Italy defies NATO escalation as a European court ruling threatens to cut off Russian gas sooner than expected, affecting Austria’s OMV and potentially devastating Italy’s industrial sector.
In a roundabout sense, all pipeline supplies of Russian gas to Austria and consequently Italy could soon come to an end due to an unclear legal decision. When combined with the ongoing disturbances in the Red Sea, the economic ramifications for the second-biggest industrial hub in Europe may be disastrous.
A verdict rendered in late May by an unknown European court may indirectly compel Austria’s largest gas firm, OMV (Österreichische Mineralölverwaltung, or Austrian Mineral Oil Administration), to cease purchasing Russian gas.
A little history:
Everything here relates to the “freezing” in 2022 by the West of hundreds of billions of Russian foreign assets. Putin responded to that action by launching the “gas for roubles” program, which placed the Russian Central Bank in charge of handling payments and clearance for the country’s gas exports, protecting it from being blocked or pilfered by the West.
Numerous European nations and businesses publicly protested that Putin was shutting off the gas and refused to comply.
After two years, it appears that OMV will have to stop paying Gazprom and transfer the funds to European energy businesses that declined to pay in roubles. The few details that are available about the case come from Upstream and are as follows:
…European companies led by Germany’s Uniper and RWE filed arbitration claims in Sweden, Switzerland and Luxembourg against the Russian company’s European trading subsidiary, Gazprom Export, seeking multibillion-dollar compensation payouts.
OMV said on Wednesday that its remaining supplies from Gazprom may be under threat due to “a foreign court ruling” obtained by “a major European company” relating to the 2022 halt in supplies.
Neither the court nor the company was identified.
However, OMV said the court ruling contains an injunction ordering Gazprom’s remaining European customers to divert their payments for received Russian gas to the accounts of the “major European company”, as enforcement of the compensation is deemed impossible in Russia.
OMV said that, if enforced, the ruling will require its OMV Gas Marketing & Trading subsidiary “to make payments under its gas supply contract with… Gazprom Export” to “the European energy company instead of sending them to Gazprom Export”.
“However, it is currently not known to OMV whether and when such an enforcement might occur,” it added.
Naturally, Gazprom would no longer supply natural gas to Austria as it would no longer be paid for it. All the headlines said the same thing, even if that answer was obvious:
Naturally, OMV claims that thanks to its “extensive diversification efforts in recent years,” it would still be able to provide customers with volumes from non-Russian sources, but at what cost? In addition to the notable increases during the previous two years, at least one forecast anticipates natural gas prices in Europe rising by 18%. Austria became the EU nation most dependent on Russian gas because it continued to import from Russia for a purpose. As always, it’s affordable and dependable.
In contrast, OMV recently inked long-term agreements with US-based Cheniere Energy and BP to jointly import close to 2 million tons of LNG annually through a terminal located in the Netherlands. The contracts’ starting dates are 2026 and 2029, respectively, and their contractual price will be determined by market rates—a clear drawback when compared to fixed prices in long-term agreements with Russia.
Granted that the poorest Europeans will be most negatively impacted by the rising cost of energy and will have a lower standard of living, US LNG businesses stand to gain from this.
In actuality, this is bad news for Austria and—possibly more significantly—for Italy, the second-largest industrial hub in the EU. When the present gas transit deal between Russia and Ukraine expires at the beginning of the following year, both nations have been attempting to get ready for a stop to Russian gas shipments. It has been stated time and time again by Kiev officials that this will be the last time Russian gas passes through Ukraine.
The fact that the deadline may now arrive earlier than anticipated merely makes matters worse. OMV speaks a good game about its diversification initiatives, but it only needs to look to Italy to understand how challenging that may be. Given the continuous hostilities in the Middle East and the Red Sea causing disruptions in LNG deliveries Rome is in a major bind despite long pretending otherwise.
Algeria is located to the south of Italy, which was supposed to boost exports of oil and gas. Italy was supposed to be a part of “the continent’s new economic growth engine” and possessed the LNG facilities.
