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Moscow - Russia's natural gas giant Gazprom posted a second successive drop in annual profits on Tuesday and warned that the escalating crisis in Ukraine could disrupt its crucial supplies to Europe.
The world's biggest gas producer admitted that the threat of US sanctions on the Russian energy sector could impact its operations and damage the wider Russian economy, which is heavily dependent on resource exports and already in danger of tilting into recession this year.
"The emergence of new or escalated tensions between Russia and other countries, including any escalation of the crisis in Ukraine, or the imposition of international sanctions in response to these tensions, could negatively affect economies in the region, including the Russian economy," Gazprom said in an annual management report.
The state-run firm said its 2013 net profit slipped by seven percent to 1.139 trillion rubles ($32.0bn, €23.2bn).
It also reported a 20% decline in sales to ex-Soviet states such as Ukraine.
But its fourth-quarter revenues improved by five percent in annual terms and beat analyst forecasts.
Economists said the figures had few implications for the stock price of Russia's largest company, which would be determined by events in Ukraine and the possibility of Gazprom next month striking a mega-deal with China that has been under discussion for nearly a decade.
"As of now, the Ukraine issue is crucial for Gazprom's shares," Moscow's VTB Capital investment bank said in a research note.
Gazprom shares traded flat on the Moscow Exchange despite a 1% t rise in Russia's ruble-denominated MICEX index.
Gazprom - an offshoot of the Soviet energy ministry long accused of being wielded as a diplomatic weapon against uncooperative neighbouring states - has been in the news for weeks because of its threat to cut off supplies to Ukraine's new Western-backed leaders over unpaid debts.
Ukraine is a vital transit link for Russian gas that accounts for 13 to 15% of EU nations' total gas needs.
The ouster of Ukraine's pro-Kremlin president and the new government's moves towards the West have has prompted Russia to nearly double the price its neighbour must pay for future supplies.
Ukraine has accused Gazprom of acting in the interests of geopolitics and refuses to pay the higher rate.
Yet the cash-strapped government - inheriting an economy that has been plagued by mismanagement and corruption for most of the past 20 years - is simply unable to meet total debt payments that Gazprom has recently put at $18.4bn (€13.3bn).
The European Union said on Tuesday that it would hold crunch talks with Russian and Ukrainian officials on the looming gas war in Warsaw on Friday.
But Gazprom's annual report stressed that "any disputes with Ukraine could potentially lead to a disruption of... exports to Europe."
It further warned investors that another round of US sanctions aimed at punishing the Kremlin for its perceived attempts to destabilise Ukraine - measures that could cut off Russia's energy and banking sectors from much of the Western world - could lead to "significant declines" in Gazprom's stock price.
"Such lack of confidence may result in reduced liquidity... and in Gazprom Group's inability to raise debt or equity capital in the international capital markets," the management report warned.
Gazprom added on a more upbeat note that it remained confident that Russian President Vladimir Putin would be able to put the finishing touches on the evasive Chinese gas agreement during a visit to Beijing next month.
The deal could see Russia supply nearly 40 billion cubic metres of gas annually to the world's top energy consumer for the next 30 years.
Gazprom said its chief executive Alexei Miller and China National Petroleum Corporation (CNPC) head Zhou Jiping agreed during talks held on Tuesday in Moscow that negotiations had entered their "closing stage".
"We think Gazprom could finally seal the gas deal with China in May," Bank of America Merrill Lynch said in a research note.
