Publication: Eurasia Daily Monitor Volume: 3 Issue: 193

Taking a short break from European affairs before a planned guest appearance at the EU summit in Lahti, Finland, tomorrow, October 20, Russian President Vladimir Putin has a moment to reflect on his achievements after making an extraordinary effort at strengthening ties with Germany. For him, this country has always been a priority partner and even in the years when he sought to cultivate a personal channel with U.S. President George W. Bush, relations with German Chancellor Gerhard Schroeder had a unique cordiality. Things have changed since Chancellor Angela Merkel took over German politics, but Putin was confident that he would be able to win her consent — if not trust — by building on the vast foundation of bilateral business ties. While the July G-8 summit in St. Petersburg was too much pomp and too little substance, the new series of meetings this autumn were expected to consolidate the Russia-German “axis.” Such expectations, however, have not been exactly fulfilled (Nezavisimaya gazeta, October 13).

The setbacks started at the “troika” meeting with Putin, Merkel, and French President Jacques Chirac in Paris on September 23, where little of the old “solidarity” against the war in Iraq could be found, but much disagreement about the usefulness of sanctions against the Iranian nuclear program crystallized. Putin arrived with a surprise initiative: Russia had acquired a 5% stake in the European Aeronautic Defense and Space Corporation (EADS) and wanted to increase its share to a blocking minority. France and Germany expressed no enthusiasm whatsoever about such a rescue plan for the troubled producer of Airbus jets, and Putin had to swallow his disappointment (Kommersant, Financial Times, September 25).

Seeking to hide his embarrassment, Putin played the trump card that he had been holding for months if not years: the giant Shtokman gas field in the Barents Sea that had been promised to cover the growing demand in the U.S. market would instead supply European needs (EDM, October 12). The decision appeared far-reaching indeed, but it was supplemented with a rather unexpected appendix: Gazprom announced that it would develop Shtokman itself without any foreign partners. It was a bitter disappointment to the French firm Total, which had been short-listed together with two U.S. and two Norwegian companies. The issue was not only lost profits, but also Gazprom’s ability to organize the hugely complicated project (Kommersant, October 10).

Putin sought to dispel such doubts during the two-day visit to Germany last week when he elaborated a proposal to expand deliveries of natural gas, adding new routes like the North European pipeline to the old “corridors” going through Ukraine and Belarus and channeling accordingly the expected output of the Yamal gas fields before Shtokman would come on-line (Vedomosti, October 11; Nezavisimaya gazeta, October 10). Germany thus was practically appointed Russia’s privileged energy partner and the main European gateway for Russian gas. Putin then revealed that Gazprom was ready to sign a €100 million sponsorship contract with the German football club Schalke 04 and even attended a match, despite being no fan of the game (Novaya gazeta, October 16).

Merkel found that gesture truly distasteful and refused to go to the match; however, there is certainly more to her attitude than just poor personal chemistry (Der Spiegel, October 10). While officials from the German Foreign Ministry are eager to continue the “friendship-and-business” line of the Schroeder years, the experts in the Chancellor’s office are much more reserved towards building relations with Russia. At a recent seminar on energy security organized by the German intelligence service, Thomas de Maizière, chief of the Chancellor’s office, warned about the tendency of energy-rich countries to use their control over supply as a “currency of power” and even as a “political weapon” (Vremya novostei, October 16). Responding to Putin’s extra-generous offer, Merkel held another meeting with Chirac, and they agreed to advance a close energy cooperation between Germany and France that would not involve Russia as a third party and observe the Energy Charter (, October 13).

Putin found this measured diplomatic signal bitter to swallow. On many occasions he had asserted that Russia would not ratify the Energy Charter as being contrary to its interests and objected particularly to the protocols regulating access to pipelines and other infrastructure. The main thrust of the Charter is for developing fair competition on the European gas market — and that is exactly what Gazprom wants to end. Putin offered an unassailable monopoly, vertically integrated from extraction in Siberia to distribution in France and Italy, with only a few carefully selected, preferably German, partners, but the Europeans rejected that model. Instead, the Europeans are interested in setting up an “early warning” system for possible disruptions in deliveries from Russia.

This failure is not exactly a testimony to the fact that market competition is a more efficient form of business organization compared with a monopoly; there are still too many bitter disagreements inside the EU around this proposition. In many ways, the root cause is Putin himself and his monopoly control over Russian energy policy. For the last three years, he has demonstrated to Western partners that property in Russia is not exactly protected by law, that contracts can be re-opened at any stage, and that licenses can be revoked on “environmental” grounds. Putin’s trademark “trust-me” approach now comes with a question mark, because all his promises are pinned to the main one — to step down in 2008.