Whatever the results of the EU-Russia summit this Thursday in the Black Sea resort of Sochi, there seems to be one clear winner: the Gazprom nation – Russia.
With the United States – the European Union’s No 1 trade partner and North Atlantic Treaty Organization (NATO) ally – mired in the Iraq quagmire and the EU with an ongoing constitutional crisis, Russia is exceptionally positioned to have its way in the negotiations leading to the post-2007 “Strategic Partnership Treaty” between the EU and Russia.
Former leader Mikhail Gorbachev, in an opinion piece published on Wednesday by the Rossiyskaya Gazeta daily, admits “this will not be an easy conversation”. He stresses the EU’s huge internal contradiction “between two approaches to economic development, the ‘Anglo-Saxon’ one, based on unrestricted market freedom and maximization of profits, and the socially oriented [one] embraced above all by Germany and France. The admission to the EU of new members, many of whom prefer the former model, has changed the balance of forces, and so far a synthesis of the two approaches has been an elusive goal.”
Gorbachev also denounces stinging criticism of Russia according to which the country “is inherently incapable of assimilating democratic principles and procedures, of creating a civil society and renouncing ‘imperial ambitions’, so Europe and Russia cannot follow the same path. A new version of deterrence policy has been proposed. What is behind such policy? I think it is the desire to keep Russia in a ‘semi-strangled’ state for as long as possible.”
Ultimately, though, Gorbachev remains optimistic: “The mutual benefits from an intensified interaction between the EU and Russia are obvious.” The devil, of course, will be in the details, lost in translation to myriad languages and with the EU without a common foreign policy.
The key talks will start as part of the broad, President Vladimir Putin-suggested, energy-security agenda of the Group of Eight summit in St Petersburg in July. The G8 summit will in essence address the extremely sensitive question of the new, post-Cold War global balance of power. But as Russian analyst Sergei Karaganov recently warned, energy security is also “a powerful catalyst” for replaying the Cold War.
Blue gold’s pipeline power
Natural gas, “blue gold” in industry lingo, has become, in an emerging multipolar world, the prime source of intractable conflict and a formidable political and diplomatic weapon in the hands of such states as Russia, Iran, Venezuela and Bolivia.
Gas, unlike oil, complies with the constraints on carbon emissions defined by the Kyoto Protocol. It is even more abundant than oil; proven reserves, with existing technology, may last as many as 70 years, compared with 40 or so for oil. According to the International Energy Agency (IEA), gas will be consumed in a faster progression (2.3% annually) than oil (1.6%), carbon (1.5%) or nuclear power (0.4%).
But there’s a catch: for this to happen, says the IEA, the industry would need global investments totaling at least US\$100 billion a year.
Before the January Russian-Ukrainian crisis, there had not been a geopolitical gas war. Now we’ve entered the era of pipeline power, where geopolitical turmoil is intimately linked to gas-pipeline routes, as in the Northern European Gas Pipeline, the Russian-German project under the Baltic Sea (bypassing Baltic states and Poland); the pipeline from Siberia prioritizing either China or Japan; and the pipeline from Venezuela to Argentina via Brazil, bypassing Bolivia.
Geopolitical turmoil is also linked to pipeline routes in the making, as in the Arctic, which pits the US against Canada, Russia against Norway (in the Barents Sea) and Denmark (in Greenland) against Canada. According to the US Geological Survey, 25% of the world’s gas reserves still to be discovered lie in the Arctic.
French, Belgian and Spanish diplomats in Brussels tell Asia Times Online the key strategic challenge facing the EU nowadays is its dependence on Russian gas; for the 10 newest EU members it almost reaches 100%. The key to the 153,800 kilometers of the Russian pipeline network is in the hands of the Kremlin. The Russian state is thus afforded the luxury of musing on how to reinvest Russian petrodollars when, according to analyst Alexander Blokhin, 95% of the profits beyond \$27 a barrel go to the Kremlin.
For Russian EU Ambassador Vladimir Chizhov, “much of the tension in the energy sphere is artificial”. He also insists that the EU and Russia “share a common position” on Iran (prevention of nuclear proliferation, by diplomacy). He may be only partly right on both counts.
GUAM is in the house
GUUAM (the acronym for Georgia, Uzbekistan, Ukraine, Azerbaijan and Moldova) was founded in 1997 ostensibly to “favor economic multilateral cooperation”, but really as a regional military alliance, under the benign protection of NATO, strategically placed right on the path of the Caspian Sea’s energy wealth.
In other words, it was an anti-Moscow club. Now the alliance is only named GUAM; Uzbekistan, under the brutal Islam Karimov, decided to leave last year and reinforce ties with Moscow.
This week, significantly right before the EU-Russia summit, the presidents of Georgia, Ukraine, Azerbaijan and Moldova got together again in Kiev. This led the Russian daily Nezavissimaia Gazeta inevitably to denounce the formation of “a new international organization whose goals are entry into NATO and adherence to European structures” – nothing strange considering that the “GUM” (Georgia, Ukraine and Moldova) in GUAM openly accuse Russia of supporting separatist movements and are still reeling from Russia imposing commercial restrictions on milk and meat imports from Ukraine, wine from both Georgia and Moldova, and mineral water from Georgia.
