A pipeline into the heart of Europe
By M K Bhadrakumar
Not many people know that Russian President Vladimir Putin co-authored in 2004
a fascinating book on classical judo titled Judo: History, Theory, Practice.
In his book, Putin describes how with "minimum effort, maximum effect", it
becomes possible to bring your opponent flying on to the mat. The trick is to
"give way in order to conquer".
When Putin flew into Zagreb last weekend, his words came to mind - instead of
"digging in your heels and resisting your opponent's onslaught", you just
unlock at the last minute, and your big and strong opponent, "not meeting any
resistance and
unable to stop", will lose balance and fall. It seems the bigger the opponent,
the heavier he falls.
Look at it this way. One of the enduring foreign-policy legacies of the
administration of US president Bill Clinton has been that in a "unilateralist"
move, ignoring the United Nations, flouting international law, humbling Boris
Yeltsin's Russia and herding panicky Europeans into a sheep pen, Washington
just dismantled the erstwhile Yugoslavia. A stunned international community
could do no more than watch the scale of power at the command of the United
States.
Yet when the progenies of that US operation - Croatia, Bosnia-Herzegovina,
Macedonia, Montenegro, Serbia, Slovenia - along with neighbors Greece,
Bulgaria, Romania and Albania held the first energy summit of the Balkan region
in Zagreb, the Croatian capital, last Sunday and decided to roll out the red
carpet to receive a "special guest" in their midst, that was for Putin. No
matter Washington's best efforts for the past decade to exorcise Russia from
the Balkans, Russia won't go away. It is back in the region that has been part
of its history.
Putin arrived in Zagreb in dramatic circumstances. The day before he left
Moscow came the announcement in Rome about Russia and Italy entering into a
momentous partnership to build what the Wall Street Journal described as a gas
"pipeline into the heart of Europe". The news came hardly four weeks after
Moscow, in a series of sweeping energy deals with Vienna, dealt a coup de grace
to the Nabucco pipeline project promoted by Washington with the intent of
keeping Russia out of its new sphere of influence in southern and southeastern
Europe.
And from Zagreb, Putin headed for Istanbul on Monday to consolidate Russia's
strategic understanding with Turkey on keeping the US from meddling in the
Black Sea region. Addressing the summit of the Black Sea Economic Cooperation
Organization in Istanbul, Putin pushed for long-term energy contracts for the
Black Sea littoral states. In about 72 hours flat, Europe's energy map may have
been redrawn.
The Austrian waltz
Russia has swiftly moved to consolidate the gains of Putin's energy summit with
his Kazakh and Turkmen counterparts on May 11-13. The trilateral Central Asian
summit had agreed, among other things, to modernize and enlarge the gas
capacity of the Soviet-era pipelines that run from Central Asia to Russia; to
increase the volume of gas exports from Central Asia via Russian pipelines; to
deepen further Russian participation in developing Turkmenistan's gas reserves;
and to commit long-term Kazakh oil exports to Russian pipelines.
As per the assessment by an American area specialist, "Western energy policies
in Eurasia collapsed in May 2007. During this month, Russia seems to have
conclusively defeated all Western-backed projects to bring oil and gas from
Central Asia directly to Europe ... Cumulatively, the May agreements signify a
strategic defeat of the decade-old US policy to open direct access to Central
Asia's oil and gas reserves. By the same token they have nipped in the bud the
European Union's belated attempts since 2006 to institute such a policy."
After the Central Asian summit, Moscow has swung westward to the Balkans.
Washington's approach during the past decade in the Balkans and the Black Sea
region lay in the pursuit of certain consistent geopolitical objectives -
pressing ahead with the North Atlantic Treaty Organization's expansion into the
region; making the region a bridge for further NATO expansion into the
Caucasus; systematically rolling back Russian influence; setting up US military
bases ("lily pads") in Bulgaria and Romania; promoting regional alliances
against Russia; and creating strategic space between Germany and its Russian
partner.
Russia has used the energy card in breaking through the cordon sanitaire
assembled by Washington. Three major developments in the past month have
brought Russia back into the Balkans. First came what an alarmed American
specialist called Moscow's "Anschluss of Austria". The reference was to
Putin's visit to Vienna on May 23-24, which has laid the foundation for an
Austrian role on Europe's energy map as a "hub" for natural gas sourced from
Russia.
Putin went to Vienna straight from the tense summit with the European Union in
the Volga River city of Samara on May 17-18. Moscow was peeved that the EU was
nit-picking, lacked any coherent Russia policy, and was often being manipulated
by Washington.
