A European nation cut ties with Gazprom, saying it won't be 'blackmailed' by Russia

• An Austrian gas company ended its historic relationship with Russia's Gazprom.
• Austria framed the move as defiance against Russian energy blackmail attempts.
• It's a key step in Europe's thorny path to gaining energy independence from Russia.

A European gas supplier ended a decades-long contract with Gazprom, the Russian state-owned energy juggernaut.

Analysts are hailing the decision as a sign of Europe moving to be more resilient in its energy supplies.

The Austrian gas conglomerate OMV announced on Wednesday that it was cutting ties with Gazprom over a protracted contract dispute, ending its dealings with Russia.

OMV was one of the last large, long-term buyers of Russian gas.

"Huge, positive development. Russia is in trouble," political scientist Michael McFaul, a former US ambassador to Russia, wrote on X about the collapse of the deal.

The termination of the 34-year contract comes after months of wrangling between the two companies, in which Gazprom switched off the gas supply to OMV last month.

Austria's government — which owns 31.5% of OMV — framed the move as defiance against Russian attempts to blackmail the country, a common refrain from European leaders.

Austria's chancellor, Karl Nehammer, wrote on X on Wednesday: "Russia wanted to use energy as a weapon against us — that didn't work," adding: "Austria cannot be blackmailed by Russia!"

Austria has a secure energy supply, he added.

The news is a blow to Gazprom and, despite rising prices, is one sign of success on Europe's rocky path to wean itself off energy dependence on Russia, industry experts told Business Insider.

Dmitrij Ljubinskij, Russia's ambassador to Austria, denied in an interview with Ivzestia that Russia uses energy as a tool of pressure and said that OMV's move would not go unanswered.

Gazprom did not immediately respond to a request for comment.

A calculated move?

Gazprom's supply to OMV and Austria — which comes via Ukraine — was not likely to be there for long anyway.

Ukraine has long signaled that it will not renew an agreement, which expires in January, to allow Russian gas to transit its pipelines.

Jack Sharples, a researcher at the Oxford Institute for Energy Studies, told Business Insider that OMV had likely been eyeing the Ukrainian decision, in parallel to the Gazprom dispute, for some time, and preparing alternative suppliers.

"There were significant risks to transit as a result of the Ukrainian transit deal ending in January, so canceling the deal seems a good idea," Tom Edwards, a modeler at the energy-market analysis company Cornwall Insight, told BI.

OMV now says its gas storage is at around 85%, and that it's well positioned to supply gas from alternative sources.

A feud entangled deep in the Ukraine war

OMV's announcement ends a historic partnership. It was among the first Western European, non-socialist companies to import gas and invest in Soviet Russia in the 1960s.

It signed its 34-year contract with Gazprom to supply Austria with gas in 2006, signaling a relationship of trust that showed signs of breaking down with Russia's invasion of Ukraine in 2022.

By March that year, the company announced it would no longer invest in Russia, but kept up its long-term supply relationship.

A Brookings Institute report from June highlighted that remaining tie as one of the many issues Europe still faced in decoupling, saying any break would be fraught with risk.

But a long-running, separate contract dispute sowed the seeds. A subsidiary of OMV had a smaller contract with Gazprom to supply gas to Germany via the Nord Stream undersea pipelines.

In summer 2022, Gazprom said that newly-imposed sanctions were preventing it from accessing key parts needed to drive the pipe's turbine.

That supply petered out and then stopped. Infamously, it never restarted after the attack on Nord Stream a few months later.

OMV went to commercial arbitration over the lack of supply to Germany, and in November was awarded 230 million euros, or about $240 million, plus interest and costs.

It said it would offset this award "against payments to be made by OMV to Gazprom Export under its Austrian gas supply contract."

Gas prices jumped 5% at the news, reaching a new high for the year. Three days later, Gazprom shut off the supply to Austria.

Europe is — slowly — weaning itself off Russian gas

The start of the full-scale Russian invasion of Ukraine stiffened political will across Europe to end dependency on Russian energy — something few could have foreseen, Sharples said.

Before 2022, Europe got around 40% of its imported natural gas from Russia.

"I think if you had asked European gas market analysts back in 2021, could the European market cope with losing 80% of what it gets from Gazprom via pipelines? We'd have said no, it would be horrendous," he said.

The landscape has changed significantly, Sharples said.

Over the last years, Europe has invested more not only in alternative suppliers but also the integration of its distribution system, meaning it can more flexibly respond to shortages, he said.

There are still many difficulties. A Chatham House analysis from this year pointed out that some replacement imports are Russian gas being "laundered" via third states.

And as of 2024, gas prices are still higher than they were before the full-scale invasion of Ukraine, Sharples said.

But the market has reacted with both a reduction in demand and the seeking out of alternative supplies, he said.

"What has actually happened is that European gas demand has come down by a fifth, and we've ramped up our imports of LNG from the global market," he said.

"There's no doubt that Gazprom has lost a huge chunk of its revenues by losing these export volumes to Europe," he said.

The impact on Russia

"Gazprom has lost a substantial share of its gas sector revenues since February 2022, and the loss of the Austrian market is another chip away at those revenues," Sharples said.

"It's not make-or-break for Gazprom, but it certainly doesn't help."

There's also a domestic impact — the Russian government derives much of its tax revenue from energy sales and also uses the funding from Europe to subsidize domestic gas prices, Sharples said.