Publication: Eurasia Daily Monitor Volume: 3 Issue: 83

Corruption concerns in Italian Parliament scuttle Gazprom deal

Several seemingly disparate events that occurred this week — U.S. Secretary of State Condoleezza Rice’s talks in Greece and Turkey, Russian President Vladimir Putin hosting German Chancellor Angela Merkel in the Siberian city of Tomsk, Azerbaijani President Ilham Aliyev’s visit to Washington, and the discussions at the Russian Economic Forum in London — are in fact intimately interrelated, as they revolve around one vital topic: energy and, more specifically, Russia’s role in global fuel supplies. Moscow’s growing energy clout appears to make the West jittery and prompts it to seek ways to curtail Russia’s leverage as the key world supplier of hydrocarbons. For its part, the Kremlin leadership accuses Western partners of unfair competition and hypocrisy.

As many analysts have noted, Russia’s muscular international behavior and geopolitical assertiveness are currently being driven not so much by the country’s military might, which remains relatively weak, as by its booming energy sector. The latter famously finds itself under state control and is collectively known as “Kremlin, Inc.” The peculiar nature of Moscow’s newly emerged “energy empire” was aptly described recently by a person who is extremely knowledgeable in this tricky sphere — namely, Gazprom Deputy CEO Alexander Medvedev. “There are two concepts available to the world: a weak Russia or a strong Russia,” the gas giant’s boss told the audience at the London Russian Economic Forum on April 25. And the same, he added, is applicable to Gazprom. “A strong Gazprom is good for the world,” Medvedev confidently asserted.

There is no question that nowadays Gazprom is very strong indeed. At the end of trading on April 26, the stock market value of Gazprom was $267 billion, more than BP, Europe’s largest energy company. The value put Gazprom in second place among energy companies after Exxon Mobil of the United States. Gazprom is now the fourth-largest company in the world after Exxon, General Electric, and Microsoft.

No wonder that, seeing the company awash in fuel money, top Gazprom executives are unable to restrain their swagger. Speaking with the BBC’s “Hard Talk” about Gazprom’s ambitious acquisition plans in Europe, Medvedev said, “It is hard to find a company we are not interested in.” Asked how many companies Gazprom was looking at, he said he did not have enough fingers to count.

But it is exactly Gazprom’s might — coupled with its effectively being a tool of the Russian state — that make Western policymakers shudder at the prospect of the Russian energy behemoth establishing a monopoly on gas supplies to Europe.

Thus, it was clearly the intent to prevent such a supply-side monopoly from taking place that guided Secretary Rice’s efforts to convince Greek and Turkish politicians to reject a Gazprom proposal to participate in a new gas pipeline under construction between the two Mediterranean neighbors. The $746 million pipeline project is a joint venture between the Greek and Turkish state-owned gas companies, Depa and Botas. During a recent visit to Athens, Alexei Miller, Gazprom CEO, offered to invest in tripling the capacity of the Greek-Turkish pipeline and to provide long-term supply agreements. At the same time, energy-rich Azerbaijan has also stated its interest in participating in the project. Neither Athens nor Ankara has made a decision about whether to accept the Russian or Azerbaijani bid.

During her April 25 stopovers in Greece and Turkey, Rice made it clear that Washington wants to see both countries reduce their reliance on Russian gas supplies. This, naturally, means excluding Gazprom from the new project, whether as a shareholder in the pipeline company or as a gas supplier. Instead, Washington suggests, Greece and Turkey should make a long-term deal to buy Azeri gas supplied by an international consortium led by BP and Norway’s Statoil, which is due to come on line in 2007.

It is quite symptomatic that America’s top diplomat raised the issue of European energy security at a time when the White House was preparing to host Azerbaijan’s President Ilham Aliyev. According to U.S. administration officials, the Azerbaijani leader, whose democratic credentials are shaky at best, was finally invited to Washington in order to prevent the South Caucasus country “from coming under Russia’s sway and eliminating … the last chance to give European countries an alternative route for energy.”

It would then appear that bringing Chancellor Merkel to Siberia on April 26 was President Putin’s strategic countermove in the ongoing “energy battle,” as Germany is the biggest customer of Russian gas. Indeed, German companies E.On and BASF signed a new natural gas deal with Gazprom at Tomsk. However, well aware that, outside of Germany, Gazprom’s business is not progressing very smoothly due to Western restrictions, the Kremlin leader accused Western countries of trying to block access to their markets and urged Europe to agree on common rules of the game.

Putin dismissed the alleged threat of an expansion of Russian energy companies and Europe’s dependence on them. “What about globalization and freedom of economic relations then?” he asked, adding that despite the great demand for energy resources, “All sorts of excuses are being used to limit us to the north, to the south, and to the west.”

For their part, European energy officials called on Russia to abolish what they term “economic nationalism” and ratify the Energy Charter and Transit Protocol, thereby ensuring a level playing field for all energy players.

(Itar-Tass, Channel One TV, Interfax, Financial Times, Turkish Daily News, April 27; RIA-Novosti, Nezavisimaya gazeta, Moscow Times, Washington Post, April 26)