Russian Energy Diplomacy And The South East European Response

By Andreas Andrianopoulos
(Synopsis)

Russia has found itself rather unexpectedly in control of wealth which is of paramount importance to global wellbeing. This inevitably influenced the country’s stance towards the outside world. The big industrial nations of the West and Japan along with the fast upcoming economies of South and East Asia are in desperate need of constant energy flows. And Russia appears to be in a position to guarantee, for some years to come at least, their stable supply.

There is also the problem that the pursuit of affordable energy may lead many nations to the path of nuclear power programs, with manifest terrifying side effects (See, “Spread of Nuclear Capability Feared”, Washington Post, May 12, 2008). Furthermore nobody disputes any more the recorded fact that mounting oil prices are pushing up the cost of farm crops (some, as corn and soy beans, used for biofuels) which in turn are bloating food price inflation. Countries without energy are panicking. The clear losers in this state of affairs are poor countries that import both oil and food. But even the more prosperous countries of the West are becoming extremely nervous.

Within this state of affairs it becomes evident that control of energy supplies and flows equals command of overreaching power and political influence. For the Russian Federation the pragmatic issue at hand is the actual availability of the required energy provisions which would make such far reaching pursuits feasible. Oil production has stopped increasing. After growing by just 2 percent in 2007, it has been sinking since the start of the year as oil firms face heavy taxes while trying to develop untapped fields in Russia's most difficult regions without the proper technology.. The needs, however, of domestic as well as foreign customers are rising. Although Russian oil per se is not such an indispensable item for European energy security, the curtailing of its production rates and the effort to control oil routes from all former Soviet Central Asia countries is worrisome. Russia is also in a position to cr eate problems for nations of its close periphery (the so-called Near Abroad ) by either halting the supply of oil or by diverting routes to other directions.

Targeting European Unity and the South

Russia targets Europe in its effort to promote its novel global energy significance. Numerous projects have been announced, negotiated and planned focusing on Europe as the recipient of Russian energy. Kremlin glamours itself to be the guarantor of european energy security. Russia claims to be in a position to supply Europe with the gas energy she needs as well as play a major role in producing oil volumes that, according to circumstances,
can safely satisfy the continent’s needs in periods of severe shortages.

The Soviet Union, during the Cold War years, did not fail even once to fulfill its gas supply obligations to the capitalist European West. This is constantly the argument that the Kremlin leaders today cast when confronted with the possible peril of depending almost totally to one supplier, and particularly Russia, for European energy needs. The memories of the crisis with Ukraine and the loss of gas supplies for a couple of days springs immediately to the mind. The Russians insist that it was all due to observing market rules and that, at any rate, it was Kiev and not Moscow that abruptly cut off supplies. Irrespective of where the right lies many western european capitals are uncomfortable with Russia holding the key to their warmth during the cold and long winter months.

Western commentators proclaim the emergence of a new Cold War atmosphere with the fastidious emergence of an autocracy. Russia, they claim, imposes a new form of modern political regime. Proclaiming nationalism, reflected in the country’s assertive use of its national resources, and taking pride upon its positive economic results – the product essentially of an international surge in energy prices – autocracy is projected as the most recent alternative to the democratic values of the west.

Since Russia admittedly is not, for the present at least, a full blooded liberal democracy of the western type is it advisable to rely on her for energy supplies? This is essentially the question posed to Europe especially after the late 2005 crisis with Ukraine. What would stop Russia, based in these estimations, to utilize its energy prowess to blackmail Europe? And enforce upon her undesirable policies and maybe even undemocratic behavior?

From a first glance it becomes apparent that it is the West rather that Russian commentators and statesmen themselves that insist upon the use of energy as a potentially threatening weapon. The Russians do not talk about the use of energy as a diplomatic tool. But this inevitably will play in the equation. Some commentators accuse the Putin regime for consolidating the country’s resources under the state’s thumb. Besides th e fact that it is embedded in the Russian psyche and the country’s political culture that greatness emanates from a strong central authority, what the Russians are doing does not on first inspection differ very much from the behavior of other western powers.

