Russian President Vladimir Putin called it regrettable, others call it the anti-trust case of the decade. Some wish it could loosen the grip energy oligarchs have on state power in Moscow, others merely wish it would bring gas prices down in Europe. It is hard to believe that a standard European Commission procedure could produce such a wide variety of reactions these days. And yet, as the EU's treaty watchdog announced it was launching an inquiry into Russian energy giant Gazprom's business practices in Europe, almost everyone knew immediately that something big was happening. It is not the technical question of whether Gazprom had used its market power to undermine the EU's single market principles that sparked the excitement. It is the fact that, in the guise of a strictly legal procedure, a geopolitical issue of the highest importance for Europe and Russia has been brought into focus.
Gazprom has long been a key component of Russia's political setup—energy exports are the only real source of hard currency revenue for Russia. Stability in this big country, and therefore the political survival of the current political elite, depends mainly on a steady flow of cash that enables them to throw money at problems and buy the loyalty of crucial stakeholder groups, not least the military. Thus, the success of Gazprom's business model is a must for Putin and his team. Over the last decade, the company has steadily expanded its reach into the highly attractive European energy market, trying to unite the upstream and downstream parts of the business in one hand. Smaller European energy companies were bought, a massive lobbying and advertising strategy was devised, and strong personal relationships into the upper echelons of European politics were nurtured and cultivated.
None of this posed a problem per se. Lobbyism is not illegal, and Russia's savvy strategic planners made use of Europe's self-inflicted weakness in the field of energy policy. Too many European countries, instead of developing a common EU energy policy, had opted for bilateral energy contracts with Russia. As a result, the power balance in Europe's energy politics has traditionally been tilted towards the supplier. Europe's dependence on Russian energy became a political issue, whereas Russia's dependence on the Europeans as their most important customers never did.
What was a problem, however, was the lingering suspicion that Russia was not playing fair when it came to the pricing of energy. That energy prices in weak, Russia-skeptic Lithuania were higher than the ones in powerful, and more lenient, France and Germany could not be explained by market forces. Observers accused Russia of playing a political game, punishing those who posed a nuisance to Moscow by charging them more, knowing full well that recipients did not have the chance to opt for a different supplier. It is not the political game, but the alleged abuse of market power that has now triggered the Commission's inquiry. According to EU competition law, it is forbidden to use a dominant market position in a way that infringes the free flow of goods within the EU's single market, which, should the accusations be found legitimate, is exactly what Gazprom did.
For the powers in the Kremlin, this procedure constitutes a significant setback. For many years, Moscow had tried to immunize itself against such procedures by fostering close relationships with decision-makers in Europe. Former politicians, such as former German chancellor Gerhard Schröder, were put on the payroll to guarantee influence at the highest level. What Moscow did not expect was the independence of the European Commission, which is not easily impressed or swayed in the areas in which it has a forceful mandate for action deriving directly from the EU treaties. None of Gazprom's excellent connections around Europe could protect it from Commission action. The fact that the EU had the will, the means, and the guts to actually enforce its own rules came as a nasty surprise to the company and its masters.
The truly astounding element in the EU-Gazprom saga is that Russia felt safe and did not see it coming. Russia's implicit calculation that the same methods that are successful at home would yield similar results in the EU framework sheds a rather interesting light on the mindset of Russia's elite. It is, in its essence, a failure to understand the EU’s rules-based system. In a country where the validity of rules can be seen as flexible and dependent on personal and political loyalties, corruption is the key ingredient of state power. In the EU, where, for the most part, rules are taken seriously regardless of who is in power, this calculation does not work. To underestimate the power of the European Commission to enforce these rules is, in the EU context, a beginner's mistake. The Russians could and should have known what politicians and lobbyists in Europe know instinctively. The fact that they didn’t reveals a fundamental misunderstanding of the rule of law that is the backbone of the entire integration exercise.
It could well be that there is an even bigger mechanism at play in the Gazprom case. It is a classic topos among Russia experts to lament the fact that Russian political culture is locked into a zero-sum mentality that makes politicians in the Kremlin incapable of understanding the win-win culture that is the core principle of the European integration process. It is claimed that Russia's archaic and strict idea of state sovereignty makes it culturally blind to the way Europe works. The very idea of defining a political relationship in terms of "sovereignty bargains" according to which in return for giving up some autonomy one gains disproportionally in shared benefits, is alien to the Russian mindset. How, then, could they possibly understand the role and the intrinsic motivation of the European Commission which so valiantly defends these bargains?
For Europe, the Gazprom case holds a few very useful lessons as well. It is not the EU's foreign policy apparatus that created a unified position vis-a-vis Russia in a question of strategic importance, but its good old-fashioned competition watchdogs. The fact that even the EU's external clout derives, for the most part, from its economic strength based on the single market, is a valuable lesson for those promoting a stronger EU role in the world. Secondly, Eurosceptics should take a good look at the institutions they so love to hate. Their value goes way beyond most of the petty, provincial anti-European arguments that are thrown at them with annoying repetitiveness. In whichever way you look at the Gazprom case, it is a rather educational political exercise before it has even fully gathered steam.
This post is an abridged version of an article published by Wirtschaftswoche.