Take a roll call of the Russian companies sanctioned in the wake of the Ukraine crisis, and there’s a key name conspicuously absent: Gazprom, the billion-dollar oil and gas colossus that’s woven a web of subsidiary companies spanning the European continent.
“You’ve got this complex net running across Europe, which is why, I think, the Europeans were less willing to go along [with sanctions against Gazprom],” says J. Peter Pham, director of the Africa Center at the Atlantic Council. “They’re active in about roughly two dozen countries. They’re all over.”
Gazprom ranks as one of the largest extractors of natural gas and one of the biggest companies in the world – and it’s mostly owned by the Kremlin. Widely seen as an arm of the Russian government, it’s played a pivotal role over the past decade in the “near abroad” of former Soviet satellites, severing gas supplies to Ukraine over pricing disputes in 2006 and 2009. Last month, Russia again threatened supply disruptions over Ukraine’s alleged billions in unpaid bills.
“Gazprom is intimately connected with the Kremlin,” says Paul Sullivan, a professor of economics at National Defense University and an adjunct professor at Georgetown University. “It acts as a powerful arm of Russian foreign policy. In many ways it is often Russian foreign policy.”
The gas embargoes pose an especially serious problem for Europe: The continent gets about 30 percent of its natural gas from Russia, much of it piped through Ukraine, and – with the exception of some liquefied natural gas – all of it is supplied exclusively by Gazprom, the U.S. Energy Information Administration says. That poses a problem when it comes to imposing sanctions.
“The strong dependence on Russian oil and gas that our European allies have makes them understandably uncomfortable handicapping Russia’s ability to produce,” says Jason Bordoff, a former White House energy adviser and director of the Center on Global Energy Policy at Columbia University.
While other Russian businesses and barons have been penalized – including Igor Sechin, the head of Rosneft, a petroleum company largely held by the Kremlin – Gazprom has escaped unscathed, almost certainly due to its role as a supplier of European gas. Its chief executive officer, Alexey Miller – who worked with Russian President Vladimir Putin in the St. Petersburg mayor’s office, as did Sechin – also has avoided penalties leveled by the U.S. and EU on other Putin confidantes.
Both President Barack Obama and German Chancellor Angela Merkel, who discussed potential new sanctions against Russia in a joint appearance at the White House Friday, have pledged to take steps to ease the EU’s dependency on Moscow. Those steps could include speeding up the federal review process for new natural gas export terminals in the U.S.
But there’s far more at play than energy. Even if Europe finds a way to get all its gas from the U.S. and other countries – such as Algeria, Nigeria and Mozambique – energy independence is far from a panacea. Gazprom’s name may combine the Russian words for “gas industry,” but its reach encompasses much more than gas and oil, spanning from a subsidiary it wholly owns in Amsterdam; to investment firms in Ireland, Austria and Vienna; to energy companies in Italy and Moldova; to media companies in Moscow.
“Gazprom’s financial arms reach far into many businesses and banks in Europe and beyond,” Sullivan says. “It is not just the pipelines that give it leverage.”
Former German Chancellor Gerhard Schroder, in fact, serves as chairman of the board for Nord Stream AG, a Gazprom subsidiary based in Switzerland tasked with building natural gas pipelines from Russia to Germany through the Baltic Sea.
“Even countries that are, shall we say, having quarrels going with the Russian Federation on various things, like Moldova, Gazprom, through a subsidiary, owns 50 percent of Moldovagaz,” says Pham, referring to Moldova’s main distributor of natural gas. “It makes things much more complicated.”
The list of subsidiaries on Gazprom’s website includes nearly 250 names, including at least one tied to a U.S. location: Gazprom Marketing & Trading Ltd. (GM&T), which has an office in Houston that opened in 2007.
A woman who answered the phone at the Houston office – the location of GM&T USA Inc. – described it as the “daughter company” to a GM&T “parent company” based in London. She said the firm is the only Gazprom company located in the U.S., and referred further questions to the London office, which did not return calls and emails for comment. The GM&T website says the company started as the U.K. office of Gazprom and that GM&T USA began trading and marketing natural gas in North America in 2009, marking the first entry of a Gazprom Group company in the U.S.
It’s an important connection: By likely taking “orders from the big bears in Moscow,” Sullivan says, the Houston office is “toast if we get real tough.”
Other Gazprom companies, though, may be harder to find. The 250-odd subsidiaries listed on the Gazprom corporation website are merely those the company acknowledges publicly. Many more are hidden from view, experts say.
Gazprom itself did not respond to repeated inquiries.
“They have a lot of companies in physical commodities – oil and gas – which are hard to trace, and they have a lot of companies in the financial markets, which is even harder to trace,” says Eugene Nivorozhkin, an assistant professor of economics at University College London.
Hence, sanctions against Gazprom would not merely inhibit natural gas imports for Europe, they also – potentially overnight – could make it illegal for hundreds or thousands of European and American businesses to work with the energy companies’ dozens of subsidiaries. That, in turn, could bite economies on both sides of the Atlantic, but with so many Gazprom subsidiaries in so many countries, exactly how remains unclear.
That makes sanctions unlikely – at least for now.
“There’s not a credible way of introducing them,” Nivorozhkin says.