A
Pipeline Into The Heart Of Europe
By M K Bhadrakumar
30 June, 2007
Asia Times Online
Not
many people know that Russian President Vladimir Putin co-authored in
2004 a fascinating book on classical judo titled Judo: History, Theory,
Practice. In his book, Putin describes how with "minimum effort,
maximum effect", it becomes possible to bring your opponent flying
on to the mat. The trick is to "give way in order to conquer".
When Putin flew into Zagreb
last weekend, his words came to mind - instead of "digging in your
heels and resisting your opponent's onslaught", you just unlock
at the last minute, and your big and strong opponent, "not meeting
any resistance and unable to stop", will lose balance and fall.
It seems the bigger the opponent, the heavier he falls.
Look at it this way. One
of the enduring foreign-policy legacies of the administration of US
president Bill Clinton has been that in a "unilateralist"
move, ignoring the United Nations, flouting international law, humbling
Boris Yeltsin's Russia and herding panicky Europeans into a sheep pen,
Washington just dismantled the erstwhile Yugoslavia. A stunned international
community could do no more than watch the scale of power at the command
of the United States.
Yet when the progenies of
that US operation - Croatia, Bosnia-Herzegovina, Macedonia, Montenegro,
Serbia, Slovenia - along with neighbors Greece, Bulgaria, Romania and
Albania held the first energy summit of the Balkan region in Zagreb,
the Croatian capital, last Sunday and decided to roll out the red carpet
to receive a "special guest" in their midst, that was for
Putin. No matter Washington's best efforts for the past decade to exorcise
Russia from the Balkans, Russia won't go away. It is back in the region
that has been part of its history.
Putin arrived in Zagreb in
dramatic circumstances. The day before he left Moscow came the announcement
in Rome about Russia and Italy entering into a momentous partnership
to build what the Wall Street Journal described as a gas "pipeline
into the heart of Europe". The news came hardly four weeks after
Moscow, in a series of sweeping energy deals with Vienna, dealt a coup
de grace to the Nabucco pipeline project promoted by Washington with
the intent of keeping Russia out of its new sphere of influence in southern
and southeastern Europe.
And from Zagreb, Putin headed
for Istanbul on Monday to consolidate Russia's strategic understanding
with Turkey on keeping the US from meddling in the Black Sea region.
Addressing the summit of the Black Sea Economic Cooperation Organization
in Istanbul, Putin pushed for long-term energy contracts for the Black
Sea littoral states. In about 72 hours flat, Europe's energy map may
have been redrawn.
The Austrian waltz
Russia has swiftly moved
to consolidate the gains of Putin's energy summit with his Kazakh and
Turkmen counterparts on May 11-13. The trilateral Central Asian summit
had agreed, among other things, to modernize and enlarge the gas capacity
of the Soviet-era pipelines that run from Central Asia to Russia; to
increase the volume of gas exports from Central Asia via Russian pipelines;
to deepen further Russian participation in developing Turkmenistan's
gas reserves; and to commit long-term Kazakh oil exports to Russian
pipelines.
As per the assessment by
an American area specialist, "Western energy policies in Eurasia
collapsed in May 2007. During this month, Russia seems to have conclusively
defeated all Western-backed projects to bring oil and gas from Central
Asia directly to Europe ... Cumulatively, the May agreements signify
a strategic defeat of the decade-old US policy to open direct access
to Central Asia's oil and gas reserves. By the same token they have
nipped in the bud the European Union's belated attempts since 2006 to
institute such a policy."
After the Central Asian summit,
Moscow has swung westward to the Balkans. Washington's approach during
the past decade in the Balkans and the Black Sea region lay in the pursuit
of certain consistent geopolitical objectives - pressing ahead with
the North Atlantic Treaty Organization's expansion into the region;
making the region a bridge for further NATO expansion into the Caucasus;
systematically rolling back Russian influence; setting up US military
bases ("lily pads") in Bulgaria and Romania; promoting regional
alliances against Russia; and creating strategic space between Germany
and its Russian partner.
Russia has used the energy
card in breaking through the cordon sanitaire assembled by Washington.
Three major developments in the past month have brought Russia back
into the Balkans. First came what an alarmed American specialist called
Moscow's "Anschluss of Austria". The reference was to Putin's
visit to Vienna on May 23-24, which has laid the foundation for an Austrian
role on Europe's energy map as a "hub" for natural gas sourced
from Russia.
Putin went to Vienna straight
from the tense summit with the European Union in the Volga River city
of Samara on May 17-18. Moscow was peeved that the EU was nit-picking,
lacked any coherent Russia policy, and was often being manipulated by
Washington.
