India and Germany are in the midst of a diplomatic dispute after Germany seized control of a former Gazprom subsidiary, and halted all gas deliveries to India.

Gazprom Germania, the Russian energy giant’s local German subsidiary, after being seized by Germany and renamed SEFE (Securing Energy For Europe), cut all LNG supplies to India’s Gail in May. The new entity cited sanctions which blocked Russian gas flows, that Moscow had imposed after Germany took over the subsidiary.

Gail had contracted a 20-year deal with Gazprom Germania’s Singaporean unit, GM&T Singapore, which would have supplied India with 2.5 million tons of LNG per year. According to a Bloomberg report which quoted the association of LNG importers, GIIGNL, under the terms of the contract the deal remained valid after Berlin took over Gazprom Germania, which means the new German entity still has to supply the gas to India, even if Russia has turned off its flows to the subsidiary.

SEFE’s Singaporean unit had notified Gail in September that it would be unable to meet its contracted obligations, and offered to pay the 20% compensation of the contracted price due to the failed deliveries. According to Gail CFO Rakesh Kumar Jain SEFE has canceled 17 deliveries since May.

According to Bloomberg, India however is demanding SEFE find alternative suppliers in order to meet its contracted obligations, because the Indian company is unable to pay the massive prices to acquire replacement supplies on the strained spot market.

Gail also noted it has had to cut its flows to customers, and reduce production at its petrochemical plant due to reduced feedstocks of natural gas. The company has also turned down the offered compensation for the failed deliveries, as it wishes to retain its legal rights on the canceled cargoes.

According to the Bloomberg report, both Indian and German diplomats are negotiating a resolution to the dispute. According to both parties, a diplomatic resolution is preferable to both sides, although the report noted Gail is also consulting lawyers about triggering arbitration over the contract with SEFE. That would turn the dispute into a lawsuit, should diplomatic negotiations fail.

Gail is also reportedly trying to negotiate directly with Gazprom to purchase LNG directly from the Russian energy supplier.