Putin's business with EU sanctions: he resells gas quadruple and leaves Europe with the lowest reserves since 2013

It was up to the Secretary of State for the EU, Fernando Sampedro, to represent Spain in the European Council that adopted on January 26 a new sanction against Russia that is proving so counterproductive that Moscow even does business with it. That day, Europeans were prohibited from purchasing liquefied natural gas (LNG) starting in 2027. It sounds good and it seemed then that, finally after five years of war in Ukraine, the EU could allow itself to punish Vladimir Putin's regime. However, the Iran war arrived weeks later and now the EU finds that it has decided to give up more than 200 shipments of Russian gas to punish Putin - which is equivalent to 15% of its total imports - in a context of a world market that has lost a fifth of its supply.

The additional problem is that, as the International Energy Agency has warned, European gas deposits face the 2026-2027 winter with the lowest reserve levels since 2013. And while Japan, Korea and other Asian countries have relaunched coal production, shelving environmental objectives in the face of market developments, Europe has avoided alternative measures. Furthermore, before the closure of Hormuz, it already had particularly low reserves, almost 30% less than in recent years, because with rising prices, there has been no incentive to store gas.

The EU is thus particularly exposed if the winter is colder than expected while Russia resells four times what it had committed to exporting to Europe. How is this business possible? Because European importing companies, including the French Total and the Spanish Naturgy, have signed long-term contracts since 2013 with Yamal LNG, Novatek's large Arctic plant at a price that is now a dream: €25-27/MWh. It is around four times less than currently. With the sanctions, the Europeans are prohibited from fulfilling contracts and bringing that gas to Europe and that means that the Russian company, controlled by oligarchs close to Putin and the state-owned Gazprom, is free to resell the merchandise to Asian countries that do not apply sanctions and pay at current market prices.

The European move means, therefore, that Europe not only deprives itself of cheap gas, but that Russia obtains the gift of being able to resell it at the crisis price. And if that were not enough, they can transport it to China on European ships. Greek Prime Minister Kyriakos Mitsotakis obtained an exception for his country, so that, although he supports the sanction, Greece's private shipping sector is free to transport Russian gas to third countries. The French and Spanish governments have not acted in the same way with the Total and Naturgy contracts and winter is coming.

The incentive given to Putin is perverse. If the war continues with the resulting European sanctions, Russia ensures billions of euros of extra business with LNG that it did not expect when the 2013 contracts were signed. On the other hand, Russia's enemy is weakened. The same European bloc that dares to sanction it weakens itself by having to buy gas from the US or other countries at a more expensive price than that guaranteed by Yamal LNG.