Business Insider: Austria cut a historic tie with Russian Gazprom company

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.

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

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!”

“Russia wanted to use energy as a weapon against us – that didn’t work… Gazprom didn’t stick to the contracts, so OMV is immediately terminating the contract, which was supposed to run until 2040… Our energy supply is secure because we are well prepared… Austria cannot be… Austria has a secure energy supply,” the Austrian chancellor wrote.

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

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

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.

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.

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

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.

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.