Putin Runs Bartertown

It’s winter again in Europe, which means last month occurred the ritual Russia-Ukraine gas dispute. On January 1, Gazprom – the state-owned Russian energy company – helped Ukraine ring in the new year by completely cutting off its supply of natural gas. The flow was not resumed until January 19. Because nearly half of the EU’s natural gas is supplied from Russia via Ukraine, the dispute affected over a dozen European countries, severely straining their energy supplies in a period of high demand.

There are multiple dimensions and layers to this controversy, including a commercial one: Ukraine had been receiving subsidized natural gas for decades and has been reluctant to start paying market rates. But more importantly, there is a political dimension as well: as Europe’s main energy supplier, Russia has always been willing to use energy as a weapon, and has repeatedly done so against Ukraine since the 2004 “Orange Revolution” brought a Western-leaning government to power in Kiev. Indeed, with its other instruments of power weak, Russia has been relying on energy as a means to reassert its dominance in the “near abroad.” I’ve actually managed to obtain a video of this strategy in action:

 Russia, even during the Soviet period, has always been a petrostate, reliant on a small number of extractive industries to generate most of its wealth. Since Putin has come to power, Russia has fallen into the more destructive pathologies characteristic of such states, with a narrow tax base, rampant corruption, and political life revolving around the control of oil and gas rents. The Russian economy has relied on high commodity prices to fuel growth over the past decade, but it has become extremely vulnerable to downward swings, as has occurred recently with the global economic crisis.

But Russia has hopes for oil and gas beyond making itself rich. In 2001, Vagit Alekperov, president of the Russian oil company LUKOIL, offered a candid snapshot of Russian energy strategy when he remarked in an interview “that Bulgaria, whose oil sector is almost entirely owned by Russian companies, will not conduct an anti-Russian foreign policy in the foreseeable future.”

Russia’s energy strategy is directed at reestablishing the Russian sphere of influence in the Soviet successor states and the periphery beyond. It can serve this objective directly, by denying energy supplies to wayward satellites to coerce them back into the Russian orbit. In the months leading up to the war in Georgia – which itself was partly motivated by Russia’s desire to control energy flows from Central Asia – Georgia was subjected to a natural gas embargo. It can also serve this objective indirectly by politically neutralizing Europe, thereby isolating the United States in its opposition to Russian policy and guaranteeing Moscow a free hand in the region. To do this, Europe must become dependent on Russian energy supplies. In pursuit of this strategy, Russian companies have been negotiating highly favorable long-term energy contracts with individual European states, and have been purchasing as much energy infrastructure as possible throughout the continent.

Europe has been dangerously complacent in allowing this strategy to occur, displaying a naive passivity toward Russian energy policy. Gazprom has even hired former German Chancellor Gerhard Schroeder to lobby for the Nord Stream pipeline project which would carry Russian natural gas directly into Germany, thus increasing Europe’s dependency.  The proposed Nabucco pipeline, which would carry Caspian natural gas in a route through Turkey and Eastern Europe that would avoid Russian influence, has lost favor to Gazprom’s own South Stream proposal which would pump Russian gas directly into Italy.

The political aftermath of the war in Georgia has amply demonstrated the viability of this policy. The extensive energy relationship that had been established with Europe over the previous decades paid of immediately: at the outset of the conflict, rhetoric emanating from Europe was hesitating, weak, and ineffective. The worst that the EU could threaten Russia with was a suspension of the EU-Russia partnership talks if Russian forces didn’t return to their prewar positions. Nor was this even a serious threat; only 3 months later, the EU quietly resumed talks despite the lingering presence of Russian troops inside Georgia.

If Europe wants to maintain its political relevance with regard to Russia, it must break free of its dependence on Russian energy. First of all, Russian influence in the Caspian basin must be resisted, since that region would probably be the source of an independent European energy supply. Second, Europe must reassess its relationship with Turkey and the Caucuses. These states occupy a crucial energy corridor through which non-Russian fuels must pass. The EU should maintain close relations with all the states along this corridor. In particular, the EU should reexamine Turkey’s application for membership in light of the key role it would have as an alternative energy conduit. Third, Europe should establish alternative routes of supply. The Nabucco should be constructed and Russian energy companies should be denied further stake in the project. Furthermore, European energy companies should increase their stakes in energy infrastructure throughout the continent, where possible recovering assets from Russian ownership. Fourth, future energy deals between Europe and Russia should be negotiated on a continent-wide basis through EU auspices. This would prevent Russian companies from practicing a “divide and rule” strategy when it comes to energy contracts. Finally, Europe should continue its search for alternative energy sources. Liquefied natural gas, for example, offers the ability to import energy from sources around the world.

The volatile price of energy commodities ensures that the Russian strategy of energy blackmail will occur in cycles; with prices currently plummeting, Russia will be desperate for petrodollars and unlikely to cut off supply for political reasons in the immediate future. If Europe desires to maintain its political freedom of action, now is an ideal time to begin strategic measures that would decrease Europe’s energy vulnerability so that when prices rise again – as they inevitably will – Russia will be less able to wield the energy weapon over Europe’s head.





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