PUTIN’S POWER PLAY

Vladimir Putin, in his campaign to restore Russian dominance over post-Soviet states, has an unconventional weapon in his arsenal: vast supplies of natural gas. In 2006 and 2009, Gazprom, the Russian gas company, cut off supplies to Ukraine (the second time, this created shortages in Europe, too). In 2010, it reduced supplies to Belarus, and last fall Russia threatened Moldovans with the same if they didn’t abandon plans to sign a free-trade accord with the European Union. “We hope that you will not freeze,” a Russian deputy foreign minister said ominously. During the current crisis in Crimea, Putin’s readiness to use natural resources for strategic ends has made it difficult for Europeans to take a hard line against him, since Europe gets roughly thirty per cent of its gas from Russia, mostly via pipelines running through Ukraine. “One big difference between the U.S. and Europe on this issue is energy,” Jeffrey Mankoff, a Russia expert at the Center for Strategic and International Studies, told me. “The assumption that, because of the energy relationship, Europe was not going to risk a major confrontation over Ukraine was surely part of Russia’s calculations.”

You might take Putin’s brandishing of the gas weapon as a shrewd geopolitical move. But it’s a classic case of putting short-term interests ahead of long-term gain. Although the region’s need for Gazprom supplies may strengthen his hand in the present, the strategy is forcing Europe to end its reliance on Russia. After the crises of 2006 and 2009, Europe increased imports from Norway and Qatar. It built new facilities for receiving liquefied natural gas, and upgraded storage capacity, so that supplies could be stockpiled in case of a cutoff. It imported more coal. Pipeline connections within the E.U. were improved, making shortages easier to alleviate. The Crimea crisis will give new impetus to these efforts. The U.K.’s foreign secretary has said that the crisis is likely to make Europe “recast” its approach to energy. A draft document prepared for a forthcoming E.U. summit deplored the Continent’s “high energy dependency” and called on E.U. members to diversify their supplies. These moves are reminiscent of what happened after the oil crises of the nineteen-seventies made it clear to the West and Japan that relying on opec suppliers was foolish. Europe installed energy-saving technologies and invested heavily in nuclear energy and natural gas. France built fifty-six nuclear reactors in the fifteen years after the oil embargo of 1973.

This time around, we’re sure to see more infrastructure for liquefied natural gas and more emphasis on renewables. Europe may also finally make its peace with fracking—a hard sell till now, not just because of environmental concerns but also because European landowners typically don’t own the mineral rights to their property, and so have no incentive to allow drilling. But there are Eastern European countries, including Poland and Ukraine, sitting on billions of cubic feet of shale gas, and Ukraine signed exploration contracts with Chevron last year. Russia is clearly anxious. Gazprom executives have been quick to belittle fracking’s potential, and the issue has turned Putin into the world’s most unlikely environmentalist. Fracking, he says, makes “black stuff” come out of your faucet.

There’s also the question of American natural gas, currently something of a congressional obsession. A couple of weeks ago, Poland, Hungary, Slovakia, and the Czech Republic called on the U.S. to begin exports to Europe, and Republican congressmen have been pushing the same idea as a way to combat Russia. For now, this is just grandstanding: even if the U.S. did issue companies permits to export gas, building the necessary infrastructure would take till at least late 2015. But an increase in U.S. exports will hurt Russia no matter where the gas actually goes; the U.S. is well placed to compete with Russia in Asian markets, which are increasingly important to Gazprom’s business. Indeed, the boom in U.S. gas production has already weakened Russia’s hand. Former suppliers are free to export elsewhere; Qatar quadrupled its supply of gas to Europe between 2008 and 2013, and now provides a tenth of Europe’s imports. More fundamentally, increased supply means increased competition, which puts pressure on how much Russia can charge for its gas. Gazprom historically pegged its price to the price of oil, which has remained stubbornly high. But, as gas prices in the U.S. have fallen, countries have demanded concessions. In 2012, Bulgaria got a twenty-per-cent price cut over ten years, and some of Gazprom’s biggest customers have been pushing it to do away with the oil-price peg. As Mankoff puts it, “global changes in energy markets are not working to Russia’s advantage.”

Still, Russia’s predicament is essentially of its own making. It remains the world’s second-largest natural-gas producer, and its pipelines into Europe make it a low-cost supplier there. (Sending gas through pipelines is typically cheaper than transporting it in liquid form.) If Gazprom were seen as a reliable supplier, rather than as a tool of the Russian government, it wouldn’t be so vulnerable to competition. Of course, former K.G.B. agents aren’t known for their respect for market forces, and Putin cares far more about using Russian power than about Gazprom’s profits. But he’s about to find out that, when you’re running an authoritarian petrostate, energy profits are power: Russia depends on oil and gas revenue to fund its imperial ambitions and maintain stability at home. Alienating customers and giving competitors an opening isn’t just bad business. It’s bad politics. Putin likes to think of himself as a geopolitical grandmaster. But when it comes to natural gas he isn’t thinking enough moves ahead.

Original Article
Source: newyorker.com/
Author: JAMES SUROWIECKI