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Tuesday, April 03, 2007

More on Gazprom's March into Europe

Writing in the Korea Herald Keith C. Smith, a fellow at the Center for Strategic and International Studies, Washington, D.C, offers the following analysis of Russian energy imperialism in Europe:

When Gazprom, Russia's natural gas monopoly, cut off supplies to Ukraine and Georgia in January 2006, the move was widely seen as a clear warning of the Kremlin's willingness to use its energy resources to exert political influence over Europe. Twelve months later, Russia drummed home the significance of that act by shutting off oil supplies to Belarus for three days, causing a ripple effect on shipments to Western Europe.

Despite these supply-side threats, there have been few signs of an effective European Union-wide policy that would reduce dependence on Russian energy. The European Commission's energy proposals, issued in January, are a step in the right direction. But they will have little direct effect on Russia's energy relations with Europe, because they do not oblige Russia to adopt more competitive and transparent energy transport and investment policies.

On the contrary, European countries continue to forge bilateral deals with Russia, with little consideration for common EU interests. The West European EU members have shown scant concern over Russian pressure tactics against the new members in Central and Eastern Europe, calling into question the extent of EU solidarity regarding energy supplies. Since the Kremlin interrupted energy supplies to the Baltic states in 1990 in a futile attempt to stifle their independence movements, it has continued to use pipeline politics against countries such as Poland, Latvia, and Lithuania - all new EU members. For them, and for new democracies like Ukraine, Georgia, and Moldova, Russian energy dominance and its political consequences remain a serious threat.

Russia has profited from Europe's disarray by moving to cement greater long-term European dependence on its energy, particularly natural gas by continuing its divide-and-rule tactics toward European governments. Since January 2006, Moscow has negotiated separate deals with energy companies from Germany, France, Italy, Hungary, Serbia, Slovakia, and Denmark that could undercut Europe's efforts to build additional pipelines aimed at bypassing Russia's near monopoly of supplies from Central Asia.

It initially appeared that Germany under Chancellor Angela Merkel would be more sensitive to the energy security of Central and Eastern Europe. However, Merkel approved the expensive Northern Europe Gas Pipeline beneath the Baltic Sea, negotiated between her predecessor Gerhard Schroeder and President Vladimir Putin, and strongly opposed by fellow EU member Poland, which the pipeline will bypass. The NEGP will cost at least eight times as much as the alternative Yamal II pipeline, which would have gone overland through Poland.

Despite the European Commission's good intentions, the EU's larger members continue to resist submitting to a common EU energy policy. In mid-November, EU foreign ministers failed to agree on a common approach to Russian energy - just as reports resurfaced that Russia may seek to establish a natural gas cartel similar to OPEC.

The EU's political will to counter its increasing dependence on Russia in the immediate future is thus open to serious doubt. Indeed, for the next five to ten years, Russia will be able to fulfill its gas contracts in Europe only by monopolizing exports of gas to Europe from Kazakhstan, Turkmenistan, and Uzbekistan. But the EU so far has chosen to ignore that Gazprom's monopoly is a clear violation of the anti-trust and competition policies of the revised Rome Treaty and WTO obligations.

Russia clearly believes that the current tight world energy market and high prices give it enough leverage over the West to maintain its current approach. Russia consistently refuses to allow Western companies the same access to Russian facilities that Russian state energy companies already enjoy in Europe and the United States. That is likely to remain true as long as the West fails to adopt an energy strategy that causes the Kremlin to change course.

Putin denies that Russia is using its energy resources to coerce European governments, arguing that the decrease in gas supplies to Western Europe during the cut-off of gas to Ukraine in January 2006 was the result of Ukrainian "theft." In its dispute with Belarus in January 2007, Russia leveled a similar accusation of theft from the oil pipeline that crosses the country. It also claims to have been subsidizing the price of energy to the Commonwealth of Independent States, when in reality it is the Central Asians who have been subsidizing Russia to an even greater extent.

Although the EU Commission appears to be committed to building a more open, competitive energy market in Europe, action against Russia's noncompetitive practices within the EU has taken a back seat to internal differences over takeover battles for national energy "champions" involving companies from other member states. Russia must be convinced that its resources will be far more valuable if they are opened to international investment, managed transparently, and operated according to the legal and commercial rules of the international trading system. But that is unlikely in the absence of strong and unified European action.

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