Moscow felt it far more productive
to concentrate on building up its partnership with individual EU countries
at the bilateral level. At any rate, Putin found a very receptive partner
in Vienna. Austria, of course, has a 40-year history of close energy
cooperation with Russia. Last September, Austria entered a long-term
contract with Russia whereby Gazprom will meet 80% of Austria's gas
requirements of 9 billion cubic meters (bcm) annually during the next
20-year period.
During Putin's visit, the
first section of a massive gas-storage facility near Salzburg was commissioned,
which has an overall capacity of 2.4bcm. The facility is being built
at a cost of 260 million euros (nearly US$350 million) by Gazprom and,
upon completion in 2011, will be the second-largest underground gas-storage
facility in Central Europe.
Austria has recently allowed
Gazprom to enter the downstream business in the highly profitable domestic
gas-distribution system in Salzburg, Carynthia and Styria, which account
for half of Austria's nine Laender (states). This is the first arrangement
of its kind for Russia in the European market. (Russia has been selling
gas to Austria at $240 per 1,000 cubic meters, while the Austrian consumer
pays anywhere up to $1,000.) But Putin's visit primarily aimed at expanding
Austria's role as a crucial gas-supply hub for transiting Russian gas
to France, Italy and Germany in Western Europe; to Hungary in Central
Europe; and to Slovenia and Croatia in the Balkans.
The volume of Russian gas
transiting through Austria already exceeds 30bcm annually. An important
feature of the arrangement is that Gazprom is directly handling the
transit of its gas through Austrian territory. During Putin's visit,
Gazprom signed a memorandum of understanding with its Austrian counterpart,
OMV Gas International, whereby the former will acquire a stake in Austria's
Central European Gas Hub, which controls the transport of gas in Central
Europe.
Also, Gazprom will build
with OMV at Baumgarten near Vienna a Central European Gas Hub and Gas
Transit Management Center, which will be the largest in continental
Europe. The unkindest cut of all, from Washington's point of view, was
that in all probability, Putin put the nail on the coffin of the Nabucco
gas pipeline project, which the US had been promoting for evacuating
Central Asian gas from Erzurum, Turkey, to Austria, bypassing Russia.
Ironically, Austria's OMV Gas International should have been Nabucco's
operator.
The documents signed in Vienna
testify that Putin probably convinced Austria that Gazprom could supply
Central Europe sufficiently, and there was no real need for Nabucco.
A Russian commentator said, "Nabucco's future now looks gloomy."
All in all, armed with the
decisions of the trilateral Central Asian summit on May 11-13 (which
cemented Russia's role in the export of Central Asian gas), Putin's
visit to Austria has ensured that: (a) Gazprom is enlarging its market
share in Austria; (b) Gazprom is gaining direct access to the European
consumer; (c) Russia will use Austria as a transit corridor for capturing
other European markets; (d) Washington's hopes regarding Nabucco suffered
a setback; (e) Moscow will link up with the Balkan countries via Austria,
defeating the US strategy of excluding Russia from the region.
Into the heart of
Europe
Clearly, Washington's strategy
of bringing together the EU countries into a hostile mode against Russia
on the energy-security issues is not working. The fact of the matter
is that the European countries increasingly view Russia as an engaging
business partner. Foreign investment in Russia grew by 180% in the first
quarter of this year, as compared with the corresponding period last
year, and has touched $24.6 billion.
US investment stood at $364
million, whereas all top investors in Russia in the first quarter of
2007 have been European countries. Writing in Newsweek magazine, an
expert on the emerging markets at Morgan Stanley Investment Management,
Ruchir Sharma, pointed out last week that Russia is both a statist and
a free-market economy.
European business people
realize this. They know that returns on investments are high in Russia.
Sharma said, "What distinguishes Russia from many other oil-rich
countries is the quality of its human capital, something that's helping
the country rapidly converge with the more developed nations in terms
of a thriving business and consumer culture."
Thus, contrary to the prognosis
by American observers, BP, which came under pressure in the dispute
over the Kovykta gas fields in Siberia, has chosen to grow its business
in Russia and to form a "strategic alliance" with Gazprom
rather than quit.
This is even after being
compelled to sell its 63% interest in Russia Petroleum. To quote from
Der Spiegel: "The lesson that all big international companies are
learning in Russia is that in the current high-price environment, it
is very difficult to survive without a local partner ... And that means
helping the Russians, who have plenty of cash, with advanced technology
and overseas expansion."
Der Spiegel commented, "The
company [BP] says it has already earned back its roughly $8 billion
investment ... BP can ill afford to lose a venture that accounts for
one-fifth of its world reserves, a quarter of its production, and 10%
of its profits ... BP is in Russia for the long haul."
