The Weaponization of Energy
In an article published in the journals Oil, Gas & Energy Law Intelligence (OGEL) and Transnational Dispute Management (TDM), Julia E. Sullivan, NERA Managing Director Dr. Jeff D. Makholm, and Berdyansk State University Law School Professor Dmitriy Kamensky outline the interdependent nature of the relationship between Ukraine and Russia and natural gas trade through their respective companies Naftogaz and Gazprom.
In February 2018, an arbitral tribunal in Stockholm, Sweden, issued its final award in an epic, four-year legal battle between Ukraine’s Naftogaz and Russia’s Gazprom. The total claims were reported most consistently as $44 billion by Gazprom and $26.6 billion by Naftogaz, leading to suggestions that this was the largest arbitration case ever. In a stunning legal victory for Ukraine, the tribunal ordered Gazprom to pay Naftogaz $2.56 billion. In retaliation, Gazprom cut off essential natural gas supplies to Ukraine, causing a temporary emergency while Naftogaz lined up alternative supplies.
Gazprom’s retaliatory gas cut-off was consistent with Russia’s long history of using its vast energy resources to carry out a sanctions and incentives regime against Ukraine, granting steep price discounts and generous credit terms to administrations it considers cooperative while punishing administrations that pursue more nationalistic policies. Since 2014, Russia’s energy sanctions have been combined with military operations to directly threaten the political independence and territorial integrity of Ukraine.
The authors conclude that Russia’s aggressive use of its dominant energy position to achieve political objectives in Ukraine illustrates Europe’s increasing vulnerability to Russian energy dominance. Given that the European Union (EU) relies upon Russia for close to 40% of the gas it consumes, the broader implications are sobering. Like Ukraine, the EU and its member states may be forced to develop competitive supply alternatives to mitigate Russia’s growing leverage.
This paper is part of the joint OGEL & TDM Special Issue with ArbitralWomen on “Strategic Considerations in Energy Disputes.” To request a copy, email [email protected]