Yes, Russia already has some monopoly powers, and its position is like to strengthen further. Analysis by Veritas Global shows that Russia is likely to already have monopoly power across several EU markets. For 11 of the 27 EU members, Russian natural gas consisted of over 60% of all imports. For 7 of the 27 EU members, Russian natural gas was over 90% of all imports. EU-wide, Russian market share of natural gas imports increased from 17% in 2006 to about 35% in 2020. Russia’s position has strengthened further through its recent investments in additional pipeline capacity.

Some have argued that the increasing share of sales of Russian natural gas in Europe will create a dependency of Russia on the EU. However, this narrative is not supported by economic theory. To have countervailing power, consumers need to be able to have credible options for switching at short notice to other suppliers of natural gas or use product substitutes to natural gas from non-Russian sources. The high cost of switching to alternative options partly explains the upward price volatility observed across many EU gas markets in recent months. In the short-to-medium term, European consumers, especially in countries that are highly dependent on Russian natural gas, do not have alternative economically viable substitutes.

The combination of a high market share and excess transit capacity will magnify Russia’s dominant position in natural gas markets across Europe. Therefore, in the absence of an effective European supply diversification strategy, we think monopoly power is likely to further accumulate to the Russian supplier. These developments could have far-reaching implications that go beyond the functioning of energy markets. For example, one concern might be that Russia may use its leverage to influence political outcomes, for example over decisions taken at the European Council. Since many of the decisions taken by the Council are done either through unanimity or consensus, Russia may be able to exercise leverage over states that are highly dependent on Russian gas thereby giving Russia the ability to hold sway over some Council decisions.