SPEAKING
FREELY The Kremlin and the
world energy war By W Joseph Stroupe
Speaking
Freely is an Asia Times Online feature that allows
guest writers to have their say. Please click hereif you are interested in
contributing.
Russia's Gazprom, the world's largest
gas-producing company, has become locked in a
commercial battle with Ukraine over the price of
the fuel, but it is widely and correctly
understood that the Kremlin's hand is behind what
is quickly being recognized as the final ascent to
the summit of a struggle between "East" and "West"
for global power, even for dominance, by virtue of
control over strategic energy resources.
Why can it accurately be said that such a
monumental struggle of global proportions is now
heating up? What evidence exists to support the
insinuation that the world order is polarizing
again into
two
rival blocs, "East" and "West"? Are the Kremlin
moves a blunder, or are they brilliant? What about
the recent moves of the West in general, and the
US in particular, in attempting to spread
democratic revolutions within Russia's sphere of
influence and in invading and occupying oil-rich
Iraq?
Is the West blundering into
strategic mishap, inadvertently increasing
Russia's global energy importance and opening the
door to an obligatory greater reliance on
resource-rich Russia? What will be the outcome of
ongoing developments?
Empowering
Russia For careful observers of the
changing global energy landscape and the role of
Russia in particular, recent developments do not
come as a surprise. The cheap oil of the 1990s is
truly a thing of the past, with markets proving a
new floor of US$60 per barrel of crude oil already
exists.
In the 1990s and until only a year
ago, it was fashionable to ignore the central
importance of oil and gas to the viability of all
modern, industrialized economies. Arrogantly,
Western leaders and economic experts often
proclaimed that oil had lost its power and
influence and that a new era had been ushered in
wherein economies such as that of the US had
virtually outgrown energy dependence because
tremendous sums of "wealth" were being created
with very little reliance on oil.
But just
as with clothing fashions that come and go, so the
formerly fashionable idea, steeped in denial and
wishful thinking, that oil had lost its importance
and influence, has now been debunked, exposed by
hard realities to be the faulty presumption it
really was.
Simply, the fact that
falsehood is widespread does not change falsehood
into truth. The incontrovertible truth is that
oil, and increasingly natural gas, are the very
lifeblood of the industrialized, modern economies
of the world. They will continue to be such for
the foreseeable future - at least for a few more
decades - because the monumentally difficult and
expensive move to new, alternate sources of energy
has not even begun in any meaningful way.
The Kremlin and the leadership of other
oil-and-gas-rich states foresaw the global energy
developments noted above. They have prepared and
positioned themselves to capitalize economically
and politically on those developments. The Kremlin
has moved to reconsolidate Russian natural
resources industries under its control and to
prevent attempts by the US to wrest away control
of those industries at Russia's expense.
By a careful strategy of expanded
acquisition of energy assets and markets and by
the crafting of strategic cooperation agreements
with other resource-rich states, the Kremlin -
through its gigantic Gazprom, Transneft and
Rosneft oil and gas monopolies - has been working
smart for a few years now to consolidate its grip
on oil and gas exports to Europe, Asia and far
beyond.
The Kremlin's energy strategy has
been compared to a capitalist economic strategy of
monopolistic bent in that Russia has successfully
positioned itself as the key global supplier of a
most sought-after commodity, thus extending far
and wide its economic and political influence.
US hand strengthens
Russia's Most analysts in the West prefer
to severely discount the importance of Russia's
obvious geopolitical strategy, asserting that it
will never succeed in returning Russia to a
position of global influence and power.
However, global energy and economic
developments are not, in fact, proceeding along
the lines such analysts have predicted.
Oil-and-gas-rich Middle East sources look
increasingly unreliable and unattractive because
Islamic radicalism, terrorism and instability are
pointedly increasing across the region.
