Thursday, July 31, 2008

The Russian Energy Net Expands

On paper, the last two weeks have been quite beneficial to Russia's stated goal of becoming the world's leading energy "middleman." Lucrative new agreements were reached with Venezuela's Hugo Chavez. Russian president Dimitri Medvedev noted in his joint press conference with Chavez, "We have mutual and very substantial possibilities in the energy sector, where our countries are both major fossil fuel exporters. The agreements signed just now between Gazprom, Lukoil, TNK-BP, and the Venezuelan corporation, PDVSA, will lay the foundation for serious large-scale investment and for developing cooperation in all different areas."

Chavez, for his part, observed: "You spoke of establishing a new world architecture. I think that this concrete effort is part of the work to establish this new architecture – a new political, geopolitical, economic, financial and energy architecture – so as to put an end to hegemony and a unilateral approach ... Our countries are both major energy powers. It is in this way that we are building the new architecture."

Then Medvedev went to Turkmenistan and solidified Gazprom's position. Not only does this agreement effectively kill the Nabucco alternative line (unless Iran's gas re-enters the picture), it confirms Russia as the main "exporter" of Eurasian hydrocarbons.

This follows continued Russian dealmaking in Africa.

Indeed, as Tamsin Carlisle observed, after reviewing Russia's recent energy diplomacy: "Some analysts have warned of Russia mounting a “pincer” attack on Europe, aimed at tying up gas exports from its principal North African suppliers, Algeria and Libya. Others see a wider chess game — or more accurately, an encircling strategy from the Japanese game of Go — involving a Russian attempt to gain control of gas suppliers from as many current and potential exporters to Europe as possible."

So, there does appear to be a clear strategy emanating from Moscow--one that is being carefully pursued.

A more sceptical view about the extent to which Russia has an energy 'grand strategy', and in particular about the extent to which it is driven by a coherent political game-plan, was expressed in a paper last year by the French investment banker Jérôme Guillet, a driving force behind the European Tribune website --


Whatever the merits or otherwise of this part of his argument, it is worth pondering Guillet's often reiterated point that the effect of ideologically-driven strategies of energy market liberalisation is actually to increase European dependence on Russian energy supplies.

'Europe is in the middle of a very ideological drive to liberalize energy markets - unbundling networks from production, creating competition across the continent, and entrusting the private sector with the decisions on how to invest in future capacity. The very direct consequence of that policy has been a boom in the construction of gas-fired plants, which are cheaper to finance and thus preferred by the private sector. Complaining about dependency on Russian gas at the same time as one promotes policy choices that structurally encourage increased gas consumption is completely incoherent, hypocritical, or both.'

Similarly incoherent is the enthusiasm for incorporating the Ukraine and Georgia in NATO. If Russian strategy planners are pushed into a position where they are making contingency plans for conflicts with NATO precipitated by crises involving pro-Russian minorities in these countries, they will be also be pushed towards considering energy supplies as a political weapon.

Having treated the notion that the Russians might no longer care to provide an independent Ukraine and Belorussia with subsidised energy as an unacceptable use of energy as a political instrument, Western powers seem determined to encourage the Russians to conceive of it in such terms.

Moreover, energy could be a very potent political instrument. Does anyone seriously think that, if the Crimea were to secede from the Ukraine, Western Europeans would be happy to freeze in order to prevent this happening?
At the time Kosovo declared independence, against Russian warnings, the Mr. Putin said that Russia's response would be assymetrical. Then they squeezed Abkhadzia a bit to distract us from their real response, which we have just seen.

The Russian government appear to have concluded that the West is simply unwilling to have serious, mutually beneficial relations with Russia, and now conduct policy on that basis.

Western Europe, Brits very much included (have you seen the decline rates for North Sea oil field production? UK went from peak exports to net imports in *four years*), will rue the day they placed the fate of their energy relations with Russia in the hands of Russophobic Balts/Brits/Poles/USians.
It is refreshing to see that some people still believe that it's important to develop meaningful and mutually beneficial relationships with Russia. Surprisingly, Mr. Gates also said something on this subject today. Apparently, many Russian officials have lost this hope.
"Apparently, many Russian officials have lost this hope."

Indeed, this hope was the basis for their policy back under *Gorbachev* And Stalin, Khrushchev, and Brezhnev each tried too, while avoiding Gorbachev's fatal mistake of failing to demand value for concessions.

It has taken vast, painful experience of Western lies, swindles, and bare-knucked power politics to convince them that the West cannot accept a Russian policy consisting of other than preemptive, abject submission.

They now have learned not to care what we think, because they have lost hope we will ever be reasonable with them, and have no fear of anything we can do to them.

And that, my friends, is the very definition of No Leverage.
Anonymous 7:36:

Replace "Russia" with "Iran" and you have captured the Iran-"West" dynamics as well. [Mr. Khamenei said as much on Wednesday.]
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