Page 1 of 2 Russia, Iran tighten the energy noose
By M K Bhadrakumar
Foreign ministers are busy people - especially energetic, creative diplomats
like Russia's Sergei Lavrov and Iran's Manouchehr Mottaki, representing
capitals that by tradition place great store on international diplomacy.
Therefore, the very fact that Lavrov and Mottaki have met no less than four
times in as many months suggests a great deal about the high importance
attached by the two capitals to their mutual understanding at the bilateral and
regional level.
Moscow and Tehran have worked hard in recent months to successfully put behind
them their squabble over the construction
schedule of the Bushehr nuclear power plant in Iran. The first consignment of
nuclear fuel for Bushehr from Russia under the International Atomic Energy
Agency safeguards finally arrived in Tehran on Monday. "We have agreed with our
Iranian colleagues a timeframe for completing the plant and we will make an
announcement at the end of December," said Sergei Shmatko, president of
Atomstroiexport, which is building Bushehr.
At a minimum, the gateway opens for Russia's deeper involvement in Iran's
ambitious program for civil nuclear energy. But nuclear energy is not the
be-all and end-all of Russo-Iranian cooperation. Iran is a crucially important
interlocutor for Russia in the field of energy. The Bushehr settlement is a
necessary prerequisite if the trust and mutual confidence essential for fuller
Russo-Iranian cooperation is to become reality. Evidently, Moscow is hastily
positioning itself for the big event on the energy scene in 2008 - Iran's entry
as a gas-exporting country.
Russia consolidates in 2007
In fact, how Moscow proceeds with the reconfiguration of Russo-Iranian
relations could well form the centerpiece of the geopolitics of energy security
in Eurasia during 2008. The dynamics on this front will doubtless play out on a
vast theater stretching well beyond the Eurasian space, all the way to China
and Japan in the east and to the very heart of Europe in the west where the
Rhine River flows.
What places Russia in an early lead in the upcoming scramble is its fantastic
win in the Eurasian energy sweepstakes in 2007. But 2007 as such began on an
acrimonious note for Moscow when two minutes before the clock struck midnight
on December 31, Russia signed a gas deal with Belarus whereby the latter would
have to pay for Russian gas supplies at full market prices on a graduated scale
stretched over the next five-year period. President Vladimir Putin's critics
seized the moment with alacrity to portray him as a whimsical megalomaniac.
Moscow-based critic Pavel Felgenhauer rushed to condemn Putin's "highly
aggressive, unscrupulous and revengeful" mindset as a dictator, and prophesied
that the "pressure on Belarus will most likely misfire ... This may undermine
the Kremlin's authority ... and provoke internal high-level acrimony [within
the Kremlin]". Other Western critics warned European countries not to count on
Russia's dependability as an energy supplier.
Much of the vicious criticism might seem in retrospect to be either prejudiced
and self-interested, or downright laughable, but that didn't prevent the
acrimony from setting the tone for the geopolitics of energy during 2007. Prima
facie, Russia was making a transition to market prices for its energy exports,
which was quite the proper thing to do if it were to integrate with the world
economy in a manner consistent with the broad orientations of its liberal
economic policies.
Indeed, the Kremlin had no reason to continue with the Soviet-era subsidies to
former Soviet republics like the Ukraine or Belarus. Efficiency demanded that
Russia allowed market forces to prevail. Actually, that was also the capitalist
world's advice to the Kremlin.
What incensed Western critics was that combined with the state control of oil
and gas (and indeed the pipelines), the Kremlin was also maneuvering its way to
a commanding position on the energy map of Europe. From its own viewpoint,
Russia could claim it was merely pursuing a coordinated strategy aimed at
integrating itself with European economies.
But the United States viewed the implications of the Russian strategy to be
very severe for trans-Atlantic relations on the whole, as it cast a shadow on
the entire range of goals, strategic objectives and security policies that
Washington has been pushing within the framework of the Euro-Atlantic alliance
in the post-Cold War years. Plainly put, Washington fears that Europe's
strategic drift may become a reality unless Russia is stopped in its tracks.
Europe's dependence on Russian energy
After much US prodding for a coordinated European energy security policy,
European Union (EU) members adopted at their spring summit in Brussels an
action plan for energy security for 2007-2009, which emphasized the need to
diversify Europe's energy sources and transport routes. But the ground reality
continues to be that Europe's dependence on Russian energy supplies is growing.
In 2006, Europe imported from Russia 290.8 million tonnes of oil and 130
billion cubic meters of gas.
With Europe's energy consumption rapidly rising, its import dependency on
Russia is also set to increase. Europe, which imported around 330 billion cubic
meters of gas in 2005, will require an additional 200 billion cubic meters per
year by 2015. And Russia has the world's largest natural gas reserves,
estimated to be 1,688 trillion cubic feet, apart from the seventh largest
proven oil reserves, exceeding 70 billion barrels (while vast regions of
eastern Siberia and the Arctic remain unexplored).