With the undoubtedly imminent passing from
the political scene of Israeli Prime Minister
Ariel Sharon, who recently endeavored to take his
country on a course of moderation for the sake of
Mideast peace, increased Israeli radicalism is
now a much-heightened concern as well.
Oil-importing states simply cannot afford to place
their energy security in that Middle Eastern
basket - the risks are rapidly becoming far too
high.
And the only other places they can
go are Canada, Latin America, Central Asia and
Russia, because Africa, too, is far less than
secure as an energy source.
Iran's
importance in the energy sphere is growing rapidly
as it develops its pipeline network for exporting
oil and gas over land, but even here insecurity is
greatly heightened. Why? Because the US and Israel
are continually making worrisome noises about
going to war with Iran. Additionally, Iran is a
close strategic ally of Russia, which undermines
any effort to diversify away from Russia because
the two are very likely to act in tandem in any
international crisis.
And what of Iraq's
vast oil and gas resources? Here too the US hand
has resulted in less, not more, energy security
because Iraq's insurgency has very effectively
prevented those resources from coming to the world
market in any meaningful way. Ongoing violence
there bespeaks either a mounting civil war or else
the rise of an oppressive Shi'ite regime in order
to prevent one. If such a regime does succeed in
arising it will most certainly ally closely with
Iran, thereby refusing to serve the interests of
US energy security. And such an eventuality speaks
volumes about a likely upsurge in Saudi
instability and insecurity as a new Shi'ite
crescent at the head of the Persian Gulf vies with
Sunni Saudi Arabia for regional dominance.
The US has opened Pandora's box in the
Middle East, with direct negative repercussions
for the reliability of the region's energy
resources.
All the while both Russia and
China have extended their influence deep into the
Western Hemisphere, including Canada and Latin
America. And Russia's monopoly over nearly all of
Central Asia's export system ensures the Kremlin's
ongoing influence in that region. The US-backed
Baku-Tbilisi-Ceyhan (BTC) pipeline will be unable
to break Russia's energy monopoly.
Consequently, thanks to US influence in
the Middle East, the entire region has become
unattractive as respects energy security, thus
pulling Russia toward the global center of energy
geopolitics. In addition to that, by its
ill-advised efforts to spread democratic "regime
changes" throughout Eastern Europe, Central Asia
and even within Russia itself, the entire oil-rich
region of Central Asia is being pushed firmly into
the waiting arms of both Russia and China who
together form an axis of growing influence. And
new US-sponsored regimes such as those in Ukraine
and Georgia are actually creating less energy
security for Europe, as the recent gas dispute
demonstrates.
Western policy in general
and US policy in particular amount to a series of
strategic blunders that have worked to provide
Russia golden opportunities of global proportions.
And the Kremlin was carefully studying and
surveying the global energy landscape and proved
at the ready to capitalize on US strategic
blunders. Such blunders, and Russia's capitalizing
on them, have already developed to an advanced
state of affairs, resulting in the ushering of
Russia into the enviable position as the key
global player as respects energy. That brings us
to the most recent crisis between Russia and
Ukraine.
Analysts have proclaimed how
the deal arrived at to end the crisis was a defeat
for Russia. Again, this is wishful thinking, not
solid analysis. The points below illustrate that
Russia has obtained a big win out of the dispute:
The new deal ends immediately the old barter
system that the Kremlin hated, a system that paid
Ukraine transit fees in gas rather than in cash.
Under the barter system, Ukraine could siphon off
gas and claim it was payment for transit, and
auditing was a nightmare for Russia. Under the new
deal Russia pays transit fees in money, siphoning
off gas by Ukraine is a violation, and auditing
and scrutiny of Ukraine is inherently much easier.
Thus Russia has obtained more control over
Ukraine's actions with respect to gas transiting
the country.
Soon Russia will permit foreign investors to
buy minority stakes in its oil and gas sector.
