Trade War: Gazprom Threatens to Disrupt Gas Supplies to Europe

Russian-controlled natural gas giant Gazprom has threatened to disrupt gas supplies to Europe following warnings by John Kerry and others that harsh economic sanctions could be imposed on Moscow, as the Ukraine crisis threatens to spiral into a trade war.

“Simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe,” the company announced today.

Although the monopoly said it would attempt to reduce export risks, Gazprom’s chief financial officer Andrei Kruglov cautioned that Ukraine had failed to fulfil its debt obligations. This followed Gazprom spokesperson Sergai Kupriyanov’s warning on Saturday that Ukraine would see its account with Gazprom canceled as a result of an overdue tab of $1.5 billion dollars.

Although the warning of a gas disruption to Europe is not being characterized as political payback, it would be naive to think otherwise. The Financial Times describes Gazprom’s monopoly as a “formidable weapon to deploy against Ukraine,” noting that, “conflict with Russia would imperil one of the transit routes for gas to Europe” and lead to higher prices.

Despite being partly privatized, since 2005 the Russian government has held a controlling share in Gazprom. Moscow is currently embroiled in a standoff with Ukraine and Europe over its military occupation of Crimea, a situation British Foreign Secretary William Hague today described as the “biggest crisis” to face Europe in the 21st century.

Gazprom’s announcement follows vehement threats made by U.S. Secretary of State John Kerry to “isolate Russia economically,” crash the rouble and impose other crippling sanctions.

Behind the alarming military maneuvers that have raised tensions since the overthrow of Ukraine’s democratically elected government, a more complex deep state agenda is being played out in the context of energy.

The recent improvement in fracking technologies has opened up eastern Europe to major oil companies such as Chevron, who have been very active in western Ukraine, Poland and Romania over the last two years, signing agreements to commence drilling operations in these countries

“The development of gas fields in these regions poses a direct competitive threat to the near-monopoly currently held by the Russian national oil company, Gazprom,” writes Charles Hugh Smith. “This sets up a scramble for energy, where western Ukraine, Poland, Romania and the EU have powerful financial incentives to develop energy sources outside of Russian control, while Russia has an incentive to secure energy resources and assets in Eastern Ukraine and Crimea.”

Gazprom (ie Moscow) fears that US-based multinational gas and oil firms will displace their monopoly by drilling new wells and selling to Germany and other Gazprom customers at cheaper prices.

“The extent to which US-based multinational oil and gas firms are directly displacing Russian enterprises in supplying the EU is remarkable. Chevron and Exxon are very prominent in the emerging offshore and shale plays,” writes Smith’s source.

“I think the imminent threat of Ukrainian shale gas development is a factor in forcing Putin’s hand over the EU trade deal. Putin’s regional Great Power ambitions are backed entirely by strong arm hydrocarbon diplomacy. Putin’s domestic political position equally rests on stable and elevated hydrocarbon prices to fund the state budget.”

While there are undoubtedly a number of different military objectives being pursued on both sides of the conflict, an important facet that has been largely ignored is the west’s bid to eviscerate Russia’s ability to set natural gas prices and in turn reduce NATO’s dependence on Gazprom in pursuit of the wider agenda to geopolitically isolate Moscow.