Moscow felt it far more productive to concentrate on building up its
partnership with individual EU countries at the bilateral level. At any rate,
Putin found a very receptive partner in Vienna. Austria, of course, has a
40-year history of close energy cooperation with Russia. Last September,
Austria entered a long-term contract with Russia whereby Gazprom will meet 80%
of Austria's gas requirements of 9 billion cubic meters (bcm) annually during
the next 20-year period.
During Putin's visit, the first section of a massive gas-storage facility near
Salzburg was commissioned, which has an overall capacity of 2.4bcm. The
facility is being built at a cost of 260 million euros (nearly US$350 million)
by Gazprom and, upon completion in 2011, will be the second-largest underground
gas-storage facility in Central Europe.
Austria has recently allowed Gazprom to enter the downstream business in the
highly profitable domestic gas-distribution system in Salzburg, Carynthia and
Styria, which account for half of Austria's nine Laender (states). This is the
first arrangement of its kind for Russia in the European market. (Russia has
been selling gas to Austria at $240 per 1,000 cubic meters, while the Austrian
consumer pays anywhere up to $1,000.) But Putin's visit primarily aimed at
expanding Austria's role as a crucial gas-supply hub for transiting Russian gas
to France, Italy and Germany in Western Europe; to Hungary in Central Europe;
and to Slovenia and Croatia in the Balkans.
The volume of Russian gas transiting through Austria already exceeds 30bcm
annually. An important feature of the arrangement is that Gazprom is directly
handling the transit of its gas through Austrian territory. During Putin's
visit, Gazprom signed a memorandum of understanding with its Austrian
counterpart, OMV Gas International, whereby the former will acquire a stake in
Austria's Central European Gas Hub, which controls the transport of gas in
Central Europe.
Also, Gazprom will build with OMV at Baumgarten near Vienna a Central European
Gas Hub and Gas Transit Management Center, which will be the largest in
continental Europe. The unkindest cut of all, from Washington's point of view,
was that in all probability, Putin put the nail on the coffin of the Nabucco
gas pipeline project, which the US had been promoting for evacuating Central
Asian gas from Erzurum, Turkey, to Austria, bypassing Russia. Ironically,
Austria's OMV Gas International should have been Nabucco's operator.
The documents signed in Vienna testify that Putin probably convinced Austria
that Gazprom could supply Central Europe sufficiently, and there was no real
need for Nabucco. A Russian commentator said, "Nabucco's future now looks
gloomy."
All in all, armed with the decisions of the trilateral Central Asian summit on
May 11-13 (which cemented Russia's role in the export of Central Asian gas),
Putin's visit to Austria has ensured that: (a) Gazprom is enlarging its market
share in Austria; (b) Gazprom is gaining direct access to the European
consumer; (c) Russia will use Austria as a transit corridor for capturing other
European markets; (d) Washington's hopes regarding Nabucco suffered a setback;
(e) Moscow will link up with the Balkan countries via Austria, defeating the US
strategy of excluding Russia from the region.
Into the heart of Europe Clearly, Washington's strategy of bringing
together the EU countries into a hostile mode against Russia on the
energy-security issues is not working. The fact of the matter is that the
European countries increasingly view Russia as an engaging business partner.
Foreign investment in Russia grew by 180% in the first quarter of this year, as
compared with the corresponding period last year, and has touched $24.6
billion.
US investment stood at $364 million, whereas all top investors in Russia in the
first quarter of 2007 have been European countries. Writing in Newsweek
magazine, an expert on the emerging markets at Morgan Stanley Investment
Management, Ruchir Sharma, pointed out last week that Russia is both a statist
and a free-market economy.
European business people realize this. They know that returns on investments
are high in Russia. Sharma said, "What distinguishes Russia from many other
oil-rich countries is the quality of its human capital, something that's
helping the country rapidly converge with the more developed nations in terms
of a thriving business and consumer culture."
Thus, contrary to the prognosis by American observers, BP, which came under
pressure in the dispute over the Kovykta gas fields in Siberia, has chosen to
grow its business in Russia and to form a "strategic alliance" with Gazprom
rather than quit.
This is even after being compelled to sell its 63% interest in Russia
Petroleum. To quote from Der Spiegel: "The lesson that all big international
companies are learning in Russia is that in the current high-price environment,
it is very difficult to survive without a local partner ... And that means
helping the Russians, who have plenty of cash, with advanced technology and
overseas expansion."
Der Spiegel commented, "The company [BP] says it has already earned back its
roughly $8 billion investment ... BP can ill afford to lose a venture that
accounts for one-fifth of its world reserves, a quarter of its production, and
10% of its profits ... BP is in Russia for the long haul."
