Nezavisimaya Gazeta: "Gas diplomacy in the era of the global crisis"
Whoever is to blame for the conflict between Russia and Ukraine, it will make the CIS countries look more to the West.
The zone of Russia's privileged interests has witnessed its second conflict with far-reaching political and economic implications in the last five months. The world had barely come to terms with the new situation in the Caucasus when it was exposed to the consequences of the gas dispute between Moscow and Kiev. Ever since January 7, when Russia cut off the supply of gas to Europe, the European Union, the main collective consumer of Russian energy, and some other countries with neither the reserves nor the opportunity to diversify energy sources, have been awaiting the outcome of the dispute between two neighbouring countries, one of which describes itself as a reliable supplier and the other as a reliable carrier.
By that time Moscow had suffered losses officially estimated at over $1.2 billion, not a negligible figure considering the continuing fall of energy prices and the deepening economic crisis. That figure also does not include the damage to the country's image: a whole host of countries have begun to question Russia's ability to honour its contracts. The International Energy Agency has stripped Russia of the status of a reliable energy supplier.
To recap, the crisis flared up in late December when the two parties failed to agree on the repayment schedule of the Ukrainian debt to Gazprom and the price of supplies for 2009. As a result, supplies of Russian gas to Ukrainian consumers were suspended as of January 1. Moscow then cut off supplies to Europe via Ukraine because Kiev had turned down the taps on its transit pipelines. The consequences were dire, as East European countries introduced fuel austerity measures: some enterprises have been shut down and heat supply to residential houses has been erratic.
There is no doubt that the current dispute will be settled, because at the end of the day the conflicting sides themselves are interested in supplying fuel to Europe. However, the risks in that part of the gas transportation system will remain, as there is not only an economic but also a political dimension to the problem (internal politics in the case of Ukraine and foreign politics in the case of all the parties involved).
This prompts quite a few questions. For example, how will Moscow guarantee uninterrupted gas supplies to Europe if it does not see eye-to-eye with the transit country on so many problems? And how will the current financial and economic crisis affect the capacity of Russia and the European countries to implement the Nord Stream and South Stream projects, on which Moscow pins great hopes? Meanwhile, as the new U.S. President Barack Obama is about to be inaugurated, one recalls a remark he made during the election campaign: "If Western countries become less dependent on foreign gas and oil, this will cut Russia's energy profits and its capacity to do harm to other countries." He will soon have a chance to elaborate his views on the issue in direct contact with Moscow and the European partners.
A useless conference and the Putin-Tymoshenko accords
Ever since Russia, Ukraine, and the European Union agreed on the resumption of gas supplies and the deployment of European monitors to gas distribution stations, the argument as to who should pay for the technical gas required to keep up the pressure in the pipeline has been one of the main stumbling blocks. President Dmitry Medvedev proposed creating an international consortium to deal with the issue. According to the Russian authorities, German companies E.ON Ruhrgas, Wingas, the Italian Eni, the French Gaz de France and some others had agreed to join the consortium.
The "summit" called by President Medvedev in Moscow last Saturday was designed to put an end to the Russian-Ukrainian dispute. For the Russian authorities, who have no advantages in the information war, this would have in theory provided a good opportunity to present their case to the Europeans. Putin's visit on Friday to friendly Germany, which has a big say in the European Union, was to be an additional trump card for Moscow. An agreement had been reached with German Chancellor Angela Merkel to form a group of independent experts to look into Ukraine's technical capacity to ensure transit to Europe. It was also announced in Berlin that the idea of creating an international consortium to supply Ukraine with technical gas had met with universal approval...
However, the EU capitals were worried from the outset that convening the Moscow summit was just another trick to delay the solution, and European leaders chose not to attend. Even France, traditionally perceptive of Russian initiatives, questioned the rationale of holding the event before gas supplies were resumed.
The meeting did take place, but its status had to be downgraded to that of a conference. Many countries were represented only by their ministers. The Europeans described the event as useless because no agreements were reached in the multilateral format.
Agreements did materialize a little later as a result of the talks between Putin and Ukrainian Prime Minister Yulia Tymoshenko. Late in the evening on Sunday, news agencies reported that Russia and Ukraine had agreed that in 2009, Ukraine would get a 20% discount on Russian gas provided the preferential transit fee remained at the 2008 level. Ms Tymoshenko said that the two heads of government had instructed the heads of Gazprom and Naftogaz to prepare the paperwork.
"All the supplies of natural gas will be resumed immediately after these documents are signed," Ms Tymoshenko said.