Investors hate barter systems for the reasons
noted above and also because stock valuation is
nebulous in a barter system, and therefore foreign
investment in the Russian energy sector has
obtained a much more attractive look because of
the new deal. Russia is looking very good to
international investors. That inflow of funds will
permit its monopolies to consolidate further their
grip on energy resources and markets.
The new deal gives Russia exactly what it
wanted as a price for its own gas - $230 per 1,000
cubic meters. Ukraine is permitted to buy cheaper
Kazakhstan and Turkmenistan gas to mix with
Russian gas so that Ukraine's net price might be
somewhat less, about $95. However, Turkmenistan is
a cause for concern because its president is
continually trying to raise prices and is no
friend of the West.
Additionally, all
Turkmen and Kazakh gas transits Russian pipelines
to Ukraine, so Ukraine has not achieved one iota
of independence from Russia under the new deal.
Also, the intermediary company Ukraine must buy
the cheaper non-Russian gas from is at least 50%
owned by Gazprom, reaffirming Ukraine's energy
reliance on Russia. Finally, Russia will actually
be supplying less of its own gas to Ukraine,
permitting it to supply more to lucrative European
markets downstream.
It is estimated that in 2006 alone, Ukraine
will pay nearly $3 billion more for gas, while
Russia will pay only about $500 million in transit
fees. That is a net gain for Russia of $2.5
billion in 2006 alone.
By refusing to accept the terms Russia offered
last spring, Ukraine will now have to pay about
$70 more per unit of gas than it would have,
making Ukraine's leadership look foolish. The
opposition in Ukraine's parliament has called for
the impeachment of President Viktor Yushchenko for
concluding such a costly deal with Russia.
Ukraine's economy was already weak when he took
office one year ago. Since then the economy has
descended much deeper into recession, and the new
deal may well push it over the edge.
This
is what Russia desires in the lead-up to the March
elections - Yushchenko's government is being
severely discredited. All the Kremlin needs to do
now is to let it be known that under new, more
"favorable" leadership in Ukraine Russia would be
willing to change the terms of the new deal on gas
to make them more favorable to Ukraine.
The new deal is a win for Russia because its
assertiveness has been rewarded. It showed a
willingness to stand up to the West and it got
most of what it wanted. It has now notified
Bulgaria, which desires to host US military bases
and which is 100% dependent on Russian gas, that
it intends to change the terms of the agreement
between the two nations to be more favorable to
Russia and to give Russia significant ownership of
its domestic pipeline network. Romania also wishes
to host US forces and it is only a matter of time
before Russia places similar pressure upon its
leadership.
Ukraine, Bulgaria, Romania and the rest of
Europe are being forced to pay the price for their
recent actions in support of the US in attempting
to carve away at Russia's influence in its own
sphere. Russia has an energy lock on Europe and
Asia, and short of a "regime change" in Russia
itself that lock cannot be broken.
Reports received on Saturday indicate that
Russia's Gazprom got a much bigger win than anyone
in the West imagined in the new deal with Ukraine.
Both the Los Angeles Times and the New York Times
report that Russia may have seriously undermined
Ukraine's ownership and control of the pipeline
network on Ukrainian territory. The new deal
signed by both sides apparently gives the
intermediary company, RosUkrEnergo - a
little-known company that is half-owned by Gazprom
- 50% ownership of Ukraine's domestic gas
production, including its pipeline network.
"This part of the agreement means that
part of the gas transit system of Ukraine, our
strategic asset that provides us with an important
geopolitical position," is threatened, said former
Ukraine prime minister Yulia Tymoshenko, who has
announced plans to challenge the pact in court.
"This agreement betrays the national interests of
Ukraine ... Only a person with a huge New Year's
hangover can call it a success."
Russia
provides very easy terms to staunch ally Belarus,
and it has dealt much more considerately with the
Baltic states of Latvia, Estonia and Lithuania.