On the other hand, Europe's self-sufficiency in energy is sharply declining. By
2030, the production of oil and gas is expected to decline by 73% and 59%
respectively. The result is that by 2030, two-thirds of Europe's energy
requirements will have to be met through imports. In Europe's energy mix, the
dependence on oil imports by 2030 will be as high as 94% of its needs, and on
natural gas as high as 84%.
As supply becomes concentrated in Russian hands, the Kremlin will find itself
in a position to dictate oil and gas prices. There is also the possibility that
the supply and demand situation itself might become less elastic - Russia's own
demand for gas, for instance, is growing by over 2% annually.
Clearly, the economics of energy supply to Europe are getting highly
politicized. Ariel Cohen, a prominent Russia specialist at the US think-tank,
Heritage Foundation, who is closely connected with the George W Bush
administration, wrote recently, "It is in the US's strategic interests to
mitigate Europe's dependence on Russian energy. The Kremlin will likely use
Europe's dependence to promote its largely anti-American foreign policy agenda.
This would significantly limit the maneuvering space available to America's
European allies, forcing them to choose between an affordable and stable energy
supply and siding with the US on some key issues."
Cohen warned, "If current trends prevail, the Kremlin could translate its
energy monopoly into untenable foreign and security policy influence in Europe
to the detriment of European-American relations. In particular, Russia is
seeking recognition of its predominant role in the post-Soviet space and
Eastern Europe ... This will affect the geopolitical issues important to the
US, such as NATO [North Atlantic Treaty Organization] expansion to Ukraine and
Georgia, ballistic missile defense, Kosovo, and US and European influence in
the post-Soviet space."
US-Russia rivalries escalate
Thus, through the past 12-month period, the Bush administration has been
pressing for the development of new energy transit lines from the Caspian and
Central Asia that bypass Russia. Washington has robustly worked for advancing
its proposals for the construction of oil and gas pipelines linking Kazakhstan
and Turkmenistan to Europe across the Caspian Sea; new pipelines that would
connect the Baku-Tbilisi-Ceyhan oil pipeline with the Baku-Erzurum gas pipeline
(making Turkey an energy hub for Europe); and the so-called Nabucco pipeline
that proposes to link Azerbaijan and Central Asian countries with southern
European markets.
However, as the year draws to a close, it becomes clear that the Kremlin has
either nipped in the bud or frustrated one way or another the various US
attempts to bypass Russia's role as the key energy supplier for Europe. Indeed,
Moscow's counter-strategy aims at augmenting even further Russia's profile and
capacity to be Europe's dependable energy supplier and thereby forcing the
European consumer countries to negotiate with Russia as a partner with shared
or equal interests.
The month of May stood out as the watershed when the geopolitics of energy in
Eurasia decisively turned in Russia's favor. At a tripartite summit meeting in
the city of Turkemenbashi (Turkmenistan) on May 12, Putin and his Kazakh and
Turkmen counterparts signed a declaration of intent for upgrading and expanding
gas pipelines from Kazakhstan and Turkmenistan along the Caspian Sea coast
directly to Russia. The president of Uzbekistan, Islam Karimov, also signed up
separately on May 9 for a modernization of the
Turkmenistan-Uzbekistan-Kazakhstan-Russia pipeline. Both pipelines are
components of the Soviet-era Central Asia-Center pipeline system bound for
Russia. The quadripartite project essentially aims at the transportation of
Turkmenistan's gas output, which almost in its entirety would be bought up by
Russia for a 25-year period.
Subsequently, the US and EU have made herculean efforts to get Ashgabat to
resile from the commitment to the project with Russia, but have failed. During
the past year, 16 high-level delegations from Washington visited Ashgabat in
this regard. Thus, when Russian Prime Minister Viktor Zubkov finally signed the
agreement relating to the Caspian littoral pipeline on December 12 with his
Kazakh and Turkmen counterparts, the curtain came down on one of the grimmest
struggles of the great game in the post-Soviet era. Moscow came out the winner
by far, reasserting its pre-eminent position in the Caspian.
The commitment of Turkmen gas to Russia has broader implications. For one
thing, the fate of the US-supported proposals for a trans-Caspian pipeline and
the Nabucco pipeline depended significantly on the availability of Turkmen and
Kazakh gas. Their future is now up in the air. That, in turn, means Europe is
increasingly left with only one serious option for diversifying its gas imports
- Iran.
In May, Putin struck a second time when he visited Vienna and in a dramatic
breakthrough drew Austria into a key energy partnership, placing that country
as a base for Gazprom's future expansion into EU territory. The agreements
signed in Vienna on May 23 outlined Gazprom's plans to build a Central European
gas hub and gas transit management center, the largest in continental Europe,
at Baumgarten near Vienna; expansion of Gazprom's market share in Austria;
delivery of gas directly by Gazprom to Austrian consumers - for the first time
in Europe; and plans to use Austria as a transit corridor for Russian gas
exports aspiring to capture new EU markets.
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