Russia and Europe are energy interdependent. Russia supplied more than 70 percent of natural gas and one third of all crude oil to OECD countries in 2016, which represented 75 and 60 percent of Russia’s exports in that year, respectively. These sales in turn were responsible for more than one third of the Russian budget for that year. Given the importance of energy production and export for Russia’s overall economic health, the central government has worked to retain significant control over the sector. Two significant levers in particular ensure that control is kept in the Russian government’s hands: first, Russia’s central government maintains a monopoly on the export of energy abroad. This gives Russia’s top policymakers direct control over energy supplies to several countries in Europe. Second, the Russian government can coerce nominally private Russian energy companies to behave in accordance with government policy aims. This gives the Russian government the ability to manipulate European energy trade to accomplish political aims, enrich chosen elites, and interfere with domestic political processes.

Energy Delivery Intermediaries: Opportunities for Elite Influence

Energy intermediary schemes make use of favorable trading arrangements to enrich key individuals or political parties in Western countries, in the hope that they will enact policies favorable to Russia. The schemes generally work as follows: Gazprom provides discounted gas to an authorized trading company to sell to national purchasers overseas at market rate, thus enriching the middlemen. Alternatively, Gazprom will sign a long-term delivery contract at a fixed price, and allow selected intermediaries to deliver using alternative routes at a lower price and cut into the Russian firm’s profits. Such schemes not only allow for direct, targeted payoffs, but also create captive constituencies favorable to Russian policies in the long term.

A recent example in Italy highlights one such alleged energy scheme in action: the Italian weekly L’Espresso has alleged that Russian government officials and Italian Interior Minister Matteo Salvini made plans for the secret funding of Salvini’s far-right La Lega party ahead of the May European parliamentary elections. At an October 2018 meeting in Moscow, Russian officials reportedly (per L’Espresso) offered to provide diesel to Eni, the Italian state oil company, at a 4% discount, using a Russian company linked to the sanctioned businessman Konstantin Malofeev. The proceeds generated from this differential would allegedly be kicked back to La Lega. The report remains uncorroborated, and the L’Espresso journalists could not confirm whether or not the deal went forward. This alleged arrangement also differed from other reported schemes in that energy was sold directly to a state energy company, rather than to an intermediary. Several similar intermediary schemes, though, have been widely reported in Bulgaria, Hungary, Lithuania,⁷ Romania, and Ukraine.

Hungary

Between 2011 and 2015, a Hungarian intermediary scheme reportedly enriched elites aligned with Prime Minister Viktor Orban’s Fidesz party. MVMP, a subsidiary of Hungary’s state-owned electric company MVM, reportedly imported gas from a Swiss trader, MET International, allegedly to replenish Hungary’s strategic gas reserves. MET International was reportedly owned in part by MOL, a Hungarian oil and gas company whose largest single shareholder is the Hungarian government, alongside several Hungarians (one of whom is allegedly close to Orban) and a Russian national, Ilya Trubnikov. Several of the owners reportedly held their stakes via Cypriot shell companies.

In a study of Russian influence in Hungary, Dániel Hegedűs reported that MET purchased Russian-origin gas cheaply on the spot market, sold it to MVMP, and then re-purchased the gas at a slight upcharge for transport using the Hungarian-Austrian gas Interconnector on the Hungarian side of the border. A ministerial decree reportedly authorized MET’s monopoly access to the pipeline. MET’s gas cost significantly less than the rate set by Gazprom’s long-term fixed contract to supply Hungary, but it was able to sell the gas domestically at market prices.  The arrangement appears to have benefited the owners of MET at the expense of the Hungarian state budget. According to a February 2016 report by Dániel Hegedűs, this scheme relied on the informal consent of the Kremlin, as Gazprom controls gas re-sales in Europe. Hegedűs concluded that the scheme cut into Gazprom’s direct market share, and in his analysis the lack of Russian protest seemed to demonstrate the Kremlin’s tacit consent for favored Hungarian elites to enrich themselves with Russian gas.[15] In a single year, this scheme reportedly earned MET’s shareholders more than $200 million. Furthermore, investigative journalists allege that this scheme personally benefited top government officials including Orban himself.

