Putin's use of natural gas to reintegrate the CIS region

Problems of Post-Communism

Volumn 55, Issue 4, 2008, Pages 3-15

  Nygren, Bertil ^a  

^a STOCKHOLM UNIVERSITY   (Sweden)

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EID: 49449112756     PISSN: 10758216     EISSN: None     Source Type: Journal    
DOI: 10.2753/PPC1075-8216550401     Document Type: Review

References (39)

1. Russian producers are trying to establish themselves on the world hydrocarbon market by controlling the flow from oil or gas field to end-user (gasoline tap stations or gas terminals), with the ultimate purpose of increasing their own wealth. This corresponds to the practice of all large hydrocarbon producers, whether Shell, ExxonMobil, or BP, and is not in itself remarkable. Russia currently has 27 percent gas reserves and produces 23 percent of the world's natural gas; it has 6 percent of the world's known oil reserves and produces 11 percent of the world's oil. See Robert L. Larsson, "Energikontroll: Kreml, Gazprom och rysk energipolitik" (Energy Control: The Kremlin, Gazprom and Russian Energy Policy), Swedish Defense Research Agency Memo FOI-R-2445-SE, Stockholm, 2008, p. 104.
2. This is the traditional argument advanced by Keohane and Nye a quarter of a century ago. Gas is well suited to be an instrument of foreign policy because of the difficulty of getting around the consumer's vulnerability problem. See Robert E. Keohane and Joseph S. Nye, Power and Interdependence, 3d ed. (New York: Longman, 2001).
3. Robert L. Larsson, "Rysslands energipolitik och pålitlighet som energileverantör: Risker ochtrender i ljuset av clen rysk-ukrainska gaskonflikten 2005-2006" (Russia's Energy Policy and Reliability as Energy Supplier: Risks and Trends in the Light of the Russian-Ukrainian Gas Conflict 2005-2006), Swedish Defense Research Agency Memo FOI-R-1905-SE, Stockholm, 2006, p. 9.
4. Larsson "Energikontroll," p. 53.
5. For example, the "weapons" might be seen as two aspects of the ability to control exports of a monopolistic producer. Here, the price is so strongly tied to market prices as to be almost automatically implied in any seller/buyer relationship, while the tap weapon is effective to the extent that there is only one tap or one source of delivery. The transit weapon, on the other hand, conveys the notion that the intermediate tap on the gas pipeline, the one under the control of the transit country, can be used to levy higher transit fees as a response to price hikes or to actually close the gas flow to third countries farther away in the gas pipeline network.
6. The reasoning here follows the arguments used in Bertil Nygren, The Re-Building of Greater Russia: Putin's Foreign Policy Towards the CIS Countries (New York: Routledge, 2007).
7. See also Janusz Bugajski, Cold Peace: Russia's New Imperialism (Westport, CT: Praeger, 2004), p. 59. The rebuilding of Greater Russia means, in effect, the restoration of Russian control over the formerly Soviet territories in Central Asia, the Caucasus, and Europe, this time by economic means rather than conquest.
8. During the Yeltsin era, the conflicts arising from this mutual dependency were complicated by Ukrainian thefts of gas and oil en route to Europe and by Belarusian sales to Europe of petroleum products refined in Belarus from cheap Russian oil.
9. Kuchma was accused of corruption and complicity in the murder of muckraking journalist Georgy Gongadze in September 2000.
10. Russia had tried to use the Single Economic Space to make Ukraine choose between Russia and the EU. This was fairly successful because Kuchma was unpopular in the West, and Ukraine had few options. In Yushchenko's first year as president, the Ukrainian goal was to opt wholeheartedly for the EU. Russia feared Ukraine was slipping out of its economic dependency. It began to use Ukrainian dependency as an argument to stem Ukraine's drift toward the West.
11. Putin proclaimed that the era of Russia's "directly pumping from the Russian budget to the Ukrainian budget around $1 billion" worth of gas was gone ("Beginning of Meeting on Economic Issues," December 8, 2005, available at www.kremlin.ru/eng/speeches/2005/12/08/1301_type82913_98636. shtml).
12. The issue hit the European agenda only after severe cold in Russia in late January 2006 cut off gas deliveries to Europe for some time, and Putin accused Ukraine of gas thefts. See the Putin press conference of January 31, 2006 (available at www.kremlin.ru/eng/speeches/2006/01/31/ 0953_type82915type82917_100901.shtml).
13. Catherine Belton, "Putin Steps up Gazprom Defense," Moscow Times (April 28, 2006): 1.
14. Gazprom threatened to cut gas supplies in the fall of 2007, when Ukraine owed some $2 billion for gas. This bluff was an attempt to soften Ukraine before the beginning of price negotiations for 2008 (Roman Kupchinsky, "The Mysterious Ukrainian Gas Debt to Gazprom," RFE/RL Newsline End Note [October 12, 2007]).