However, that already precarious plan to turn the nation into a gas center for Europe began to implode in the Red Sea many months ago. The unelected former Goldman Sachs executive Mario Draghi, the predecessor of Italian Prime Minister Giorgia Meloni, was a major supporter of the EU’s disastrous Russia policy and championed the idea of an energy hub, which Meloni easily adopted.
To begin with, it was never very properly thought out.
Due to its proximity to North Africa, it was believed that Italy was well-positioned to manage the loss of Russian fuels. In 2021, Russian imports represented 23% of Italy’s fuel consumption, with gas being imported at a higher percentage (about 40%). Italy swiftly followed the rest of the EU in turning to Africa in quest of energy alternatives to Russian gas and oil, and it started to explore south across the Mediterranean. Algeria intended to augment the gas flow via an already-existing pipeline, and the two nations intended to construct an additional pipeline.
Italy’s figures were taken from an article published in Hellenic Shipping News in March 2022.
Italy consumed 29 billion cubic metres (bcm) of Russian gas last year, representing about 40% of its imports. It is gradually replacing around 10.5 bcm of that by increased imports from other countries starting from this winter, according to Eni.
Most of the extra gas will come from Algeria, which said on Sept. 21 it would increase total deliveries to Italy by nearly 20% to 25.2 bcm this year. This means it will become Italy’s top supplier, provide roughly 35% of imports; Russia’s share has meanwhile dropped to very low levels, Descalzi said this week.
LNG exports from Angola, Egypt, Mozambique, Qatar, and of course the United States were to make up the remaining shortfall.
Rome was weaning itself off of Russian gas entirely and transforming the nation into a hub, mostly with LNG storage facilities, by employing billions of euros from the EU’s green fund, the REPowerEU plan, and the Covid recovery fund. With the appointment of a special commissioner with nearly unlimited authority by the Draghi government, the government expeditiously moved through the construction of a 5 billion cubic meter (bcm) LNG terminal in Tuscany, despite legal opposition.
The country’s total LNG storage and regasification capacity will reach 28 billion cubic meters when Italy’s gas grid operator Snam closed a $400 million agreement in December for a second floating 5 billion LNG storage and regasification facility located on the country’s northeastern coast. According to Reuters, the “energy crisis sires new European order: a strong Italy and ailing Germany” in September 2022.
Regarding energy security, the Italian government congratulated itself, claiming to be the “best in Europe.”
Although gas accounted for over 51% of Italy’s total energy generation in 2022 (the highest percentage in Europe), over 95% of that gas was imported, and the problem was that the calculations were unduly optimistic for future growth.
In 2022, the Transmed system that linked Algeria and Italy was not even running at maximum capacity, despite Italy’s belief that it could increase deliveries. Algeria had significant production challenges, including as poor infrastructure and the need to reroute gas to meet rising domestic energy demand.
At the time, Natural Gas Intelligence was informed by Marco Giuli, a researcher at the Brussels School of Governance in Belgium, that “the additional 9 Bcm from Algeria by 2023 is unrealistic, especially considering that Algerian supplies to Italy increased by 80% between 2020 and 2021,” Giuli added.
In fact, Algeria’s gas shipments to the EU have decreased as of 2024:
What then did Italy do in response to the LNG issues brought on by the Red Sea disruptions and Algeria’s underwhelming performance? Through Austria, it began receiving additional gas from Russia:
Given that Israel has declared that it will continue to destroy Gaza until the end of the year, it appears like Russian supplies may be cut off even sooner than anticipated. Consequently, the Red Sea will remain off-limits. Italy, Austria, and other countries will thus be left with few options for LNG, which implies that because there will be a restricted supply, prices will probably skyrocket. In the meantime, factory activity in Italy keeps declining, as it has for the most part over the previous two years.
The Italian lawmakers’ outburst against the absurdity of the US/NATO escalation against Russia may have something to do with the country’s tightening of its belt. Take a look at the following indications that Italy wishes to go off the escalator in the last several weeks:
- In early May Italian Defense Minister Guido Crosetto slapped down French President Emmanuel Macron’s flirtation with the idea of sending Western troops to Ukraine.
