SEVEN RUSSIAN CHALLENGES TO THE WEST’S ENERGY SECURITY
By Vladimir Socor

Eurasia Daily Monitor, DC
Sept 6 2006

Gazprom’s Moscow Headquarters Russia’s challenge to Western energy
security has grown almost explosively in recent months along seven
dimensions:

1. Seemingly unchecked growth of the European market share captured by
Russia’s state-connected energy companies. Largely driven or assisted
by the Kremlin, this process is fraught with manifold economic and
political risks to Europe and the Euro-Atlantic community.

2. Moscow’s ability to manipulate the flow of supplies en route to
recipient countries. This ability was demonstrated during Ukraine’s
gas crisis of January-February 2006, with ripple effects on European
countries farther downstream. In July of this year, Moscow cut off the
oil supplies to Lithuania and also blocked oil supplies from Kazakhstan
to that country, so as to thwart the sale of Lithuania’s refinery
and oil-transport system to Poland’s PKN Orlen. (It also continues to
block Kazakhstan’s access to Latvia’s Ventspils oil terminal.) Under
the guise of commercial and debt arrangements, in Ukraine’s case, and
technical problems, in Lithuania’s case, Moscow plans to set the stage
for takeovers of Ukraine’s gas pipelines and Lithuania’s oil sector.

3. Disruption of energy export flows even before they leave Russian
territory. Thus, in January and February this year, below-average
winter temperatures in Russia (certainly not an unpredictable
occurrence) reduced the gas volume available for Europe. A
well-organized although never-explained sabotage of three energy
supply lines on a single day (January 22) in Russia’s North Caucasus
had a devastating impact on Western-oriented Georgia, with collateral
effects on Moscow’s ally Armenia. And a relatively minor oil spill from
a pipeline in western Russia in July provided the excuse for cutting
off supplies to Lithuania (though not to Belarus from the same spur).

4. Moscow’s monopoly on the transit of eastern Caspian oil and gas
to consumer markets in the industrialized democracies. The transit
monopoly constitutes a novel type of economic and political leverage,
usable against producer countries as well as against consumer
countries. It is also an instrument of choice in the economic and
political penetration of the countries of Europe’s East. The South
Caucasus-Black Sea transit corridor is the only option that can
protect the interests of consumer and producer countries alike.

5. Rapid inroads by Russian state-connected energy companies,
particularly Gazprom, into downstream infrastructure and distribution
systems in Europe. Such arrangements include long-term exclusive
contracts to lock Russian companies in and lock competitors out,
leading eventually to price dictation and political leverage on
consumer countries. In the case of gas, the success of Moscow’s
strategy significantly depends on control over Central Asia’s gas
reserves. Moscow uses a mix of political pressure and corruption to
foil the construction of trans-Caspian oil and gas pipelines via the
Black Sea region to Europe.

6. Inroads into some of Europe’s traditional supply sources of oil
and gas, such as Algeria and Libya. In Algeria’s case, Russia has
successfully offered multibillion-dollar arms deliveries as well as
debt write-offs in return for starting "joint" extraction projects
in Algeria and "joint" marketing of the fuel in Europe. With Europe
no longer in full control of its few remaining oil and gas provinces,
it must refocus its attention toward Caspian-Black Sea energy transit

7. An incipient, yet already massive, transfer of financial resources
from Western capital markets to fund extractive projects in Russia
that operate under discretionary control of Russian state-connected
companies and the Kremlin. Thus, the initial public offerings just held
"successfully" in London for Rosneft and Gazprom have opened a drain
on Western financial markets toward Russia, discounting considerations
of energy security, let alone common policies on energy or foreign
policy altogether.

To this succinct enumeration of recent challenges one must add
the collateral political damage in some European countries from
non-transparent, monopolistic agreements with Kremlin-linked
companies. Gazprom’s massive entry into Turkey, Austria, Italy, and
Germany, for example, has involved certain top-level politicians,
business figures, and banks and brought them into highly questionable
arrangements. These include protecting Gazprom against competition
from other supply sources, such as those from the Caspian-Black Sea
region, on European markets.

The convergence of these trends has highlighted the long-neglected, but
now rapidly mounting, risks to the energy security of the enlarged West
and its partners in Europe’s East. At last, Brussels and Washington are
beginning to acknowledge some aspects of this manifold challenge. But
they have yet to focus on the dangerous nexus now forming between
disruptions by Russia or in Russia and growing dependence upon Russia.