15. RFE/RL Newsline (July 31, 2003).
16. See Putin press conference of September 15, 2003 (available at www.kremlin.ru/eng/speeches/2003/09/15/1611_type82914type82915_52195.shtml).
17. RFE/RL Newsline (January 23, 2004) and (January 26, 2004).
18. The Belarusian government complained that "such an unprecedented step as the disconnection of gas from people in winter with the temperature nearly 20 degrees below zero has not taken place since the Great Patriotic War" (RFE/RL Newsline [February 19, 2004]).
19. Ibid. (May 30, 2006).
20. Ibid. (September 6, 2006).
21. Transdniester, the self-proclaimed republic on Moldovan territory, has largely been exempted from price increases and has run into debts of its own (quite apart from the Moldovan debts). The tap weapon has not been used against Transdniester.
22. Lena Jonson, "Russia and Central Asia," in Central Asian Security: The New International Context, ed. Roy Allison and Lena Jonson (Washington, DC: Brookings Institute Press, 2001), p. 98.
23. The agreement gave 19 percent of the Caspian seabed to Russia, 29 percent to Kazakhstan, and 18-19 percent to Azerbaijan (Sergei Blagov, "Caspian States Make Progress on Accord, But Territorial Differences Remain,'" Eurasia Insight [May 15, 2003]).
24. Russia and Kazakhstan disputed the Kurmangazy field until an agreement was signed in 2001.
25. RFE/RL Newsline (October 17, 2007).
26. Kazakhstan has also opened up for Western companies, and gas transit via Azerbaijan to Turkey began in 2000.
27. In 2000, Russia and Kazakhstan signed an agreement on increased transit of Kazakh oil, partly via the new 1,500-kilometer Russian pipeline from Makhachkala to Novorossiysk (bypassing Chechnya) and partly via the Atyrau-Samara pipeline. In 2002, they signed an agreement on increased volumes of oil via Russia over the next fifteen years. Kazakhstan also signed an agreement with the Caspian Sea Consortium to develop the Kashagan oil field in northwestern Kazakhstan - scheduled to start producing in late 2008. In 2005, Russia and Kazakhstan signed a fifty-five-year production-sharing agreement for the development of the Kurmangazy oil field, with a total investment of more than $30 billion. In May 2007, they signed an agreement on using Russia for export of Kazakh oil to world markets, but Kazakhstan continued to keep the Baku-Tbilisi-Ceyhan route open to "get more energy export opportunities" (RFE/RL Newsline [December 10, 2007]).
28. The Turkmenistan-China gas agreement of late 2006 to build a 7,000-kilometer gas pipeline from eastern Turkmenistan to China progressed in August 2007 when construction of the pipeline began. The gas that will be shipped is produced in eastern Turkmenistan and thus is not in itself competing with gas from Russia. The gas pipeline is China's first major attempt to get a large share of new gas deposits in Central Asia.
29. Vladimir Socor, "Gas Suppliers' Cartel: Not an 'OPEC,' But Cartel All the Same," Eurasia Daily Monitor (March 29, 2007).
30. Unified Energy Systems chief Anatoly Chubais reported that he had received "direct instructions from the Russian president to be involved in developing the hydropower sector in Tajikistan" (RFE/RL Newsline [June 10, 2004]).
31. In 2007, Tajikistan complained about the inactivity of RusAl and looked for other foreign investors to complete the construction of the plant. In the end, RusAl was thrown out of the project and UES took its place.
32. The Baku-Tbilisi-Erzurum gas pipeline from Azerbaijan became operational only in late 2006. Russia also uses electricity, and in 2003, UES acquired a 75 percent share in a Georgian electricity distribution company and the right to manage several power plants, as well as 50 percent ownership of the Transenergy nuclear power plant and all of the Mtkvari power plant. Georgian popular opposition ran high, seeing the deals as a scheme to control Georgia's strategic infrastructure and restore Russia's geopolitical dominance: "This time [Russia is] using banks rather than tanks" (cited in Haroutiun Khachatrian, "Russian Moves in Caucasus Energy and Power Sectors Could Have Geopolitical Impact," Eurasia Insight [September 25, 2003]). The Rose Revolution later in the year postponed parts of these projects.
33. RFE/RL Newsline (January 27, 2006).
34. Ibid. (November 8, 2006) and (December 27, 2006).
35. See Nygren, Re-Building of Greater Russia, pp. 259-60.
36. Igor Torbakov, "Russian Policymakers Air Notion of 'Liberal Empire' in Caucasus, Central Asia," Eurasia Insight (October 27, 2003).
37. Bugajski, Cold Peace, p. 59.
38. Igor Torbakov, "Russia Seeks to Use Energy Abundance to Increase Political Leverage," Eurasia Insight (November 19, 2003);
39. Irkaly Areshidze, "Will Russian Investment Win Georgia's Heart?" Moscow Times (May 11, 2004): 8.