Will the agreements be observed? Or will further rounds of talks be needed? It may be recalled that before Tymoshenko went to Moscow she again tried to isolate President Victor Yushchenko by declaring that "there will be only one government line in gas diplomacy and that line will be steadfastly implemented". This need not necessarily be the way the President sees things. He is expected to make a statement shortly.
Problems of image and diversification
On the eve of the Saturday talks, European Commission representative Johannes Leitenberger said that unless the parties found a long-term solution to the problem of the transit of Russian gas to Europe, the European Union would revise its relations with Russia and Ukraine. Some EU countries' leaders made tough statements. French President Nicolas Sarkozy declared, referring to Russia: "if a country sells two thirds of its gas it should respect its clients. It's a question of image." He also noted that confidence in Ukraine had been put into question.
Andrew Neff, an analyst with the international consultancy IHS Global Insight, when asked by NG about how much of the blame each of the parties involved in the gas crisis bore, said: "So far it is hard to determine the exact guilt of the Russian or Ukrainian companies." He believes that if the current situation drags on for a couple of months Gazprom will have no time to make up for the shortfalls in gas supply to the Europeans. If the agreements are honoured, the idle time could be made up for by additional gas supplies throughout the year to meet the annual export quota.
Mr Neff believes that from the commercial point of view Gazprom has an edge, because it has the right to press for a market gas price for Ukraine.
As for European public opinion, in spite of criticism of both parties, emphasis is placed on Moscow's policy. The Western press has recently been full of anti-Russian publications. The London Times notes that Putin is being extremely short-sighted in handling the gas conflict. He has managed to turn the countries that were previously friendly toward Russia into countries that mistrust and even hate it, the newspaper claims.
In another article, the same newspaper says that the Kremlin's timing of the crisis was unfortunate. Only a year ago Gazprom was thought to be the third largest corporation in the world, but the financial crisis and falling energy prices put an end to that. Gazprom's shares plummeted by 76% and its debts reached $50 billion. Considering its revenues, Gazprom is not yet bankrupt, the newspaper goes on, but it cannot afford to pump gas and still find 32 billion pounds to build two new pipelines bypassing Ukraine.
Many Western observers note that the European Union and some other countries are becoming hostages to the politics of monopoly suppliers and bilateral squabbles between Moscow and Kiev. The Russian-Ukrainian dispute, in their opinion, has highlighted the importance of diversifying gas supplies. At the same time, experts note that ensuring Europe's energy security would be a prolonged, complex, and costly process. The main problem would be creating connecting hubs between the pipelines of all the EU countries. Bulgaria and Slovakia have been hit so hard because their infrastructure is practically isolated from that of the rest of Europe.
It has to be remembered that there are still mixed feelings about the Russian Nord Stream and South Stream projects. The opponents of building these pipelines, which would directly link Russia to Europe, claim it would merely make Europe more dependent on Moscow. Some propose to revive the Nabucco project, a gas pipeline bypassing both Russia and Ukraine that would link the EU countries with Central Asia via Turkey and Trans-Caucasia. However, it is unclear whether the region has enough gas reserves. Another idea under discussion is the import of liquefied gas. In 2007 about 10% of gas imported into Europe was liquefied and the construction of the requisite infrastructure is continuing apace, the Financial Times writes. That form of import is also not without its problems, however; the main suppliers are hardly reliable, experts say.
To sum up, in theory, the EU may enlarge its range of suppliers, but it would take time and money. In practice, there is no other way than seeking to settle the disputes between Russia and Ukraine.
Vladimir Rakhmanin, Assistant Secretary-General of the Energy Charter, told Nezavisimaya Gazeta that "everybody has suffered from the conflict, some physically, some because they lost their image. Levers need to be found that make it possible to promptly resume gas supplies to Europe". The diplomat stressed that the Energy Charter Treaty provided Russia and Ukraine with an instrument of cooperation that would make it possible to solve such problems in the medium and longer term.
As for the prospect of reducing gas dependence on Russia, that is a long and costly way, according to Vladimir Rakhmanin. "We are of course aware of the policy of the European Union aimed at increasing the share of renewable energy sources, diversification of the delivery routes, etc. The European Union has the right to do it. But we have a very reliable source and the shortest route for delivering gas, and it would be counterproductive to give it up. So, trust and cooperation must be restored," the diplomat said.
Asked how uninterrupted transit could be ensured, Mr Rakhmanin said: "We should put the stake on transparency and common rules in ensuring energy security for all the parties involved. One must keep a cool head and see the mutual dependence between Russia and the EU and pursue common interests."