However, Belarus has signed over 100% ownership of
its pipeline network to Russia, and the Baltic
states have permitted Russia to own significant
stakes in their domestic energy system, including
the pipeline networks. Such has not been the case
in Ukraine, and therefore Russia has moved to
obtain at least 50% ownership of the domestic
Ukraine system. The new deal appears to give
Russia that ownership.
Mosnews.com reports
that Ukraine's parliament will examine the new
contract to determine if it should be signed into
law or not, and there are legal challenges
emerging as well, spearheaded by Tymoshenko.
However, Russia can be expected to hold the feet
of Ukraine's leadership to the fire to ensure that
it obtains what it considers to be in its
interests, not backing down in any significant way
on these energy issues.
One way or another
Russia will secure what it wants and Ukraine's
vitally important pipeline network will come under
Russian control. These developments illustrate
that so-called "experts" in the Western media who
reported Russia's supposed "defeat" in the
standoff with Ukraine are unjustifiably biased
(pro-Western, anti-Russian), and therefore
generally cannot be trusted to provide an accurate
analysis of developments.
Kremlin
strategy - opportunistic and brilliant
Why did the Kremlin intentionally prompt the
recent gas crisis with Ukraine at virtually the same
time as it takes leadership of the Group of
Eight, and after announcing that its chairmanship
of the G-8 would focus on global energy security?
The answer is multi-faceted and illustrates the
new reality as respects Russia's global position
with regard to energy.
First and foremost,
Russian self-confidence, self-reliance and
assertiveness, especially with regard to foreign
policy, have all been steadily growing since
before the US invasion of Iraq when Russia and its
partners stood up to oppose the US. Russia refuses
to be pushed around, preferring to take a course
of its own choice regardless of US and Western
opposition and lecturing, but at the same time
also preferring to avoid a direct conflict or
heavy-handedness where possible. It makes
alliances with whomever it pleases regardless of
US and European complaints. It isn't deterred by
threats. Russian assertiveness at home and abroad
will continue to increase as it sees its national
security at risk as a result of US/European moves
within its traditional sphere of influence.
Second, Russia has had enough of the
incursion by the US in particular into its sphere
of influence. It has to deal with troublesome
US-sponsored regimes in Ukraine and Georgia, and
it has determined there will be no further
incursions. Russia's new domestic law severely
limiting the operations of non-governmental
organizations is an example of its determination
to resist US efforts at instigating "regime
change" within its own borders.
The
Kremlin's moves on Ukraine in the field of energy
constitute a determined pushback against the US
and against the European regimes cooperating with
the US in that effort. Energy-dependent Ukraine
simply cannot win the strategic rivalry with
Russia - it can only hold out for a short time at
best. The message from Moscow is clear: the
Kremlin will not hesitate to use its profoundly
effective energy weapon against anyone threatening
Russian interests. In the recent dispute with
Ukraine, the Kremlin pressed the issue until it
mostly got its way, and in the lead-up to
elections in March, Moscow wants a "regime change"
in Ukraine, either by means of the upcoming
parliamentary elections themselves or by
corralling the current Ukraine regime into
obedience.
Soon, Europe will begin to
realize that as virtual US patsies in a drive
against Russia the price is too high, and its
wiser members will cease to lend support to
short-sighted US policies respecting Russia, thus
severely marginalizing Europe's smaller members
who seem to enjoy antagonizing Russia against
their own vital interests.
Third,
the Kremlin is now working to drive the final
wedge between the US and Europe as it forces
Europe to think about the terribly high price of
aligning with the US and cooperating with it
against Russian interests. Moscow is sending the
signal that it is willing and able to be a
reliable energy and political and economic
partner, only so long as its own legitimate
interests and security are also fully respected in
return. It will not stand any longer for European
duplicity. Energy security is not free. The price
is respect for Russia and a guarantee of its
legitimate interests.