- Foreign Minister Antonio Tajani declared that Italy is not at war with Russia and will not send troops.
- Deputy Prime Minister of Italy and Minister of Infrastructure and Transport Matteo Salvini said that NATO General Secretary Jens Stoltenberg should recant his statements about using Western weapons to attack inside Russia’s pre-2014 borders, or he should resign. The full comment: “Never attack Russia,” says Salvini, who adds: “If they want to go and fight in Ukraine, let Stoltenberg, Emmanuel Macron and all the bombers who want war go there. Ukraine or using our weapons to kill in Russia is madness. Either this gentleman who speaks on my behalf, since he speaks on behalf of NATO, either apologizes or resigns. Because the Italian people did not give you any mandate to go and shoot in Russia”.
Regretfully, the opposition to further escalation comes too little, too late for the Italian people, particularly the working class, who must endure the brunt of the consequences of the country’s economic conflict with Russia.
Given that half of Italians are struggling to make ends meet, the country’s popular support for Project Ukraine has historically been among the lowest in Europe. These percentages have been steadily declining.
The right-wing political parties such as Salvini’s League and Berlusconi’s Forza Italia have occasionally voiced opposition to the escalation, but productive sectors of the economy have never been on board. The liberal centrists in Italy have largely driven out the real left, and any attempt at a reasonable cost-benefit analysis or even to continue a dialogue about culture with the Russians is met with hysteria.
Italy, which has historically had strong links to Russia, is seeing a significant change. Up until recent years, the two nations were solid trading partners. Italy, for instance, contributed manufacturing expertise to projects involving civil planes and helicopters, as well as modernized rail transit; Russia provided the energy. Numerous medium-sized Italian companies were keen to enter the developing Russian market, particularly in sectors like the agricultural industry. Right now, they’re making every effort to remain there. For instance, during the past two years, Italian exports to Turkey have increased by 87%, with a large portion of this growth probably being attributed to the attempt to get around sanctions.
However, the gas will soon come to an end entirely, and the US is stepping up its enforcement of sanctions against nations like Turkey.
For Italy, the entire Project Ukraine has always been a lose-lose situation. If you were to go against it, you would have been at the mercy of EU Commission President Ursula von der Leyen’s “tools,” which probably included taking away the about $200 billion in Covid recovery monies that were headed to Rome in addition to other financial tricks pulled out of Brussels. Even if her prior pro-sovereignty stances contributed significantly to her appeal, Meloni swore allegiance to the US, the EU, and NATO following her election in 2022. That choice has also put Italy in a difficult situation. Furthermore, even though Meloni gave up, von der Leyen’s “centrist” coalition allies in Brussels who support Project Ukraine are now threatening to prevent her from serving a second term as EU Commission president if she attempts to bring Meloni’s party to power.
And that’s pretty much it for Italy’s involvement in the European project during the last thirty years.
Italy has been one of the most enthusiastic supporters of neoliberal changes mandated by the EU for the past thirty years. Rome’s leaders lament but claim there is no other option.
Public properties have been auctioned off over decades. Right now, American private equity is robbing the nation; CIA-affiliated KKR is almost done acquiring Telecom Italia’s fixed line network. There will be more as the sell-off must continue; Rome’s leaders grumble but do as they are told.
As the standard of living for the majority of Italians continues to decline, Brussels claims that further market-friendly reforms are necessary. Leaders in Italy grumble but give up. All one can do is question why.
And now, little was left of Italian industry is being destroyed so that US energy companies can profit handsomely from the delivery of LNG; yet, they claim that Russia is to blame.
And no doubt the government in Rome will wring its hands and force working class Italians to the front lines when the US insists that its European vassals plunge any deeper into the Ukrainian morass, notwithstanding these recent protestations over further escalation with Russia.
Last year, GreatGameIndia reported that SEFE’s CEO, Egbert Laege, announced Germany has signed a long-term deal with the U.S. to replace Russian gas with LNG from Venture Global LNG.
