Critics have accused Gazprom, the world's largest natural gas producer, of eschewing market principles in favor of the foreign policy priorities of the Russian government, ever since the energy giant cut off the supply to Ukraine in January of 2006. The purported motive for the decision, however, seems to indicate the opposite: the company claimed that it had no other choice because the sides failed to conclude a contract on the terms of future trade. The case takes a look back in history for clues that may resolve this paradox. It highlights how politics shaped the economics of natural gas trade in the former Soviet Union and Europe since the late 1960s until the end of the 1990s; sketches the story of the creation of Gazprom by the first post-Soviet government of Russia; and describes how the erection of new sovereign borders in the wake of the dissolution of the Soviet Union, coupled with political and economic transition, created major problems in the gas trade between the former Soviet republics, emerging with the greatest intensity in the Russian-Ukrainian relations.

President Putin publicly stated that Gazprom, the largest natural gas producer in the world, was a powerful political lever of the Russian state in the world and a keystone in the foundation of the country's energy security. Thus the top leadership of Russia has charted the course of the company's future away from the seemingly imminent dismemberment, privatization, and, by implication, de-monopolization toward a challenging combination of strengthened state control, professional, transparent management, and a major expansion. The case explores how in 2000-2008 Gazprom's management has pursued the strategy defined by the politicians. Gazprom's impressive expansion strategy envisioned diversification of markets, products, transportation routes, and modes of delivery. The challenges were equally formidable: massive investment needs, a possibility of a production shortfall, and a chronic problem with the transit state of Ukraine, to name a few. In fact, Gazprom's ambitiousness fully reflected the ambitiousness of Russia as a whole, characteristic of the Putin era.

The case describes the resolution to the January 2006 gas crisis, precipitated by the decision of Gazprom, the largest natural gas producer in the world, to cut off gas supply to Ukraine because of disagreement on the terms of future trade. The case also narrates the events that have followed: the adoption by Gazprom of a comprehensive policy to renegotiate prices with the rest of the former Soviet states; the erratic relationship with Ukraine, dependent on the internal political configuration in the latter at any given time; and a persistence of Gazprom's negative image in the world.