American strategic analysts feel exasperated that European capitals are simply
not coordinating with Washington anymore on issues of energy cooperation with
Russia. EU Energy Commissioner Andris Piebalgs told Radio Liberty point-blank,
"There is no reason to doubt Russia's dependability as a supplier as it is in
that country's financial interests to deliver on its promises. However, Russia
can be expected to do what is good for Russia. I think we should be positive."
Piebalgs went on to imply that Washington could help by lifting sanctions
against Iran. "Definitely, our hopes are that we could resolve the
uranium-enrichment issue with Iran, because Iran has huge potential supply,"
Piebalgs said.
We may find the interplay of these various factors in the Russian-Italian gas
pipeline mega-deal, which was announced on the eve of Putin's departure for
Zagreb. In terms of the deal, Gazprom and Italy's Eni will build a new $5.5
billion gas pipeline called the South Stream (Yuzhy Potok) from Russia to
Europe with an annual capacity of 30bcm.
The 900-kilometer pipeline will start from Russia's Beregovaya, cross the Black
Sea at a maximum depth of 2km and, after reaching Bulgaria, will split, with
one part heading for southern Italy (and Greece) and another toward Romania,
Hungary and Slovenia to northern Italy. A lateral spur from Hungary into
Austria is also a possibility. The construction on the project, in which Russia
and Italy would split the costs, will commence as early as the beginning of
next year. It is scheduled to be completed in three years.
Countries along the routes will be offered minority stakes in the project but,
interestingly, no transit deal is contemplated. (Putin announced in Zagreb that
Russia is finally through with transit deals for its exports to Europe.) The
South Stream is expected to source its gas from Central Asia and Siberia.
As the implications of the project sink in, American specialists are
scrambling. They realize that at this rate, there may soon be no more "great
game" left in the upstream race for Central Asian gas. Equally, in the
downstream, Russia has put its toes into the cozy exclusive tent that
Washington has been erecting in the Balkans out of the debris of the erstwhile
Yugoslavia.
The art of kuzushi
Putin underscored the strategic significance of these developments when he
addressed the energy summit in Zagreb. He drew attention to the reality that in
2006, Russia supplied as much as 73bcm of natural gas to southern and
southeastern Europe (half of all Russian gas exports to Europe), apart from 59
million tonnes of oil. He said Russia wanted a partnership that is based on the
principles of "balance of interests".
Putin outlined the huge scope of cooperation ranging from sale of Russian gas
to improving the energy infrastructure of the Balkans; using the region as a
transportation route for Russian gas; building underground gas reservoirs in a
number of Balkan countries; developing the gas network in Macedonia; expanding
the gas-pipeline network into Albania, southern Serbia and Kosovo; taking part
in the privatization and modernization of the energy-generation capacities in
the Balkan countries; reconstructing the Soviet-era energy facilities in the
Balkans; and developing the creation of regional energy transit hubs.
He singled out the electricity sector and proposed a synchronization of the
energy systems in western, central and southern Europe with the energy systems
of the Commonwealth of Independent States and the Baltic states. Putin said:
"This project's implementation will enable us to create an electricity chain
forming a ring around the entire Black Sea region and uniting all the European
countries located in the region. This will help to put in place the main
parameters for a common energy market" (emphasis added).
The Russian daily Kommersant summed up the far-reaching implications of what
Moscow has put together in recent weeks. It said, "Gas will flow into Europe
from different sides, enclosing it in a veritable ring, but that gas will
always either belong to Russia or to some country that Russia rigidly or even
ferociously controls."
The bulk of Putin's judo manual is about kuzushi, the art of breaking
your opponent's balance. On page after page, with the help of delicate
drawings, Putin lucidly explains the intricacies of eight backup throws that
will work if an entry throw setup fails. The energy politics in southern and
southeastern Europe will leave Washington wondering how many backup throws
Putin may still have up his sleeve between now and next March, when he retires
from the Kremlin job.
Nine months can be a very long time in politics. What if, in the meantime, the
Europeans take to judo, while the US remains bogged down in Middle East
affairs? Putin wrote, in fact, for the common European reader. According to
Putin, judo needs utmost concentration of mind, a controlled diet, and a
disciplined life on the whole. Brute physical force as such is not necessarily
an attribute.
M K Bhadrakumar served as a career diplomat in the Indian Foreign Service
for more than 29 years, with postings including ambassador to Uzbekistan
(1995-98) and to Turkey (1998-2001).
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