How would the US tax authorities had reacted if a company like, say, Yukos, had not paid its appropriate taxes for more than five years? Or if a foreign funded non - governmental organization, say, in France, had scoffed the previous Shirac government for absurdly blaming globalization to cover its own inadequacies? As for the defense by the state of the nation’s natural resources one can only be reminiscent of the Unocal affair in California. And of the way in which a rather obscure ruling (the Exon-Florio amendment of 1968) was invoked to exclude China’s leading oil company CNOOC Ltd from the bid to acquire the US oil firm. In similar fashion many western european governments have struggled quite unabashed to rescue their so-called “national champions” from the grabbing hands of foreign (even European) investors. Or, for that matter, subsidize, in violation of EU rules, their economic endurance.

Recent events in countries of western Europe bring the point home. In Greece, for example, German telecommunications giant Deutsche Telecom acquired 25% of the country’s national communications organization. The state still holds an equal shareholder percentage but the Germans was agreed to hold the company’s management. The fuss that has erupted harks back to the people’s rally against a German invasion during the second world war. Newspapers cry of a “German charge against the nation” and hint at the possibility of undermining military communications and compromise national defense. The hysteria proves that economic nationalism is a much wider european phenomenon and not just a Russian relic.

From the Kremlin’s point of view developments on the energy front are forcing Russia to react than to act. Although both sides declare their trust in friendship and cordial relations the Russians discerned from very early initiatives by the US to strike deals with nations at Moscow’s periphery for the construction of new pipelines. These plans referred to the establishment of new export routes for oil and gas supplies from the lands of Central Asia. The common characteristic of all those plans was the aim to bypass Russian territory in carrying energy products to the West.

It shouldn’t have come as a surprise that Moscow inevitably would had come up with a strategy of its own. The principal effort was to thwart western plans and to secure most of the oil and, primarily, gas produced in these countries for its own employ. The energy authorities in the Kremlin decided then to counterthrust by putting forward ideas of new pipelines. Perceiving, quite justifiably, that the Baltic states and Poland were among the main influences in the European Union and NATO leading to anti-Moscow stances, they decided that these new energy routes should avoid crossing those countries’ terrain. In as much as a Russian energy diplomacy was designed and enforced it came in response to adverse western initiatives. And not the other way around.

In implementing this policy Moscow chose to approach countries that had no reason to object to its initiatives. And south and south east Europe, because of its proximity and its profound energy needs, was a convenient target. Bulgaria and Greece were initially chosen for the Burghas – Alexandroupolis pipeline project. A new route which can bring oil, emanating from Novorossisk, to the Aegean, and thus to the Mediterranean, avoiding the straits of Bosporus. And at the same time possibly downgrade the Drujba pipeline that connects Russian western Siberian oilfields directly to european markets by means of Belarus and Lithuania.

For the transportation of gas Russia decided to build the Blue Stream (under the Black Sea to Turkey), the Norde Stream (directly to Germany, by means of the Baltic and North Seas) and the multi-branched South Stream (to Italy and Hungary through Greek, Bulgarian, Serbian and possibly Albanian lands). Moscow has also made overtures to the Greek and Turkish governments for the use of the Azerbaijan-Turkey-Greece-Italy pipeline to transport to the west excess gas from her already built Blue Stream line to Turkey.

In Greece, the Russian advances have been regarded with awe and public opinion rallied behind buoyant energy dreams. The Greek Prime Minister has even spoken (May 18) of the imminent transformation of southeastern Europe to a neighborhood of security, trust and mutual respect. Only in Serbia there is skepticism over Gazprom’s real intentions. The Russian energy mammoth demanded, and was finally granted, majority shares to the largest Serbian refinery, to include the country in the South Stream.

