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Reciprocity Will Not Protect Europe from Russian Energy Imperialism

From a new comment from analyst Katinka Barysch of the Centre for European Reform:

The trouble is that Europeans and Russians mean completely different things when they talk about reciprocity. The EU wants a mutually agreed legal framework to facilitate two-way investment. The Kremlin wants assets swaps. Europe wants openness, Russia wants control. For now, reciprocity is working in Russia’s favour. Gazprom already has investments in 16, perhaps even 20, of the 27 EU countries. It owns distribution networks in some of the new member-states; it builds gas storage facilities in others; and since last year it has struck big bilateral deals with German, French and Italian companies that give it direct access to gas users in the EU. Meanwhile, the EU has made no progress at all in persuading Russia to ratify the ‘Energy charter treaty’, which would oblige Russia to open up its energy sector a bit. Some Europeans now say that Gazprom should be banned from investing in the EU unless and until Russia allows more European investment. However, the EU cannot adopt the Russian approach without compromising its own free-market principles. EU rules strictly forbid discrimination against an investor on the basis of nationality. It would also be hard to pull off in practice. Who would tell European energy companies which assets they could and could not hand over to Gazprom? Their governments? The European Commission? The only way forward is to make sure Gazprom plays by European rules. Given its track record of shoddy management, asset grabbing and political meddling, the Europeans may be forgiven for asking whether it understands and respects market principles. Thankfully, the EU has the instruments to enforce competition, transparency and fair play. In March, EU leaders asked the competition commissioner, Neelie Kroes, to investigate whether Gazprom’s growing role could impede EU energy market liberalisation. When President Putin complained about this, Chancellor Merkel is said to have replied that Gazprom should consider it “an honour to be treated like Microsoft”.

Read the full paper here.