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Monday, January 15, 2007

Blowback will Overwhelm Putin's Russia

Newsweek exposes Vladimir Putin's disastrous neo-Soviet "victory" in Belarus:

From the way Aleksandr Lukashenka was talking, you'd think war had just broken out. "We will not surrender our country to anyone who wants to tear it to pieces!" railed Belarus's president after Russia stopped oil exports to Belarus—and European customers farther down the line—in a row over tariffs and energy prices. "We may have to go down into the bunkers, but we will not surrender!"

Actually, he waved the white flag just a couple of days later. What choice did he have? No one knows exactly what was said in a tense phone conversation between Vladimir Putin and Lukashenka, but it was clear that Putin was playing for keeps. The Kremlin's key threat: to slap tariffs on Belarussian goods exported to Russia. Since well above half of Belarus's trade is with its larger neighbor—and onetime best geopolitical friend—that would have destroyed the country's economy.

The terms of surrender were no less brutal. They included a twofold increase in the price of gas, the sell-off of Belarus's gas-pipeline network to Russia's Gazprom and a scrapping of transit tariffs for Russian oil passing through the Druzhba pipeline en route to Europe. For cash-strapped Belarus, isolated politically and economically from the rest of Europe, supplies of cheap Russian energy were an economic lifeline; their loss is a body blow to the nation's already precarious health. The lesson wasn't lost on other neighbors of Russia. If this is how Russia treats its closest friends, what can its enemies expect?

The Belarus crisis may be resolved, for now, but the fallout will be enduring. Europe could scarcely be more alarmed by Putin's behavior. Only a year ago, the Russian president ordered gas supplies cut off to Ukraine in a very similar dispute—and with similar disregard for European customers affected by the decision. Moscow devoted much of the past year to diplomatic fence-mending, spending billions on expensive PR consultants and a lavish G8 summit in St. Petersburg, pushing the message that Russia was, in Putin's words, a "reliable energy partner." But then, precisely a year later, Moscow did it again. "Once, we can maybe forgive," says a Western diplomat in Moscow not authorized to speak on the record. "Twice, no." The bottom line: Europe has little alternative but to not trust anything Russia or its president says.

Across the periphery of its old empire, from the Baltic to the Caspian, Putin's energy diplomacy has, in an astonishingly short time, made enemies of a fast-growing list of former friends. That catastrophic collapse of "soft power"—the ability to lead, influence and persuade others to do your bidding without having to force them—will have dire consequences for Russia's standing in the region for years to come. More, Moscow thought it had Europe firmly by the pipelines. Instead, Europe is scrambling to figure out how to lessen its dependence on Russia as quickly as possible. As it turns out, there are many ways to punch back, some of which can strike very soon.

A sweeping new European energy policy, unveiled last week, sets out to do just that by seeking alternative suppliers. The plan lays out targets for the EU to derive 20 percent of its energy from renewable sources by 2020, as well as to dramatically improve energy efficiency. Electricity grids are to be integrated in Germany, Poland and Lithuania, as well as France and Spain, in order to help neighbors better weather oil and gas crunches. Chancellor Angela Merkel cited the Russian threat last week in suggesting that Germany rethink its retreat from nuclear power. There's a major push to build facilities for shipping Liquid Natural Gas, or LNG, from points across the globe. Yes, it's more expensive—but it's independent of pipeline politics. Meanwhile, Brussels is promoting a trans-Balkan gas pipeline bypassing Russia, dubbed Nabucco, which would link central Europe to gas producers in the Caspian. The EU should "speak with one voice" when negotiating with suppliers such as Russia, said European Commission president José Manuel Barroso. Read: it's time for customers to club together and assert their rights.

For Putin, this is a foreign-policy debacle. He came to power seven years ago with grand hopes for restoring Russia's imperial might—reasserting its influence in its historical "near abroad" and, no less ambitiously, becoming a player in the councils of western Europe and beyond. Fortune seemed to smile upon him. Rising oil prices filled Kremlin coffers with billions in windfall profits. What's more, control of oil and gas supplies in an energy-hungry world has given Moscow almost as much raw power as the Soviet Union ever had. "The geopolitical wind has been in our sails," says Kremlin-connected analyst Sergei Karaganov.

