It was just like the good old days.

On June 24, the Austrian government rolled out the red carpet for Vladimir Putin, the Russian president.

With typical Viennese pomp and ceremony, the chief executives of Gazprom, Russia’s state-owned giant energy company, and OMV, Austria’s energy group, signed a lucrative deal to build the controversial South Stream pipeline. In addition to OMV, Gazprom’s other offshore partners in this project include Italy’s ENI, Germany’s Wintershall Holding, and France’s EDF.

Judy Dempsey
Dempsey is a nonresident senior fellow at Carnegie Europe and editor in chief of Strategic Europe.
More >

All of these companies thoroughly dislike the idea of more sanctions against Russia in response to Moscow’s actions in Ukraine. These firms have recently been deepening their ties with Gazprom despite continuing fighting in eastern Ukraine and Russia’s annexation of Crimea.

The South Stream deal shows how interests continue to take precedence over values, regardless of the many who died during pro-democracy protests in Kiev in February. It also shows how the EU, despite two rounds of sanctions, faces growing opposition from several member states to the idea of more measures against Russia. Austria is just one of those countries.

Once South Stream is completed, at an estimated cost of €40 billion ($55 billion), Russia will be able to send its gas to Europe via pipes built under the Black Sea. This will reduce Ukraine’s role as a transit country for Russian gas exports to Europe. Yet South Stream will also increase Europe’s dependence on Russian gas at a time when the EU is attempting to weaken that dependence by diversifying Europe’s energy sources.

Gerhard Roiss, OMV’s chief executive officer, had a different view. Speaking at a news conference after signing the deal with Gazprom, he said, “Europe needs Russian gas. Europe will need more Russian gas in future because European gas production is falling.”

For South Stream to be profitable, Gazprom wants to control the distribution of the gas transported by the pipeline. This is something that the European Commission seems determined to prevent. The EU’s executive is insisting that South Stream comply with the EU principle of third-party access to prevent Gazprom and the consortium from monopolizing the distribution of gas.

Politically, Europe’s dependence on Russian gas and the important trade deals that several big European countries have with Russia distort Europe’s stance toward Ukraine.

For example, when Igor Sechin, a close confidant of Putin and head of Rosneft, one of the world’s biggest energy companies, was in Berlin recently, he was spared any criticism by his interlocutors.

After he had spoken to a select gathering of German companies, lobbies, and officials, the audience did not dare grill him about Russia’s continuing meddling in eastern Ukraine, its annexation of Crimea, and the erosion of human rights and the rule of law in Russia. It was as if Sechin’s presence in Germany were to be taken for granted, even though the United States has imposed a travel ban on him because of his very close ties to the Kremlin. Sechin himself used the occasion to criticize Europe’s sanctions against Russia.

If such high-ranking Russian officials are free to travel to Europe, the least their hosts can do is to openly question and criticize them about the Kremlin’s policies in Ukraine. The fact that they don’t gives the impression that Europeans have quietly acquiesced to how Russia has changed the status quo in Ukraine.

Europeans’ silence also means that if Russia can get away with annexing Crimea and supporting pro-Russian militia groups in eastern Ukraine, Moscow surely believes it has a free hand to meddle elsewhere.

This interference is abetted by the Kremlin’s continuing use of energy as a political tool. Gazprom has used its energy to intimidate Moldova, Georgia, Armenia, and, of course, Ukraine.

All four countries have aspirations to forge much closer economic, social, and political ties with the EU. Despite Russia’s intimidation, the EU is set to sign association accords with Ukraine, Georgia, and Moldova in Brussels on June 27.

It will take a sustained effort by the EU to help these countries introduce far-reaching, and painful, reforms. The biggest reform will be to overhaul their energy infrastructures and diversify their energy sources, so that these states don’t remain vulnerable to Russian pressure.

The fact that Russia has such close ties with major Western European energy companies shows how the power of energy supersedes criticism and undermines values. That makes a rapid diversification of Europe’s energy sources all the more necessary.