Italy Pipes Up Against NATO Escalation As Court Ruling Could Cut Off Russian Gas Sooner Than Expected
An opaque legal ruling could, in a roundabout way, soon halt all pipeline deliveries of Russian gas to Austria – and therefore Italy. Coupled with the ongoing disruptions in the Red Sea, the economic consequences for Europe’s second-largest industrial location could be dire.
In late May, an undisclosed European court handed down a ruling that in a roundabout way could force Austria’s main gas company OMV (Österreichische Mineralölverwaltung or Austrian Mineral Oil Administration) to stop paying for Russian gas.
Some background:
This all goes back to the West’s “freezing” of hundreds of billions of Russian foreign assets in 2022. In light of that move, Putin introduced the “gas for roubles” program so that payments and clearing on its gas exports would be under the control of the Russian Central Bank and therefore unable to be frozen or stolen by the West.
Many European countries/companies refused to comply and loudly complained that Putin was cutting off the gas.
Meanwhile, some countries and companies in central Europe were “allowed” by the EU to continue importing Russian gas due to difficulties in updating their legacy energy infrastructure or some other reason. So companies like Austria’s OMV agreed to pay in roubles and continue to import the Russian gas and often send it on to the countries that threw a fit over the gas for roubles program.
Now, here we are two years later, and it looks like OMV is going to be forced to stiff Gazprom on payments and redirect that money to European energy companies who refused to pay in roubles. What little details of the case that are known are this from Upstream:
…European companies led by Germany’s Uniper and RWE filed arbitration claims in Sweden, Switzerland and Luxembourg against the Russian company’s European trading subsidiary, Gazprom Export, seeking multibillion-dollar compensation payouts.
OMV said on Wednesday that its remaining supplies from Gazprom may be under threat due to “a foreign court ruling” obtained by “a major European company” relating to the 2022 halt in supplies.
OMV of course says that it would still be able to supply customers with volumes from non-Russian sources through its “extensive diversification efforts in recent years,” but at what cost? At least one prediction has European natural gas prices jumping 18 percent, and that’s on top of the significant rises over the past two years. There’s a reason that Austria kept importing from Russia and is now the EU country that relies the most on Russian gas. As always, it’s cheap and reliable.
For comparison, OMV just signed long-term deals with BP and US-based company Cheniere Energy to import a combined nearly 2 million tons of LNG per year through a terminal in The Netherlands. The deals don’t begin until 2026 and 2029, respectively, and the contractual price will be pegged to market prices, which is the obvious disadvantage compared to set prices in long term contracts with Russia.
Neither the court nor the company was identified.
However, OMV said the court ruling contains an injunction ordering Gazprom’s remaining European customers to divert their payments for received Russian gas to the accounts of the “major European company”, as enforcement of the compensation is deemed impossible in Russia.
OMV said that, if enforced, the ruling will require its OMV Gas Marketing & Trading subsidiary “to make payments under its gas supply contract with… Gazprom Export” to “the European energy company instead of sending them to Gazprom Export”.
“However, it is currently not known to OMV whether and when such an enforcement might occur,” it added.
Naturally, since Gazprom would not be receiving money for its natural gas, it would no longer deliver it to Austria. Despite the obviousness of that response, all the headlines read like this:
Sure, the increased energy prices will hit the poorest Europeans hardest and reduce their quality of life, but hey, it’s good for US LNG companies.
The fact is, this is bad news for Austria, and maybe more importantly from an EU-wide perspective, for the bloc’s second largest industrial center: Italy. Both countries have been trying to prepare for a halt to Russian gas supplies at the start of the next year when the current gas transit agreement between Russia and Ukraine expires. Officials in Kiev have repeatedly made it clear that will be the end of Russian gas flowing through Ukraine.
That the cutoff date might now come sooner than expected just adds insult to injury. As OMV talks up its diversification efforts, it only has to look to Italy to see how difficult that process can be. With the ongoing tensions in the Red Sea and the Middle East causing disruptions in LNG deliveries Rome is in a major bind despite long pretending otherwise.