Hungarian energy analysts claim that MET’s owners share close connections to two senior MOL figures, Zsolt Hernadi and Sandor Csanyi. Hernadi is the Chairman and CEO of MOL. Croatia issued a warrant for the arrest of Hernadi, alleging that he bribed the Croatian prime minister as part of an unrelated energy deal. Hungary refused Croatia’s extradition request. Csanyi, reported to be one of the wealthiest people in Hungary, is a member of MOL’s board. He serves as the CEO of OTP Bank, Hungary’s largest financial institution. Local reporting states that the bank’s two largest shareholders are MOL and a company owned by Megdet Rahimkulov, a billionaire businessman and former senior executive of Gazprom Hungary.

Lithuania

In Lithuania, multiple intermediary firms have sold Russian gas to domestic consumers. One Swiss-based intermediary, LT Gas Stream, has drawn scrutiny as an opaque vehicle for selling gas on the Lithuanian market. A Lithuanian gas trader, Dujotekana UAB, abandoned a direct purchasing agreement with Gazprom in 2008 only to immediately commit to purchasing the same Russian gas through LT Gas Stream, a Swiss trader. LT Gas Stream is identified as a Gazprom subsidiary in a 2013 European Commission report on a Lithuanian LNG terminal despite reportedly being directly owned by a Cypriot firm, Restoni Trading Ltd. The Swiss firm lists Edmundas Vilimas, a former lawyer for Dujotekana, on its Zug cantonal company registration. LT Gas Stream was allegedly granted discounted pricing from Gazprom while selling at market prices. The lack of transparency around LT Gas Stream makes it hard to determine whether the abrupt shift marks an attempt to enrich politically connected owners, who may be silent partners with Gazprom, the official owner.

Bulgaria

Bulgaria is, even relative to most its EU partners, very dependent on Russian oil and natural gas: according to Eurostat, as of October 2018 Bulgaria imports between 75-100% of both oil and natural gas supplies from Russia, a trend that has been mostly consistent for the past few years. In the 2000s, this gas importation involved an intermediary scheme between Gazprom and two companies: Overgas, Inc. and Wintershall Erdgas Handelshaus Zug AG (WIEE). Overgas was jointly held by Gazprom and UK-registered Overgas Holding Ltd and was linked to the Bulgarian businessman Sasho Dontchev. It is also reported that Gazprom held 50% of shares in WIEE, which was registered in Switzerland. After the 2009 Ukraine gas crisis, the Bulgarian government sought to work directly with Gazprom, and in 2012 the state-owned gas distributor Bulgargaz reportedly signed a ten-year contract with Gazprom.

Gazprom reportedly sold its 50% stake in Overgas in 2016, and in the years since Bulgargaz’ deal with Gazprom the state energy company and its Russian supplier have apparently become involved in significant legal trouble at the national and EU level concerning its attempts to cut Overgas out of the Bulgarian energy industry. In its new partnership with the Bulgarian state-owned enterprise, the Bulgarian government apparently sought to: 1) eliminate Overgas as a competitor to Bulgargaz; 2) Revive the moribund South Stream and Bourgas-Alexandroupolis oil pipeline projects; and 3) prevent the Turkish Stream project, which bypasses Bulgaria, from going ahead.

On 18 June, the EPPO’s office in Bratislava conducted evidence-gathering activities tied to suspicions that funds allocated for Ukraine’s defense were misappropriated. The investigation focuses on the misuse of EU resources meant for military aid, specifically ammunition, which was donated to Ukraine during the early stages of the Russian invasion.

Defense officials allegedly violated procurement rules

According to the EPPO, senior Ministry of Defense officials submitted reimbursement applications to the European Peace Facility (EPF) between February and March 2022 for costs related to donated ammunition. However, investigators suspect the officials intentionally breached public procurement procedures and budgetary rules.

The suspects are accused of issuing unjustified orders for ammunition purchases from two private companies. EPPO suggests these contracts may have been part of a rigged tender process and that the ammunition may have been significantly overpriced.