Inevitably, those schemes brought favored European countries at odds with their disadvantaged partners within European organizations (Poland has objected to the Norde Stream project, while Lithuania demonstrated its displeasure towards European partners agreeing with Moscow on a country- to-country basis). Likewise, Brussels and Washington expressed concern because they feel that the new plans may undermine combined European efforts to build the Nabuco pipeline (carrying gas from Turkmenistan(?)/Azerbaijan to Turkey, Bulgaria, Austria, Hungary) and the gas line under construction from Azerbaijan to Turkey, Greece, Italy. However, all these designs, including the Russian – inspired ones, rely entirely on the availability of adequate quantities of gas from the countries of Central Asia (Turkmenistan, Kazakhstan, Uzbekistan). Azeri supplies are not enough, based on assessments by independent observers and contrary to very recent statements by authorities in Baku, to fill the pipelines and guarantee the flow of enough gas to the West.

Irrespective of Moscow’s capability to realize those multiple schemes, due primarily to its production shortages and to the high costs involved, it has nevertheless struck quite hard at the heart of western camaraderie. Russians do not hesitate to show their affection for selected European capitals. In a clear sign of an ongoing special relationship President Dmitry Medvedev, shortly after his inauguration, welcomed German Foreign Minister Frank-Walter Steinmeier as the first prominent foreign guest to the Kremlin. It was also announced that Medvedev would visit Germany. He did not shy his words when referring to his trip: "Given the privileged nature of our relationship, my first visit to Europe in early June (2008) will be to Germany," he said, according to an Interfax report (15 May, 2008) (Germany is by far Russia’s single biggest trading partner, with a record $52.8 billion in bilateral trade last year. German firms invested $3.4 billion into Russia last year and have major investments in the energy sector). The appointment likewise of former German Chancellor Gerhard Schroeder at the head of the Norde Stream project and the repeated overtures to former Italian Prime Minister and European Commission President Romano Prodi to become Chairman of the South Stream demonstrates the slickness of the Kremlin maneuvering.

Game of Bluffs?

It appears that energy schemes adhere closely to visions and dreams. The global phenomenon of acute energy anxiety and the run for sufficient resources has raised hopes of dominance to some and fears of dependency to others. The oil and gas producers visualize a future of abundant wealth and prosperity. The energy thirsty countries, among them and many in the industrialized west but also in densely populated Asia (Japan, China and India) fear a future of a reversal of fortunes. Some talk of possible “blood barrels”, meaning internal upheavals, financial stalemates, realignments, conflicts and hard economic bargains.

Within this volatile environment Russia and Europe are dancing to the tune of an antagonistic environment. Brussles is afraid of a Europe totally dependent on Russian gas which, in the fashion of the recent Ukraine crisis, may turn to become a nightmare for the Union’s economies. Russia maintains that there is nothing that Europeans should fear from their enigmatic neighbor. In short, Russia and the West are going through a serious phase of distrust. Both initiate projects (gas and oil pipelines) that attempt to undermine the other’s self sufficiency and, inescapably, welfare.

The real issue is whether these inimical initiatives have any substance and a foothold in reality. For Russia, to exploit energy as a tool of diplomacy requires a great gamble. With large chunks of the population still well below the poverty line (see “20 Million Live in Poverty in Russia”, The Washington Post, May 15, 2008) and oil and gas money – through the Stabilization Fund - tied mostly to programs of social support and renewal, stoppage of energy supplies to the West is not realistically an option. Likewise, Brussels, and the West in general, tacitly recognize that besides Russia there is no other viable choice for Europe to guarantee adequate supplies of energy – gas mainly. The Central Asia card is still extremely precarious and insecure. The countries in the region are not entirely reliable, they promise their supplies to almost everyone who comes with a proposal and for their product to reach western markets needs time, heavy investment and a lot of construction work.

It is becoming obvious that irrespective of rhetoric, reality commands cooperation. And cooperation is going to be. There will be competition, especially for the markets in Turkmenistan, Kazakhstan and Uzbekistan. But both sides will be forced, by the course of events and economic necessity, to withdraw their bluffs. Good faith and upright good sense will have to be established. For everybody’s welfare.