Another blow at the CIS
The energy conflict between Russia and Ukraine is considered in the CIS countries as a war. The fact that they do not name the party that started the war speaks volumes about the position of our partners and allies. It is reminiscent of the situation around the armed conflict in South Ossetia in August of last year. The capitals close to Moscow are still taking a break. The process of the final disintegration of the CIS effectively began in August. Georgia officially withdrew from the CIS and Ukraine showed signs of being on the verge of doing the same. The present gas war was but a pretext for Kiev to withdraw from the CIS.
Russian Foreign Minister Sergei Lavrov tried to clarify the issue at the end of last week. He said that relations between Russia and the post-Soviet countries were based on long-time economic and cultural traditions and on shared history. "At the same time, the CIS countries, like Russia, are pursuing multi-directional policies, an absolutely normal process," the Minister said. He noted that the situation in the post-Soviet space was aggravated by the lingering conflicts and attempts to split the CIS.
However, the multi-vector policy, which has now been espoused by practically all the CIS countries, including Belarus, which previously sought full integration with Russia, is nothing if not a disguised trend of distancing from Moscow - a trend that is likely to increase.
The Ukrainian gas scandal scared even those whose relations with Russia have recently been quite favourable. This is particularly true of Moldova, which, according to Prime Minister Zinaida Grechanaya, had duly paid Gazprom, had not challenged the gas prices, had no debts and had not expected any problems with gas supplies. Moldavia is known to be 100% dependent on Russia for gas and it intends to change that. In connection with this, President Vladimir Voronin chose not to attend Saturday's summit in Moscow, which is particularly significant if one recalls that Moldova holds the presidency of the CIS this year.
That Voronin has turned down Medvedev's invitation to come to Moscow speaks volumes. Last year the Moldavian leader was knocking on the doors of every Kremlin office seeking a summit meeting and assuring the Russian leaders of unbreakable friendship. Experts attribute the latest rollback in the relations between Chisinau and Moscow to the results of the gas crisis and the flak Voronin and his governing Communist Party have gotten from the opposition. The main thrust of the criticism was that the government trusted Russia too much. Considering that the criticism came on the eve of the parliamentary elections (due in April), it is clear why Voronin decided not to go to Moscow: today votes are more important for him than Moscow's reaction to Moldova's behaviour.
In addition, European Union experts are actively working in Chisinau at the request of Moldova, which called them in when Russian gas supplies were cut off. The EU promptly began helping the freezing Moldovan and Transdniestrian villages, a fact that is sure to be used by opposition parties to counter the Communist platform of playing the Russian card, among others. Voronin will try to distance himself from Moscow and use the gas crisis to edge closer to the European Union. What makes this testing of the waters interesting is that Moldova, like Europe, is a transit country for Russian gas suppliers to Europe. The gas war may even provoke another transit country, Belarus, to spring some surprises. The behaviour of our ally in that area of cooperation will directly depend on the next round of talks between Minsk and Gazprom due on the final day of January when Prime Minister Sergei Sidorsky will visit Moscow. The big unknown is that the Belarusians are allowing Russian gas to flow to Europe but do not have an agreement on the supply to their own country and do not know the exact price. Obviously, Minsk will try to use the situation to extract preferential prices. Failing that, Moscow may face problems with Belarusian transit as well.
The dividends from the Ukrainian-Russian gas dispute, which has undermined Russia's reputation as an energy supplier, may be derived by Russia's partners in the CIS. One such partner is Azerbaijan, which has seen increased demand for its gas. Turkmenistan is another beneficiary. The EU has initiated a summit on the Nabucco project that would carry gas from Azerbaijan and Central Asia to Europe, bypassing Russia. The project was a rival of the Russian South Stream, which would carry gas to the EU under the Black Sea via Turkey, Greece and so on. Moldova is ready to join the Nabucco project and the Turkmenistan flows that will fill it may be augmented by the Caspian pipeline passing through Russia.
Kazakhstan will take part in the European energy projects that would draw on gas reserves in the CIS. It certainly takes a favourable view of the proposal to supply Caspian oil to the EU -bypassing Russia.
In other words, regardless of who started the gas war between Russia and Ukraine and whose blame is the greater, it will make the foreign policies of the CIS countries increasingly pro-Western. The main lesson has not been lost on the CIS countries and is likely to increase the centrifugal trends inside that organization. The CIS will increasingly turn into a token structure, while bilateral links between the states will remain the top priority. That trend should prompt adjustments for Russian foreign policy in the post-Soviet space: the former approach has not worked.
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Reducing energy dependence on Moscow is a long and costly way
Yulia Gamova
NG-Dipkurier supplement