The message from Moscow seems to be unmistakable: if you want to join the EU and NATO, you will have to suffer. Off the record, EU diplomats – especially those from Eastern Europe – share an unshakable consensus: Russia always uses trade as a political weapon against pro-EU countries.
The Azerbaijani daily Azerkalo went straight to the point as far as GUAM is concerned, defining it as “an anti-Russian club”. In this new scenario, where everyone’s goal seems to become a member not only of NATO but of the EU as well, Kiev has become a de facto “alternative integration center” harboring GUAM’s headquarters. As the Russian daily Kommersant put it, GUAM is looking for “an alternative to Gazprom”, the Russian energy giant.
The alternative is even more pressing with the completion next year of another key node of Pipelineistan – the Baku-Tbilisi-Erzurum (BTE) gasoduct, which runs parallel to the oil Baku-Tbilisi-Ceyhan (BTC) pipeline reaching Turkey and European markets. The important question in this dossier is whether Azerbaijan will remain part of GUAM. Once again, in this respect the EU’s – plus the United States’ – wishes are pitted against Russia’s.
The meaning of ‘energy security’
Putin, as the undisputed czar of the global gas club – seconded by Iran’s Mahmud Ahmadinejad, Venezuela’s Hugo Chavez and Bolivia’s Evo Morales – may afford to compare the US to “comrade wolf [who] knows whom to eat, eats without listening, and [is] clearly not going to listen to anyone”. Chavez, for his part, may compare the US to “Count Dracula before sucking blood”.
With high gas and oil prices, the Kremlin does not have to waste time discussing democracy and human rights with the West. What matters are \$170 billion in foreign reserves – and rising – a huge budget surplus, and 7% annual gross domestic product (GDP) growth.
According to Arnaud Dubien, Russian specialist at the French Institute of International and Strategic Relations, “this allows the Russian government to finance many programs of very strong social impact, benefiting categories of the Russian population which suffered heavily during the transition”.
No wonder “energy security” is Putin’s mantra as Russia – the world’s top gas producer and second-biggest oil producer – presides over the G8.
At a recent “Geopolitics of Energy Security” seminar in Brussels, organized by the European Enterprise Institute, Russia was inevitably the star of the show. Russians asked, “What does it really mean when the EU talks of ‘diversification of energy supply’?”
The Russians see it basically as a way of putting pressure on Russia, leading to a loss of traditional Russian exports. The Europeans for their part worry about the use of gas as a political weapon, plus the lack of transparency and the “undemocratic processes” in the Russian gas and electricity sectors.
Both parties agreed “there needs to be real political and technical dialogue in order to tackle the truly important issues”. The Russians agreed that “democracy and human rights are in the Russian constitution” – thus Russia doesn’t need to negotiate, but to implement.
And they all agreed that Russia and the EU “should create a non-discriminatory energy support agreement, including a fair regime for access to the Central Asian energy supply”. This agreement, said European diplomats, could be implemented within the next three to five years.
It’s going to be an extremely tricky affair. The EU is actively trying to explore deals with Central Asia – with both Kazakhstan and Turkmenistan – and also with Iran, bypassing Russia via the South Caucasus and the Caspian Sea. The key project in this Pipelineistan node is the proposed trans-Caspian gasoduct – which would in effect break Russia’s monopoly on transit of Central Asian gas.
In the new “Great Game” among Russia, China and the US in Central Asia, Washington privileges close allies Azerbaijan and Kazakhstan – which are also courted by the EU.
The Europeans stressed other crucial points for the complex EU-Russia relationship to work. There must be “open and frank discussions, not political niceties”. And the EU must consider nuclear energy as an alternative. Touching on an issue addressed by a recent Asia Times Online story (Iran impasse: Make gas, not bombs, May 9), EU experts stressed that according to EU forecasts and figures from the Russian Energy Strategy, the incremental offer from Russia could only cover 25% of the EU’s energy needs, so it was imperative that the EU diversified.
In sum: the Europeans believe that “progress is possible despite the changing political and economic climate”; pressure for Russia to reform “will come from within, not from the G8”; and the debate “already exists inside Russia’s political elite”. Among the intractable problems ahead is the fact that the Russians never ratified the European Energy Charter, which they signed in the mid-1990s.
Brussels diplomats argue that if the Russians really followed the charter they would need to finish off Gazprom’s monopoly, reschedule internal energy prices and give more guarantees to foreign investors. According to Russian Finance Minister Alexei Kudrin, the charter will be ratified. But he has been careful enough not to set a date.
In April, Gazprom knocked back Microsoft as the world’s third-largest company by market value. Microsoft was valued at about \$246 billion, Gazprom at \$270 billion. Already the world’s biggest natural-gas company by output and reserves (16% of the total), and with its shares more than tripling in the past 12 months, Gazprom is on the way to displacing Irving, Texas-based ExxonMobil Corp as the world’s biggest company, now valued at \$381 billion. General Electric is currently the second-biggest at \$358 billion.
