Gazprom: Casting Out the Giant

Europe is taking no chances: Its regulators have okayed a plan that would block Gazprom from buying pipelines and other energy assets in the European Union. The move, partly a result of President Putin's more assertive foreign policy, is likely to be mirrored in other Western countries.

The EU's regulatory arm voted today to bar state-influenced or -owned companies from outside the EU from controlling gas pipelines or power companies within its borders. Gazprom wasn't named, but it's obvious at whom the regulation is at least in part aimed.

Whether fair or not, Gazprom has gotten a reputation for mixing business and politics; if a certain country irritates the Kremlin, the thinking goes, it could be subject to a brief cutoff of its gas supplies, or even longer.

That certainly seems to have been the case in terms of Gazprom's attitude toward Georgia, and arguably also toward the Baltics. Gazprom's defenders and its public relations agents say -- not entirely convincingly up to now -- that the company has acted only against free-loaders.

Putin's recent habit of barreling his chest and delivering patriotic statements has helped to seal the case as far as Europe is concerned. With a 30% reliance on Russian gas supplies already, the EU is loathe also to allow Gazprom to control actual hard assets and retail networks.

Gazprom has been aggressively in the market for energy assets abroad. For the same reasons as the Europeans, the U.S., Canada and others are likely to continue to be guarded in permitting such purchases.

Here is the operative phrase in today's on-line Wall Street Journal: Foreign energy companies operating in the EU will have to be certified to prove they are free from government influence. Read story

The proposed regulations still must be approved by a majority of the EU's member countries, after which they would come into effect in three or four years.

Gazprom: To Fear or Not to Fear

The West often expresses the apprehension that Russia will use its energy for outside political leverage. The answer of course is that it already is -- its oil and natural gas is the source after all of its newfound confidence and influence in Europe. Yet the most vulnerable and victim-prone countries are Russia's former Soviet colonies. The upshot: The Caspian states need to keep up their guard.

Take a look at The Independent of London today, which has a good, long primer on Gazprom. The piece, by Anne Penketh, makes two conclusions: Gazprom is so unwieldy and large that it may end up being a paper tiger; and that, given the combination of Gazprom's management failures and its abiding need for continued profits from Europe, it will end up having to give someone the short end of the stick -- one of its former Soviet brothers.

A key quote for those who follow the non-Russian states comes from Pavel Baev of the International Peace Research Institute: "They are the victims of choice," he tells the newspaper. "A new gas war is predetermined."

Steve's comment: The world caught on to Russia's outside power during the last eighteen months or so when Europe's oil and natural gas supply was disturbed over disputes with Ukraine and Belarus, and the Independent piece focuses on those two former Soviet states.

But the Caspian states and foreigners who work there -- Azerbaijan, Kazakhstan, Turkmenistan and, as a transit country, Georgia -- have witnessed Moscow's willingness to wield the energy club since just a few months after the 1991 Soviet breakup.

Russia starved Georgia of natural gas. It cut off Turkmenistan's access to foreign export markets. It has done the same in Kazakhstan, reducing the value of its giant fields (Karachaganak, one of the world's ten largest natural gas fields, is absurdly reduced to exploitation as an oil field). To its credit, Azerbaijan has responded to Gazprom's threats by going off Russian gas cold turkey, and turning to the local supply.

Transneft's actions in terms of the region's oil exports is well documented and have been discussed previously.

Russia argues that its actions are market-oriented. Maybe. But one must add realpolitik -- Gazprom has been the cudgel to bring feisty neighbors (such as Georgia) into line. And there is no sign that the custom is changing soon.

Georgia: A Mirror of Russia

Yet again Georgia is the target of a mysterious military strike, and yet again Russia is accused of responsibility. The upshot: Georgia continues to be a dramatic example for the West of what Russia's critics mean when they say it is dangerous to be vulnerable to Moscow.

Here is the beginning of a Chris Chivers piece in The New York Times:
MOSCOW, Aug. 8 — The Republic of Georgia presented what it called a mounting body of evidence today that a Russian warplane had entered deep into its airspace and fired an air-to-ground missile. It said it was seeking a special session of the United Nations Security Council to address the incident. Read rest of story

Steve's comment: Europe has wondered aloud for the last several years whether it is risky to become more and more reliant on Russia for its oil and natural gas. The latest news from Georgia is not necessarily, or even likely to be, the future of Europe.

But Russia's denials strain credibility. The trail of such incidents, and denials from Moscow, go back at least 15 years, when Russia backed Abkhazia in its bloody separation from Georgia proper. Russia was, and continues to be, responsible for Abkhazia's uprising. That makes the missile attack a compelling illustration of how Russia behaves with troubling regularity with a country that may be the most vulnerable of all.

Here is a good podcast summary from the Guardian.

Europe's struggle for energy independence from Russia

An excellent new piece in the Economist describes Europe's yet-again-divided and weak approach toward energy supplies. The first two graphs:

WESTERN failures in recent energy tussles with Russia have been persistent and spectacular. Key allies have drifted off into private deals. The big picture has been ignored. The gloomy drift accelerated this year with the signing of a three-cornered deal between Russia, Kazakhstan and Turkmenistan to pump the Caspian’s huge gas reserves north through Russia. Now Uzbekistan, according to Russia’s Vladimir Putin, is going to join too.

Europe’s only chance of getting gas along pipelines that Russia doesn’t control is a project called Nabucco. Its aim is to connect the gas riches of the Caspian and the Middle East to Europe via the Caucasus and Turkey. Read rest of article

From Steve: In addition to a hilarious account of State Department energy authority Matt Bryza in action, the piece points up how Russia yet again has triumphed by relying on Europe's propensity for going multiple ways at once. It also highlights the persistently short-sighted attitude of Kazakhstan and Turkmenistan, which so far have refused to concretely back an independent export pipeline for their lucrative natural gas reserves and so are subject to Russia's whims on price. The Economist piece is by Edward Lucas