Publication: Eurasia Daily Monitor Volume: 3 Issue: 85

Kremlin captures a chunk of Germany's gas market

The Russian-German energy and political summit held April 26-28 in Tomsk indicated that Chancellor Angela Merkel’s Christian Democrat-Social Democrat government is reverting to the Russia policy line established by her predecessor Gerhard Schroeder’s Social Democrat-Green government. Eight cabinet ministers and a massive group of business leaders — the same ones who had put their stamp on Schroeder’s policy toward Russia — accompanied Merkel to the Tomsk meeting with Russian President Vladimir Putin, his ministers, Gazprom top management, and some favored oligarchs.

At this summit, the Kremlin accomplished the goal of capturing a chunk of Germany’s gas market and portions of other European internal distribution systems through a joint venture between Gazprom and the BASF corporation’s Wintershall subsidiary. The E.ON Ruhrgas company is expected to conclude a parallel agreement with Gazprom. Putin and Schroeder had laid the groundwork for these agreements and had scheduled the Tomsk summit, which Merkel inherited. But the sense of continuity went much deeper on the Russian side, with Tomsk locales such as Lenin Boulevard and Red Army Street on the German delegation’s itinerary.

Tomsk is also the site of a subsidiary of the Western-friendly, Kremlin-destroyed Yukos oil company, whose president Mikhail Khodorkovsky sits in a Siberian prison farther east of Tomsk, and whose Russian executives continue to be rounded up and jailed, after its Western executives were forced out of Russia. The German side at the summit ignored this topic despite its disturbing implications for Russian-Western relations in the energy sector. It equally ignored the Russian state’s de facto re-nationalization in the energy and other sectors, refusal to ratify the Energy Charter Treaty, apparent preparations to seize the oil industry in Lithuania, Gazprom’s recent supply cutoffs to Ukraine and Georgia with far-reaching ripple effects, and the creation of suspect entities such as RosUkrEnergo that target and corrupt European markets. Berlin’s decision to hush up such pressing issues at an energy summit could only encourage the Kremlin and Gazprom to perceive Germany as an insecure, captive customer to Russian energy supplies.

The European Union was a distant, silent, and irrelevant onlooker to the German-Russian summit. The Tomsk meeting signified a major setback for the EU’s recent attempts to create a common foreign policy and energy policy. This summit implicitly validated the tendency of governments and corporations to deal individually with Russia’s state monopolies, which — led by Gazprom — are picking off portions of the European energy markets one by one. It is, moreover, a measure of Berlin’s special political relationship with Moscow that the German side failed at this summit to comment on Russia’s restrictions on civil liberties or its threatening conduct in Europe’s East. The United States has publicly announced that it would discuss Russia’s suppression of democracy and its involvement in the “frozen conflicts” at the upcoming G-8 summit in St. Petersburg. After the Tomsk event, however, Putin might expect Germans and other Europeans to ultimately water down the Western position at the G-8 summit.

Economics Minister Michael Glos led the German ministers’ public remarks to the effect that the Schroeder policy line would continue, criticism of Russian policies must be avoided as it “spoils the atmosphere,” “public debates are unnecessary” on the controversial issues, and “Putin is a friend of Germany” (Financial Times Deutschland, April 28). Christian Democrat and Social Democrat ministers were in consensus among themselves and with the business delegation on that position at the summit. German commentators tend to attribute it to business circles influencing this government’s Russia policy as they had that of the previous government.

Merkel mentioned “differences of views that often arose” in her private discussions with Putin, but she neither specified nor followed up. She characterized Germany-Russia relations with phrases such as “strategic partnership,” “deepening strategic cooperation,” and “intensifying links both economically and politically.” German print media accounts did not seem to find references to solidarity with the European Union, NATO, or the United States to report in the German officials’ remarks in Tomsk.

German and Russian officials alike cited the Soviet Union’s 40-year record of continuous supplies of energy to the West as a basis for expecting Russia to remain a fully reliable supplier in the years ahead. On the part of Western officials, this assumption seems a naïve one, as it discounts the radical transformations in energy markets in recent years, with the West’s position deteriorating and Russia manifestly willing to exploit its rapid ascendancy on those markets economically and politically. In the run-up to the Tomsk summit and during the event, Russian officials again made clear that Gazprom’s deliveries would hinge on direct access to European consumers through takeover of distribution systems and uncompetitive long-term contracts. At least they did not repeat in Tomsk their recent warnings that Russia could turn to other markets if Europe does not comply with those conditions. On such conditions, leading to arbitrary pricing and erosion of Western solidarity, Russian deliveries might be reliably continuous.

(Interfax, Frankfurter Allgemeine Zeitung, Sueddeutsche Zeitung, Handelsblatt, Financial Times Deutschland, April 26-30; see EDM, March 13, 21)