Austria looks at early exit from Russian gas deal as reliance on Moscow deepens

Austria is looking to accelerate the end of its Russian gas ties in a move that could alleviate Vienna’s reliance on Moscow for energy supplies but faces tough legal and political challenges.

On Monday, Austrian Energy Minister Leonore Gewessler announced plans that would force domestic energy firms to slowly phase out Russian gas and explore options for an early end to the country’s long-term gas contract with Moscow, which expires in 2040.

“Our dependence on Russian natural gas threatens the prosperity, security and future of our country,” she said in a statement, arguing that the country’s reliance on Moscow is “a clear market failure” that now means “the state has to step in.”

The EU wants to phase out Russian fossil fuel imports by 2027, but Austria remains one of the countries in the bloc most reliant on Moscow for gas. There are around four million main residences in Austria, 22 percent of which are heated with natural gas.

In December, the country's dependence on Russia for gas rose to 98 percent, official data showed, the highest level since Moscow launched its full-scale assault on Ukraine almost two years ago.

Austria has faced broader criticism for maintaining close commercial ties with Russia. In December, Vienna threatened to torpedo Brussels’ 12th sanctions package after Ukraine labeled Austrian banking group Raiffeisen a “war sponsor” for refusing to exit Russia.

Under Gewessler's new proposals, Austrian gas firms would have to show they are gradually increasing the share of non-Russian flows in their supplies. The government will also commission an independent study evaluating the costs of terminating the long-term contract between Russia’s gas export giant Gazprom and Austria’s partly state-owned energy firm OMV.

The problem is that ending the long-term contract — the contents of which are confidential — would likely trigger an early termination fee worth “more than €1 billion,” said Florian Stangl, an Austrian energy lawyer at NHP Rechtsanwälte.

The “only possibility” to avoid this would be to pass “a clear law” that bans Russian gas imports generally or ends  the specific contract, he said, though even this would “probably” lead to Gazprom launching an arbitration case against OMV.

A spokesperson for OMV told POLITICO a “policy framework would first have to be created” to phase out Russian gas, but hinted it could support legal changes, adding: “If necessary, OMV can supply its customers in Austria with 100 percent of non-Russian gas.” 

Gazprom didn’t immediately respond to a request for comment by POLITICO.

But the government's plans face an uphill battle politically too, with its legal proposals requiring a two-thirds majority in parliament — a feat made even harder as Vienna gears into campaign mode ahead of its election later this year, according to Austrian political scientist Thomas Hofer.

Austria’s Greens, who run the energy ministry, “want to put pressure on their coalition partner” — the center-right People’s Party (ÖVP) — he said, “but they know that it will be probably very difficult … given it’s a campaign year.”

With the far-right Freedom Party (FPÖ) currently ahead in the polls and the Social Democrats and ÖVP vying for second place, he said, both parties are particularly sensitive to any measure that could hike energy prices and “turn back on them.” 

The FPÖ hit out at the proposal on Monday. “In her green-ideological drive, Minister Leonore Gewessler has apparently set herself the goal of causing energy prices to explode even further,” said the party's energy spokesperson Axel Kassegger, which is “driving our economic and industrial location completely into the wall.”

For the Greens, whose support has dipped below 10 percent, the plans also offer “inoculation” against criticism the party is doing little to reduce Austria’s reliance on Russia, according to Hofer.

“I'm sure [Gewessler] wants to achieve something there,” he said, “but she knows that the chances to enact that … in this legislative period are pretty slim.”