But for how much longer? Dislike of Russia by its neighbors, and distrust among its former allies, is fast rising to almost cold-war levels. Putin had successfully befriended Merkel's predecessor Gerhard Schröder—even employing him once the former chancellor left office. But his efforts to woo Merkel had not succeeded even before last week. Now her wariness has increased exponentially. The latest crisis, she said last week, "destroyed confidence." Apart from growing distrust in Europe and all-out confrontation with Belarus and Ukraine, Russia has also locked horns with Poland over agricultural trade. Last year it abruptly cut off oil supplies to Lithuania's Mazeikiu refinery, on seemingly bogus technical grounds, and it remains engaged in a bitter trade war with the renegade former Soviet republic of Georgia. Last week Azerbaijan also joined the swelling ranks of Putin's perceived enemies. After being told by the Russian natural-gas giant Gazprom that its prices would be raised, Baku turned to Iran for supplies instead. Then the Azerbaijanis raised the ante by directing the national oil company, Socar, to stop shipping their own oil to Russian ports. As if that weren't enough, Azerbaijani President Ilham Aliyev dubbed the Commonwealth of Independent States, Russia's instrument of soft power in the former Soviet Union, a "useless organization."

Rather than resurrecting Russia's former empire, Kremlin diplomacy has thus been a case study in blowback. Putin could not have done more damage to his larger geostrategic goals had he deliberately set out to do so. The question is, why? Perhaps the simplest reason, analysts suggest, is that Putin feels so confident of his nation's newfound oil might that he doesn't need to play Mr. Nice Guy. When settling scores with uppity allies like Lukashenka, it seems, showing who's boss is more important than weighing the consequences for Russia's reputation. "We succumbed to the temptation to grow giddy with success and sometimes acted arrogantly," admits Karaganov. "People do not like those who are big and strong."

But the brutality of Putin's slapdown of Lukashenka may come back to haunt the Kremlin. Tiny, landlocked Belarus is at Russia's mercy. Lukashenka has no friends, except perhaps his buddy Venezuelan President Hugo Chávez. He's an easy patsy, in other words. But what of stronger neighbors such as Turkmenistan, the gas-rich former Soviet republic? It provides nearly half the 150 billion cubic meters of gas that Russia exports each year, which Gazprom buys from the Turkmen at $100 per thousand cubic meters and then resells to Europe at a huge markup of $230. Since the death last month of its megalomaniacal ruler Saparmurat Niyazov, Turkmenistan's political future is in play. Energy-hungry neighbors are eyeing Turkmen reserves; one pipeline already runs to Iran, and the Chinese signed a deal on oil and gas cooperation in 2005. Most crucially, Western oil majors have long been pushing for a gas pipeline across the Caspian Sea, linking Turkmenistan direct to Western markets (and bypassing Russia) via a recently completed pipeline from Baku in Azerbaijan to Turkey.

In the short term, Russia will fight hard to preserve its near-monopoly on Turkmen gas exports and the attendant profits. "Gazprom will support any [Turkmen presidential] candidate who supports its interests, and undercut anyone who tries to suggest another export route," says energy analyst Jerome Guillet, who worked for Gazprom in the 1990s. But what will happen if Turkmenistan follows Azerbaijan, Georgia and Ukraine and opts to advance its national interest rather than give in to Russian bullying?

Without cheap Central Asian gas, Gazprom's energy dominance—and Russia's swagger—would quickly vanish. Add to this some other facts: that Russia's own gas fields are past their peak, that new reserves remain untapped for lack of investment, that alternative supplies will eventually be coming online to Europe and that Western consumers, freaked by Russia's behavior, will leap to embrace them almost regardless of cost. The picture, long term, is of a goliath that doesn't quite recognize its days of dominance cannot last.

To be sure, that day of comeuppance may be far in the future. In the shorter term, Europe—along with Russia's former friends—has little choice but to endure the Kremlin's highhandedness, and pay Gazprom's prices. But ultimately, Putin will discover that there's more to being a great power than bullying.


Penny said...

Add to this some other facts: that Russia's own gas fields are past their peak, that new reserves remain untapped for lack of investment, that alternative supplies will eventually be coming online to Europe and that Western consumers, freaked by Russia's behavior, will leap to embrace them almost regardless of cost.

Right. And, that's when Stalin the Lessor is going to get his comeuppance. It can't happen fast enough. No foreign investment to offset the o&g decline, the brightest post-Communist entreprenuer in prison, loathed by the neighbors, Russia's arrogance and idiocy will have a bad ending. Add China's economic threat.

I've noticed that even the smarmy little Putin defenders aren't posting much anymore. I guess even the most useful of idiots are having trouble defending Putin's fascism, murder, and pure thuggery.

La Russophobe said...

Indeed! It's a sure sign of the Russian apocalyse that the Kremlin not only won't invest the oil windfall in the Russian people but also won't even go so far as to build the oil infrastruture. This either means (a) it's spending it all on the military or (b) it's hoarding it out of sheer greed or (c) it's holding it against a massive economic downturn that it knows is coming because of the economy's lack of fundamentals. No matter which is correct, it spells doom for Russia.