May 2, 2006, The Wall Street Journal
BRUSSELS
Georgian President Mikhail Saakashvili, who rose to power through the former Soviet state’s democratic „Rose Revolution,“ has a word of advice for Europe and the U.S. as they grapple with a resurgent Russia’s increasingly aggressive energy politics.
„Hurry.“
The stakes are too high for a wait-and-see approach. They include the political and economic independence of the European Union’s 25 countries and the long-term health of the bloc’s economy, roughly equal in size to the U.S. as the world’s largest.
Russia, which President Vladimir Putin has reinvented as an „energy superpower“ fueled by skyrocketing oil prices, is moving quickly to consolidate and expand its virtual gas monopoly in many parts of Europe through state-controlled giant OAO Gazprom. Mr. Putin last week backed Gazprom Chief Executive Alexei Miller’s threat to divert European gas supplies to Asia, apparently in answer to European countries‘ nascent efforts to impede Russian energy acquisitions, diversify suppliers and pressure Moscow to open its pipelines to competitors.
„It’s the first time in the last 20 years that Russia has been on the offensive,“ says Alexander Vondra, a former Czech dissident and now a business consultant. The West was „setting the agenda until now, and they were reacting. That’s over.“
Mr. Saakashvili — in Brussels to speak to the Brussels Forum, a meeting of influential U.S. and European government and private-sector leaders — says that ultimately at risk „is whether we can defend our core values“ in a world where Russia, China and others are using state-controlled corporate giants like Gazprom to lock up critical assets and prevent free markets from functioning.
The good news is that Moscow’s gas cutoff to Ukraine over New Year’s sounded a wake-up call throughout Europe. The bad news is there has been considerable nodding off since then. Countries that once paid little attention to their increasing energy dependence on Moscow called emergency meetings and drew up plans for alternative pipelines and expanded nuclear energy. Yet four months later, Europe and the U.S. lack a common response to Mr. Putin as he prepares to host the July summit of the Group of Eight leading nations in St. Petersburg — with energy security as his central theme.
Meanwhile, Gazprom — the leading vehicle of Kremlin energy influence — has accelerated a three-pronged strategy. First, it is campaigning to bottle up its control of Central Asian gas resources. Second, it is consolidating and expanding its hold on energy infrastructure among countries that were once part of the Soviet Union. Finally, it is trying to use a deepening war chest to acquire private and privatizing energy assets elsewhere in Europe.
Rising tensions with Moscow reached a crescendo last week when Mr. Putin, before meeting with German Chancellor Angela Merkel in Tomsk, Siberia, accused the West of „unfair practices“ and agreed with Mr. Miller that it would redirect supplies elsewhere if its European expansion plans were blocked. A senior EU official says Mr. Putin’s „pipeline rattling“ is in direct response to EU pressure that Russia ratify an International Energy Charter requiring it to open pipeline access to competitors — much as telecommunications companies share their bandwidth.
Secretary of State Condoleezza Rice, who said at a Senate hearing recently that energy politics is „warping“ international diplomacy, joined the battle in Ankara, Turkey, urging Turkey and Greece to reduce their dependence on Russia by favoring new pipeline plans that rely on Azerbaijan. Vice President Dick Cheney flies to Kazakhstan this week as part of a continued effort to get it and Turkmenistan to join pipeline plans that would reduce Russia’s near-complete dominance of Central Asian resources.
„People are thinking much harder now about what to do, but they had better make up their minds pretty fast,“ says Mr. Saakashvili. Georgia, as a key alternative gas-pipeline corridor, will host an International Energy Agency-sponsored meeting in Tbilisi in June to promote energy diversification. „If Europe doesn’t create alternative suppliers…it doesn’t have a [competitive] market. If you don’t have a market, you have only politics. And energy politics [with Russia] is as ugly as it can get.“ Russia has refused to join the meeting and a person familiar with the situation says one Kremlin official told an IEA official that Moscow will lobby against others‘ participation.
The EU official says politicians are beginning to see the need for a consensus that the only possible way to counter a Russian monopoly is to negotiate more as what John Roberts of the Platt Energy Group calls a „monopsony,“ which the dictionary defines as „a single consumer.“ The EU is Gazprom’s biggest customer.
This gives it greater leverage because gas, in contrast to oil, relies more on fixed pipelines. Gazprom, despite its bluster, must depend for many years to come on European sales.
James Sherr, an expert on Russia at the Defence Academy of the United Kingdom, says Mr. Putin declared his determination to use oil and gas as political weapons in a little-known 2003 Kremlin document on energy strategy through 2020. Calling Russian energy reserves „a base for the development of the economy and an instrument for the conduct of internal and external policy,“ it adds: „The role of the country in the world energy market to a significant extent determines its geopolitical influence.“
Mr. Sherr says the West at the very least should send a clear and common political message to Mr. Putin at the G-8 summit. He suggests the first step should be to demand market access and prevent Gazprom from acquiring European energy assets until Russia offers reciprocity. Second, he suggests European countries and the U.S. make clear that they will reassess their entire relationship with Russia if it cuts off energy supplies for any political reason.
What is important, Mr. Sherr says, is to remember that Mr. Putin’s strategists see the world more through a 19th-century, than a Cold War, lens. They don’t want conflict with the West, but view „politics as a struggle for power to maximize national interests.“
Thus, if the West responds with a common front, Russia may conclude it has overplayed its hand and back off, rather than imperil the broader relationship. Yet failure to act will reinforce Mr. Putin’s approach, which is gathering speed and capital as the West dithers.
THINKING GLOBAL
By FREDERICK KEMPE