American strategic analysts
feel exasperated that European capitals are simply not coordinating
with Washington anymore on issues of energy cooperation with Russia.
EU Energy Commissioner Andris Piebalgs told Radio Liberty point-blank,
"There is no reason to doubt Russia's dependability as a supplier
as it is in that country's financial interests to deliver on its promises.
However, Russia can be expected to do what is good for Russia. I think
we should be positive."
Piebalgs went on to imply
that Washington could help by lifting sanctions against Iran. "Definitely,
our hopes are that we could resolve the uranium-enrichment issue with
Iran, because Iran has huge potential supply," Piebalgs said.
We may find the interplay
of these various factors in the Russian-Italian gas pipeline mega-deal,
which was announced on the eve of Putin's departure for Zagreb. In terms
of the deal, Gazprom and Italy's Eni will build a new $5.5 billion gas
pipeline called the South Stream (Yuzhy Potok) from Russia to Europe
with an annual capacity of 30bcm.
The 900-kilometer pipeline
will start from Russia's Beregovaya, cross the Black Sea at a maximum
depth of 2km and, after reaching Bulgaria, will split, with one part
heading for southern Italy (and Greece) and another toward Romania,
Hungary and Slovenia to northern Italy. A lateral spur from Hungary
into Austria is also a possibility. The construction on the project,
in which Russia and Italy would split the costs, will commence as early
as the beginning of next year. It is scheduled to be completed in three
years.
Countries along the routes
will be offered minority stakes in the project but, interestingly, no
transit deal is contemplated. (Putin announced in Zagreb that Russia
is finally through with transit deals for its exports to Europe.) The
South Stream is expected to source its gas from Central Asia and Siberia.
As the implications of the
project sink in, American specialists are scrambling. They realize that
at this rate, there may soon be no more "great game" left
in the upstream race for Central Asian gas. Equally, in the downstream,
Russia has put its toes into the cozy exclusive tent that Washington
has been erecting in the Balkans out of the debris of the erstwhile
Yugoslavia.
The art of kuzushi
Putin underscored the strategic
significance of these developments when he addressed the energy summit
in Zagreb. He drew attention to the reality that in 2006, Russia supplied
as much as 73bcm of natural gas to southern and southeastern Europe
(half of all Russian gas exports to Europe), apart from 59 million tonnes
of oil. He said Russia wanted a partnership that is based on the principles
of "balance of interests".
Putin outlined the huge scope
of cooperation ranging from sale of Russian gas to improving the energy
infrastructure of the Balkans; using the region as a transportation
route for Russian gas; building underground gas reservoirs in a number
of Balkan countries; developing the gas network in Macedonia; expanding
the gas-pipeline network into Albania, southern Serbia and Kosovo; taking
part in the privatization and modernization of the energy-generation
capacities in the Balkan countries; reconstructing the Soviet-era energy
facilities in the Balkans; and developing the creation of regional energy
transit hubs.
He singled out the electricity
sector and proposed a synchronization of the energy systems in western,
central and southern Europe with the energy systems of the Commonwealth
of Independent States and the Baltic states. Putin said: "This
project's implementation will enable us to create an electricity chain
forming a ring around the entire Black Sea region and uniting all the
European countries located in the region. This will help to put in place
the main parameters for a common energy market" (emphasis added).
The Russian daily Kommersant
summed up the far-reaching implications of what Moscow has put together
in recent weeks. It said, "Gas will flow into Europe from different
sides, enclosing it in a veritable ring, but that gas will always either
belong to Russia or to some country that Russia rigidly or even ferociously
controls."
The bulk of Putin's judo
manual is about kuzushi, the art of breaking your opponent's balance.
On page after page, with the help of delicate drawings, Putin lucidly
explains the intricacies of eight backup throws that will work if an
entry throw setup fails. The energy politics in southern and southeastern
Europe will leave Washington wondering how many backup throws Putin
may still have up his sleeve between now and next March, when he retires
from the Kremlin job.
Nine months can be a very
long time in politics. What if, in the meantime, the Europeans take
to judo, while the US remains bogged down in Middle East affairs? Putin
wrote, in fact, for the common European reader. According to Putin,
judo needs utmost concentration of mind, a controlled diet, and a disciplined
life on the whole. Brute physical force as such is not necessarily an
attribute.
M K Bhadrakumar
served as a career diplomat in the Indian Foreign Service for more than
29 years, with postings including ambassador to Uzbekistan (1995-98)
and to Turkey (1998-2001).
Copyright 2007 Asia Times
Online Ltd.
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