Gazprom employs 330,000 people and supplies more than 8% of Russia’s GDP. It is currently controlled 51% by the Russian state. Since 2001, Gazprom’s executive director has been Alexei Miller, who is extremely close to Putin.
Gazprom had a gas output of 547.2 billion cubic meters in 2005. This is equivalent to 9.42 million barrels of oil a day, or the daily extraction output in Saudi Arabia, the world’s biggest oil supplier. Gazprom’s market value may soon reach as much as \$1 trillion, according to its deputy chief executive Dmitri Medvedev, who also happens to be very close to the Kremlin.
Putin’s gas chess is always masterful. The president may occasionally threaten the EU that the Russians will go find some other, less demanding customers in case the EU decides to look for less problematic suppliers. But he may also reassure the EU – via German Chancellor Angela Merkel – that a Ukrainian scenario such as January’s will never repeat itself (80% of Russia’s exports to Europe transit via Ukraine).
Since the 1960s, Russia has been a trusted European supplier – responsible for 50% of the EU’s gas imports and 25% of consumption (for oil, Russia supplies 30% and assures 26% of the EU’s consumption, as well as more than 30% of the uranium for Europe’s nuclear plants).
Gazprom is actively investing in Western distributors and wants to become a global gas giant under vertical integration, selling gas to everyone and his neighbor. What Gazprom wants is to control the whole chain – from production to the final consumer in Europe. What the EU wants is for Gazprom to bring gas to the EU’s external borders, where the gas will be bought by EU partners who will then distribute it inside Europe. This would mean the end of long-term Gazprom contracts with European energy giants – a no-no for Putin.
Igor Chubalov, one of Putin’s guides ahead of the G8 meeting in St Petersburg in July, is fond of stressing the difference between the strategy of an independent corporation and state policies – even if the Europeans cannot manage to spot the difference. Basically what Chubalov was saying ahead of the recent Putin-Merkel meeting was “We invest in distribution, you invest in production.” The word in Brussels is that this was former German chancellor Gerhard Schroeder’s idea.
Schroeder is the head of the supervisory board of the consortium building the \$4.8 billion Northern European Gas Pipeline, the Russian-German gasoduct under the Baltic Sea. He’s reportedly being paid hundreds of thousands of dollars a year for the privilege. Other members of the board include Gazprom’s big boss Miller (51% of shares) and officials from Germany’s energy giants E.ON and BASF (24.5% each).
So Moscow and Berlin have already created a de facto energy alliance between E.ON and BASF and Gazprom. The inevitable result was that eyebrows were raised across the EU – because the 25-member union still does not have a common energy policy. Poland, for instance, has been bypassed by the gasoduct. So for Polish diplomats, the gasoduct is nothing other than “political blackmail”.
When Gazprom’s boss Miller hints in public, more than once, that trouble with the EU will mean more Russian exports to China, Eastern European diplomats once again cry in unison, “political blackmail”.
In practice, it boils down to Gazprom wanting to buy more gasoducts and distribution companies in Europe, such as British Centrica. And once again the really fascinating question regards the double standards employed by the developed world. Putin, after meeting with Merkel, in essence said that when European companies go to Russia, it’s a matter of investment and globalization, but when it happens the other way around, it’s a question of Russian companies expanding into Europe.
The new Saudi Arabia
Problems on the European front? No problem. Russia can always go east. And the Europeans know it.
Russia could not be presiding over the G8 at a more delicate moment. The US imperial drive remains defined by the control of sources of energy. To counteract it, Russia wants to invest in a strategic energy partnership with the EU. But the Russians also recognize that the future of global development is in Asia.
Both China and India are employing alternative strategies to the neo-liberal US model. So now Russia is presented with a very auspicious confluence of factors: its own fabulous energy reserves; energy dependence in Europe; and larger-than-life Asian interest in these reserves.
Russia is actually in search of a Euro-Asian equilibrium. As Natalia Narotchnitskaia, vice president of the Russian parliament’s Commission of Foreign Affairs, put it, Russia now boasts “energy independence, military power, high level of education, a complete cycle of scientific research, no overpopulation, a huge territory, and a modest level of consumption”. She added, “The only country in the world to meet all these criteria is Russia.”
On practical terms, for Narotchnitskaia, this should translate into more investment to explore Eastern Siberia and the Russian Far East. And no dreams of integration either with the EU or with NATO. She’s in favor of a true “independent historical project”.
Energy security, she said, means “a geo-economy which would lift us from demographic decline, reinforce the country and seduce our neighbors, especially those in Central Asia”. In other words, a real national project.
For the moment, the facts on the ground tell the story. Gazprom bought Baltic refineries. Gazprom bought majority stakes in distribution companies in Georgia and Belarus. Schroeder presides over the board of the Russian-German gasoduct under the Baltic Sea, controlled 51% by Gazprom. Putin convinces Russians nostalgic for empires past that Putinism is the best nationalism.
Russia fashions a G8 meeting under its terms – exploiting both the US quagmire in Iraq and the EU’s dependence on Russian gas. Thus the Gazprom nation is shaping up as the new Saudi Arabia: indispensable to the West, but certainly not integrated with it.