profits for the phantom hope of forcing Europe to drop sanctions.

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Russian gas deliveries to Europe have fallen quickly and dramatically, and it seems likely that they will continue to do so. Europeans do not believe much in the technical reasons for this drop, such as the inability to get a repaired compressor unit from Canada or Ukraine's refusal to accept gas through the Sohranovka border crossing, which is controlled by Russian troops. The reasons are political, the German government says.

In 2017-2019, the average daily pipeline gas supplies from Russia to the European Union ranged between 400-500 million cubic meters. Then, new factors entered the familiar pattern. For example, Gazprom prepared the Nord Stream-2 pipeline for operation, expecting to switch its entire transit stream through Ukraine to the new route. The U.S. Congress prevented the Russian export monopoly from doing so by imposing sanctions on the project. Gazprom was forced to sign a five-year contract with the Ukrainians for the transportation of gas, but from the beginning of 2021 it started gradually reducing the volume of supplied gas.

In the winter of 2021-2022, Moscow turned the gas supplies into an instrument of blatant pressure on Europe, contributing to the crisis that broke out that winter. Gazprom refused to replenish the winter storage capacity it owned, stopped selling gas under spot and short-term contracts (which had previously allowed it to sell almost 40% of its gas in Europe), and kept interrupting gas transmission via various routes - sometimes under the pretext of preventive maintenance of the pipelines, sometimes without any pretext at all. Officials in Russia openly declared: “We will let you freeze - you have to understand you cannot last long without our gas.”

The purpose of such manipulations with gas flows was, of course, pressure. On the one hand, Gazprom was still counting on the lifting of sanctions against Nord Stream 2; on the other, Moscow was letting the Europeans know that their decarbonization and “green transition” programs did not suit the Russian leadership, which had proclaimed its reliance on fossil fuels back in 2019 in its Energy Security Doctrine, and that their “green energy stuff” continues to be considered a whim or even an attempt to harm Russian interests.

Europe has not succumbed to that winter pressure. On the contrary, the unbusinesslike behavior of the Russian supplier made Europe intensify its “green transition” programs and reduce its energy dependence on Russia.

Gazprom's blackmail forced Europe to speed up its “green transition”

With the outbreak of hostilities on Ukrainian soil, gas exports quickly became a weapon, and in that role threatened to cease altogether unless the Europeans reconsidered their attitude toward Russia's policies. In fact, Moscow has used its last weighty argument – “let's cut off the gas.” It looks like a contest: either Europe will end its dependence on Russian gas (it has promised to do so within a few years), or Gazprom will close all the valves on its westbound gas pipelines before then.

What is Gazprom doing?

Firstly, it is cutting off gas supplies to those companies that have not agreed to transfer their payments to Gazprombank (a sham scheme devised to justify the president's demand to pay in rubles) - in Finland. Poland, Bulgaria, Denmark, Germany....

Secondly, supplies via Yamal-Europe route, which passes through Belarus and Poland to Germany, were completely halted. The reason was the contrived “counter-sanctions” of the Russian government against the Polish pipeline operator.

Thirdly, the gas supply via Nord Stream 1 was almost halved under the pretext of malfunctioning compressor units.

Fourthly, gas supplies entering the Ukrainian gas transport system through the Sohranivka border crossing point have stopped, because the Ukrainian network operator is prevented from controlling the situation.

Fifth, Gazprom refuses, without valid reasons, to switch transportation volumes from Sohranivka to the Sudzha hub, which is ready to receive gas streams that could even replace the entire Nord Stream.

And sixth, Turkish Stream, which transports gas to southeastern Europe via Turkey, has been shut down for maintenance.

Diagram of existing and planned gas export trunk pipelines from Russia to Europe https://commons.wikimedia.org/wiki/User:Nicolay_Sidorov

As Miss Marple used to say, “I'm still willing to believe in one coincidence, but not several at once, no way.” The average daily supply volume has dropped below 100 million cubic meters.

The situation is critical both for European countries, some of which depend on Russian supplies, and for Gazprom, which is committing suicide as a gas exporter because it has no real alternatives on other markets. In this game, the Kremlin is not sacrificing a pawn but almost the queen, deliberately inflicting colossal damage on the national economy.

The Kremlin is sacrificing not a pawn but the queen, deliberately causing colossal damage to the economy

The suicidal behavior of Gazprom, which has been transformed from a commercial company (although extremely corrupt) into a political instrument, is a phenomenon that economists and political scientists will long be studying. A theoretical basis for this phenomenon has already been offered, and even a beautiful name for it has been coined: weaponized interdependence.

In 2019, American researchers Henry Farrell and Abe Newman formulated that concept in a paper published in the prestigious International Security journal. I was involved in refining their ideas, which formed the basis of a collective work published in the U.S. last March: “The Uses and Abuses of Weaponized Interdependence.” My chapter is devoted to a special case: the evolution of Gazprom.

At first sight, systems based on interdependence are stable precisely because their elements are dependent on each other. Like the European gas market, for example, on the one hand, and the Russian gas export monopolist, on the other. And this system has long withstood shocks and tests: the U.S. wrath, the invasion of Czechoslovakia, the Afghan war - nothing has disrupted the deals that were beneficial to both sides. And then, suddenly, one of the important elements of the system decided to play “king of the mountain,” albeit to the detriment of its own business interests and those of its customers.

For a start, some European countries, which cannot do without Russian gas supplies, faced price increases from the monopolist supplier, with prices often determined by the attitude of the country's leadership to the Kremlin's policies. And then there were politically motivated gas cuts during the winter heating season. In 2005, 2006, 2009, and 2012, - and in the winter of 2014-2015, Gazprom simply cut its supplies in half, even though it lost nearly 4 billion euros in lost profits.

The Russian supplier's behavior led to European retaliation - the accelerated adoption of antitrust rules like the Third Energy Package, multibillion-dollar lawsuits, and the opening of an investigation into Gazprom's actions. The company then made some concessions, acknowledged all the claims of the investigators and revised its approach to pricing policy, gave up attempts to limit the re-export of Russian gas and removed politically colored requirements from gas supply contracts.

For a while it seemed that the Russian leadership's attempts to use the company as a political weapon, disregarding interdependence, had largely failed. Europe has built and is building terminals to receive liquefied gas from other sources, laying interconnectors across borders to transfer the necessary volumes of gas in case of Moscow-induced disruptions, and monitoring compliance with antimonopoly rules and regulations, as, for example, in the cases of the monstrously expensive but failed South Stream and Nord Stream 2 projects.

The role of the Russian gas supplier was then greatly diminished. One could even conclude that Moscow's policy of turning a system of interdependence that worked fine and benefited all participants into a one-sided weapon remained just a perfect example on which political scientists in the United States and other countries can practice their theories.

Today's situation proves that this is not the case. Moscow has decided to go all the way and unleash a full-scale gas war against Europe.

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