More battles ahead in Russia's 'gas war'

[FarCenter]

http://www.atimes.com/atimes/Central_Asia/KA17Ag02.html

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In fact, the American criticism of Russia over the gas war has been so highly vitriolic that it looks every bit contrived. Aslund's outlandish thesis was typical. Stratfor, which is linked to the US security establishment, said, "Russia is once again threatening to cut natural gas supplies to Europe in the dead of winter. This time, however, Moscow's focus is much tighter. Russia is not only looking to smash the Ukrainian government, but it is looking for some specific changes in Kiev." The Wall Street Journal saw the gas war as the Kremlin's warning to Obama. The daily commented, "Russia's strongman is wielding the energy club to undermine the pro-Western government in Kiev and scare the European Union into submission. The strategic stakes are as high as in Georgia last summer ... For the new Obama administration, Mr Putin has offered yet another tutorial in its coming challenges in Eurasia." The Washington Post exhorted the Europeans to "grasp the real message of this cold week", as "Mr Putin's regime plainly intends to use Europe's dependence on Russian energy to advance an imperialist and anti-Western geopolitical agenda." Evidently, Putin was the main target of criticism.

Old Europe cautiously moves

But the shrill propaganda failed to click. The hard-boiled Old Europeans had no time for it. The European Union reprimanded Kiev when Jose Manuel Barroso, president of the European Commission, warned that Ukraine's failure to deliver Russian gas might hurt its aspirations for close ties with Brussels. Other European leaders also refrained from criticizing Russia. After meeting German Chancellor Angela Merkel, French President Nicholas Sarkozy called the dispute a "bilateral matter". At the height of the crisis, former German chancellor Gerhard Schroeder visited Putin in Moscow in a show of solidarity. (Putin is scheduled to pay an official visit to Germany.)

It seems the Europeans eventually saw through the Ukrainian game, despite the adverse media publicity that Moscow received in the early stages. They decided to associate with the new monitoring mechanism suggested by Moscow to ensure that Kiev does not any more steal from the Russia gas transiting to the European market. In the medium term, European countries may also seek to create their own strategic gas reserves with Russian help. Gazprom is reportedly planning to build the biggest gas storage facility near the city of Hinrichshagen (Meklenburg-Upper Pomerania Federal Land) with a huge capacity of 10 bcm of natural gas, with some of it earmarked as strategic reserves for Germany. Another positive fallout for Russia is that the European countries may take a renewed interest in Russian pipeline projects - the Nord Stream under the Baltic Sea and the South Stream under the Black Sea - which aim at bypassing Ukraine for supply of gas to the European market. At a joint press conference with the visiting Czech Prime Minister Mirek Topolanek (the Czech Republic currently heads the EU presidency), Putin said in Moscow last week, "The current crisis confirms that there is a need for a true diversification of the ways to deliver our energy resources to the main consumers in Europe." He and Schroeder agreed that Nord Stream, which is expected to come on stream in 2011, would be a guarantee against supply disruptions.

On balance, therefore, Washington will be disappointed to note that Europe's euphoria over the Orange revolution has all but evaporated. The message was loud and clear when Barroso said with uncharacteristic bluntness, "If Ukraine wants to be closer to the EU, it should not create any problems for gas to come to the EU." Washington underestimated that for Europe, a war over energy security is not the stuff of propaganda, but is a flesh-and-blood issue for their economies especially in these troubled times and uncertain future. The extent of interdependence between Russia and its European buyers of gas indeed tells a whole story. According to the figures of the US Energy Information Administration, Austria meets 60% of its gas from Russia via Ukraine, while the corresponding figures for other countries are: Germany (42%), Turkey (67%), Greece (82%), Italy (28%), France (24%), Hungary (60%), Czech Republic (80%), Slovakia (100%), Bosnia (100%), Serbia (87%), Bulgaria (96%), Poland (40%), Slovenia (64%), Croatia (37%), Macedonia (100%) and Romania (28%).

Again, European countries seem to have concluded that Moscow has been driven by commercial considerations. They see the criticality of the income from gas sales to Europe for the Russian economy. The fact of the matter is that Russia faces a grave economic crisis. Oil prices anywhere below $70 create budget deficits for Russia. The rouble is declining, the stock market has crashed, unemployment is soaring, and social unrest and discontent may erupt despite Putin's popular rating soaring over 80%. In such a surcharged environment, Moscow has no reason to continue to subsidize the Ukrainian economy, especially with a government in Kiev which, under US instigation, has been constantly pursuing an unfriendly policy towards Russia. As Dmitry Peskov, Russian spokesman put it, "We are struggling with the consequences of the world economic crisis, but it does not mean that Russian taxpayers have to sacrifice in order to keep Ukrainian production alive."

Besides, there is an inherent double standard in the US rhetoric. In a devastating essay in The Guardian newspaper of London, Mark Almond of Oriel College, Oxford wrote: "Keeping Russia hemmed in is why Ukraine matters to America ... Although its EU allies pay around $500 per unit, Washington wants Gazprom to subsidize the anti-Russian coalition government in Kiev by charging the poor Ukrainians only $175." He concluded, "Western triumphalists marked Russia down for inevitable decline. Certainly, so long as Yeltsin let his crony capitalists plunder the country and deposit the loot in London and New York, pessimism was justified. Now, however, Russia's capitalist crew are not fly-by-night asset-strippers but ruthless capitalist politician-businessmen of the sort Britain used to produce."

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