Gazprom's March Westward: Why Russian Intentions Shouldn't Matter

Posted: 01 February 2008  

by Ryan R. Miller

Vladimir Putin’s pipeline diplomacy in the Balkans last month again thrust the issue of Europe’s dependence on Russian energy into the spotlight. But discussions on Russian energy policy often wrongly revolve around whether political or commercial considerations shape Russian decision making. On one side are those highlighting the imperialist undertones in the westward march of Gazprom, Russia’s state-owned gas giant. On the other are those saying Gazprom’s actions should be viewed as smart business decisions. Europe needs gas, they argue, and Gazprom, like any good monopolist, wants to maximize its market share by aggressively locking-in customers.

But this is the wrong debate. Regardless of what you think drives Russian decisions in the energy sphere, Russian intentions should not drive the West’s policy response. Even if, on balance, Russian energy policy has a commercial logic today, it is unreasonable to expect the countries of Central Europe, disproportionately exposed to potential Russian pressure, to place their faith in the Kremlin’s goodwill tomorrow. The debate should instead focus on how Europe and the United States can best break Russia’s energy grip in the region.

Beyond the narrow issue of energy security, state intentions are often irrelevant from a policy standpoint. Look at the standoff surrounding Iran’s nuclear program. Experts disagree whether Tehran ultimately wants nuclear weapons, civilian nuclear energy or something in-between. But, for all practical purposes, it makes no difference. Those who might be threatened by a nuclear Iran are understandably worried about the country’s uranium enrichment program.

In the same way, Gazprom’s march westward naturally raises eyebrows in parts of Central Europe. In the last few years, the Russian gas monopoly has sought control, pure and simple, of the region’s energy infrastructure. At a time when Gazprom should be investing in boosting production, it has been using its cash to buy up European pipelines, gas storage units and distribution networks. This aims at a level of influence that many Central Europeans are uncomfortable with. In the case of Lithuania, Russian gas interests have tried to use their business presence to assist political allies among local politicians, fermenting a sense of corruption and state-capture.

What’s more, Gazprom is shifting its exports to Europe around “troublesome” transit countries. Such efforts include an undersea pipeline to Germany that specifically bypasses Estonia, Latvia, Lithuania and Poland. In a worst case scenario, some fear that the Kremlin could use the new pipeline to manipulate gas deliveries to these countries - in order to blackmail them - while supplying the German market at the same time. Many experts dismiss this scenario as highly unlikely, underlining the extent of “mutual interdependence” between buyer and seller. They also argue that Gazprom’s heavy-handed track record – such as when it suspended gas to Ukraine and Belarus – had a commercial rationale. There are clear merits to this line of argument, but intentions are subject to change, whereas power relationships are more static; the domination of one’s energy sector by a foreign government-owned company represents a danger to be avoided, regardless of what the original rationale was.

And while the energy trade may be a two-way street, this is not a sufficient guarantee that the Kremlin will always act rationally. The personalization of power in today’s Russia means that its leaders can alter Russia’s (and Gazprom’s) intentions toward Central Europe on a whim. Though the Kremlin may not, at present, be willing or able to use its energy muscle to blackmail capitals like Warsaw or Vilnius should they side against Moscow on an international issue, this provides no guarantees for the future.

As a result, U.S. and European leaders should ignore debates about intentions – this is a debate for academics. Instead, decision makers should remain focused like a laser on pressing Russia to liberalize its energy policies, and exploring alternative sources of supply. Russia’s next president, Dmitry Medvedev, might be more liberal than Mr. Putin, but he will still oppose Russia’s ratification of the Energy Charter Treaty (ECT) and its Transit Protocol – measures that would force Russia to inject more competition and transparency into its energy policies – unless the West presents a united front. Importantly, the United States should itself consider joining the ECT in order not to be seen as hypocritical. Washington must also continue to work with like-minded Europeans on bringing Caspian oil and gas to Central Europe.

America’s overseas security commitments necessitate that the geopolitical anxieties of U.S. allies be Washington’s own concerns. Telling the Poles that Russian energy policy is just business is like saying to some of Iran’s neighbors that the country’s nuclear ambitions are peaceful; in principle, Tehran could weaponize its program once it reaches a certain point. And the monopoly Gazprom is setting up in Europe could be easily politicized once all the pieces are in place. This is too great a risk for Central Europe (or the United States) to accept.

Ryan R. Miller is a Research Analyst with the Center for European Policy Analysis (CEPA) in Washington, D.C.

The views expressed in this article are those of the author and do not necessarily reflect the opinions of the Center for European Policy Analysis.