While Putin foments disunity over energy in the West, the crisis around supply has raised questions about the potential for energy rationing this winter.
With a temporary reduction in supply and the reality of permanently higher costs for energy-intensive industries, experts told Investment Week there would be winners and losers.
The European Commission has finalised emergency legislation imposing a six-month voluntary 15% gas reduction across the EU, however some countries will have exemptions and allowances.
This greatly watered-down version of the original proposal to ration gas across the bloc was the result of strong opposition from Spain, Portugal and Greece, who protested it was Germany's 50-year over-reliance on Russian energy that had made it so easy for Putin to use the threat of choking off supply as leverage for its war in Ukraine today.
With Russia's state-owned energy firm Gazprom announcing it was reducing capacity of the Nord Stream 1 pipeline to just a fifth of capacity last month, confidence in German businesses began to deteriorate to its lowest level for more than two years.
Ifo Institute's closely watched index of business confidence fell to 88.6% in July, down from 92.2% in June, its lowest level since the worst months of the pandemic in Europe.
"It is an investor's worst nightmare in some respects," said Will James, manager of the Premier Miton European Equity Income fund.
"What is important now is making sure that I am cognisant of the risks in the portfolio and of their second or third order effects. If Germany gives priority to BASF, telling it to ration its use of gas, a second order consequence could likely be that BMW is unable to take their product because another part of its supply chain has been impacted and is lacking steel, for instance."
As a result of this headwind, investors are turning away from energy-intensive sectors such as chemicals, metals and manufacturing.
James runs a long-only European equity income fund of which Deutsche Telekom is a large 4.4% holding. The stock's significant pricing power, less than 10% exposure to Germany and as much as 50% exposure to the US through its T-Mobile holding, has swayed him from ditching the Bonn-based firm.
"In the current situation, whereby Putin is turning around and using his leverage over Europe, and because the situation is so volatile, you can build a scenario analysis of what might happen but the problem is, you just do not know what decision he is going to make next," added James.
"I would rather be prudent in this environment than see it as a massive opportunity."
The DAX index is down 16% year to date and has undoubtedly been under pressure because of its industrial weight. According to James, investors have been broadly "voting with their feet" and taking a risk-off approach to direct or even indirect exposure to Germany.
James Sym, head of equities at River and Mercantile and portfolio manager of R&M's European Equities fund, said that while gas rationing was a clear and present threat to political and economic health in Europe, much like the cost-of-living crisis it had been "well understood and socialised amongst markets".
"Uncertainty normally equals opportunity in stock markets. The DAX is trading on near 10-times earnings, a level reached only five times in the last 50 years, each of which was at crisis moments such as 2009, 2012 and 2020. All were followed by very strong returns, despite profit downgrades over those periods," he added.
But Steve Smith, European equities fund manager at Invesco, said the list of losers from the current situation was much broader than winners.
Shuttering the largest consumers of gas will impact all industries, he explained. Rather than focusing on energy intensity, policy makers will need to consider factors such as substitutability and the ease with which operations can be shut down and restarted.
"When supply and demand are distorted by exogenous events, supply chain disruption can occur in unexpected areas of the economy, as was the case during and post Covid-19. Policy makers will need to consider second and third order effects if they ration energy," Smith noted.
He highlighted fertiliser companies as one large consumer of European gas, adding that reducing European fertiliser production at a time when the global fertiliser market was tight may cause further food inflation by impairing next year's crop yields.
Investors must assess the potential hit to earnings and also how much these are already priced into equity markets.
According to Smith, while certain sectors are exposed to more direct risk from Russian actions than others, the equity market is quick to price it in.
"We need to be open minded not just to the risk, but also the valuations of sectors and more specifically companies," he said.
Miton's James acknowledged that the current situation would damage the competitiveness of German corporates, because the cost of doing business will be higher than it was.
With the price of gas showing little sign of reducing, companies based elsewhere in Europe that are reliant on gas as one of their key inputs for energy were also at risk, he explained.
"It is important to be clear on a stock's raw material cost exposure and the raw materials for businesses, in addition to where they are not exposed, and whether they have alternatives," he said.