Fourth, the Kremlin
has correctly determined that it already occupies
the key global position as respects energy and
that it cannot be shifted out of that position, no
matter how vigorously the US and its allies may
try. Middle East instability is on the rise with
no relief in sight. That solidifies Russia's new
position. Oil-rich Central Asia is moving firmly
into alignment with both Russia and China. Canada
and Latin America are incrementally doing
likewise.
Neither Europe nor the US has
viable energy alternatives in the foreseeable
future, making Russia the key. The West's threats
of diversification away from reliance on Russian
energy are wishful thinking, empty threats that
cannot be fulfilled any time soon. Russia isn't
fooled by such threats and rhetoric.
Europe is absolutely obliged to rely on
Russia as respects energy. So is Asia. There is no
way out in the near term, for at least a decade or
two. Anywhere in that space of time Russia easily
could, if it were obliged by US unilateralism,
apply tremendous economic and political pressure
to severely damage, or credibly threaten to do
such damage, to the economies of the West.
The US and British economies in particular
are artificial bubble disasters just waiting to
happen, tremendously burdened with enormous debt
loads. The dollar definitely appears to have
reversed its temporary 2005 gain, now resuming its
strategic decline. China has signaled that it will
steadily diversify its huge reserves out of
dollars.
Russia and its key strategic
allies could fight and win an economic war with
the West because the energy-dependent,
bubble-ridden US and British economies would be
forced to "blink" first, before they were crashed.
Deeply energy-dependent Europe would be forced to
"blink" long before the US and Britain. Most of
Asia, the Middle East, Latin America and Canada
already show no fondness for US foreign policy and
could be expected, at a minimum, to refrain from
allying with the US in any warfare (economic,
political or military) against Russia and its
allies.
The US isolation over its invasion
of Iraq provides a suitable illustration of what
it would face on a global scale if it prompts a
new global crisis by continuing to seek the demise
of Russian power and influence in its own sphere
by the spread of more democratic "regime changes",
as the US State Department has just recently said
it intends to do. The same is true if the US or
Israel take the enormously destabilizing step of
attacking Iran - the global repercussions of such
a course would be enormous, with the US suffering
most badly.
Global polarization
The US can now be expected to intensify
its efforts at "regime change" in Russia's sphere
and inside Russia itself. The elections in
Belarus and Ukraine in March will provide
opportunities. But Russia is displaying a
determination to push back hard against all such
efforts, and the weapons in its arsenal are
irresistible. Europe's complicity with the US will
come back to haunt it as it pays the price for
endangering Russia's legitimate interests.
Everywhere, the involvement of the US hand equals
pointedly increased instability and economic harm.
Europe will have no choice but to side with Russia
against the US when push soon comes to shove.
The global order is re-dividing into
roughly two de facto blocs - one has the US at its
core and the other has Russia-China at its core.
Energy is the major dividing line between the two
blocs, and as desperation for control of strategic
energy resources increases rapidly, so will the
sharpness of the dividing line between the two
blocs. With energy thus serving as a primary
catalyst, the resource-rich Eurasian bloc is
attaining significantly more gravitational pull
than the American bloc.
Astronomers say
that at the center of a galaxy there exists an
energetic black hole that fuels the entire
structure and keeps order, and that sometimes, if
the black hole at the center weakens, the
structure can begin to come apart. If America is
likened to the black hole at the center of the
American "galaxy", then Russia-China is the black
hole at the center of a new Eurasian "galaxy".
One galaxy has been coming apart as its
center incrementally weakens, while the other is
still forming and growing ever stronger as its
center incrementally grows more powerful. Can you
see which one is coming apart, and which one is
growing? Can you see the implications of these
developments in the near term, over the next two
to three years? It is vital that you become able
to do so.
W Joseph Stroupe is
editor-in-chief of Global Events Magazine at
www.GeoStrategyMap.com, a publication specializing
in strategic analysis and forecasting.
(Copyright 2006 W Joseph
Stroupe.)
Speaking Freely is an
Asia Times Online feature that allows guest
writers to have their say. Please click hereif you are interested in
contributing.
