COMMENT: Washington's concern grows over Russia's energy strategy

By bne IntelliNews March 21, 2007

Ariel Cohen in Washington -

Three major Eurasian energy developments announced this month have made Washington policymakers jittery.

First, Hungarian Prime Minister Ferenc Gyurcsany announced his country prefers Gazprom's Russian gas pumped via Turkey to the much-lauded but long-delayed Nabucco gas pipeline project. Nabucco, spearheaded by the Austrians, was supposed to bring up to 30bn cubic meters per year (cm/y) of gas from the Caspian to Europe through Turkey, Bulgaria, Romania, Hungary and Austria.

Second, Russia, Bulgaria and Greece signed an agreement to construct the Burgas-Alexandroupolis oil pipeline, which will bypass the Turkish-controlled Bosphorus Straits, a dangerous oil transport chokepoint. The project, which some call "the Orthodox Pipeline," will neutralize Turkey's control of the vital oil artery and reduce the danger of supply disruption stemming from a catastrophic event, such as a tanker fire or explosion in the middle of Istanbul.

In addition, the Burgas-Alexandroupolis pipeline will have a 51% majority control of three Russian government companies – Transneft, Gazpromneft and Rosneft – with the remaining 49% split between Bulgaria and Greece. Washington energy watchers and Eurasia hands noted the March 6 announcement by Vagit Alekperov, head of Lukoil, that his firm and Gazpromneft – the state-owned gas monopoly Gazprom's oil unit – will create a joint venture to develop future project. This will be 51% controlled by Gazpromneft.

Orthodox Pipeline trio

Finally, British Petroleum hinted that its Russian partner TNK may sell out its share in TNK-BP joint venture to a Russian state-owned company. At the same time, Russia is developing plans on building the second Bosphorus bypass from a port on the Black Sea such as Samsun, to the Mediterranean.

Washington sees these projects as strategic moves. All announced within less than a month, they clearly indicate the Russian state is pursuing a comprehensive strategy that masterfully integrates geopolitics and geo-economics.

Strategy trumps economics

Оn the geo-economic side, Washington insiders say, Russia is aiming to pre-empt the transport of oil and gas from the Caspian to world markets through countries and pipelines that Russia doesn't control. Moscow viewed with a jaundiced eye the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and Baku-Erzurum gas pipeline. Now it is dead-set against the creation of the trans-Caspian arteries – from Kazakhstan and Turkmenistan – that would enhance the viability of those two pipelines by providing them with extra oil and gas.

Thus, pumping Russian gas via Blue Stream across the Black Sea to Turkey, and then through connectors to Greece, Italy, and possibly Bulgaria and Romania to Hungary, makes a lot of sense. It would preclude or delay the construction of the Trans-Caspian gas pipeline which would transport Turkmenistani or Kаzakhstani gas.

It also makes Gazprom a direct competitor of Iranian, and in the distant future, Iraqi and Gulf gas, which could be transported via Turkey to Europe.

Pumping more oil to the Mediterranean via the Burgas-Alexandroupolis pipeline - or in the future via the Samsun-Ceyhan pipeline which will be supplied with Kazakh oil from Novorossiisk - makes sense as well, denying Kazakhstan a viable trans-Caspian pipeline option to connect to BTC.

But there is more. The proposed additional sea-pipeline routes are going to be problematic: tanker loading and unloading of crude in the trans-Black Sea leg, or extending the gas route under the Black Sea and via Turkey and Southern Europe make these pipelines very expensive аnd environmentally challenging. By selecting these routes, Russia is clearly choosing strategic considerations over economical ones.

Money talks

Washington understands that Russia's strategic goals include preventing countries on its borders from becoming pro-US. By locating pipelines and gas storage facilities in Hungary, Bulgaria, Greece and Turkey, Russia connects them to Moscow by "ties that bind" – pipelines.

And oil projects tend to leak not just crude, but cash. Elites in these countries have reportedly personally benefited from Russian energy developments to the tune of hundreds of millions of dollars. Just examine the shadowy Russian-Ukrainian gas trader RosUkrEnergo, the former German chancellor Gerhardt Schroeder's chairmanship of the Gazprom-led Nordstream pipeline, the bribery scandals over Turkish ministers' links to the Blue Stream project, among others.

The best strategy, wrote the great Chinese general Sun Tsu in the 3rd century BC, is to win a war without a single shot. This also includes, according to Sun Tsu, penetration and subversion of the enemy camp. To paraphrase another great strategic theorist, the Prussian Carl Clausewitz, foreign policy is the continuation of war by other means, at least in the view of some retired Russian colonels and generals who calls the shots in the Kremlin.

Thus, there is no better way to "win the war" than to maximize geopolitical clout without firing a shot – and making money as you go. You do it by building and extending a network of politically influential pipelines to adjacent countries. As the result, a Russian cordon sanitaire is appearing along its borders.

Washington appears to be taking some diplomatic steps to oppose this Russian gambit. It is conducting consultations with the EU to coordinate energy policy. Washington wants to raise the awareness of Russia's energy strategy and make conditional Moscow's access to downstream operations in Europe on Western companies' access to Russian upstream energy resources.

However, Brussels is split. Germany is already deferential to Russia's energy interests, with German companies such as E.ON in partnerships with Gazprom in downstream operations in Russia and Europe as well as develop gas fields in Russia.

It is also possible the State Department may intervene in Bucharest to prevent a proposed Gazprom pipeline from Turkey crossing Romanian territory. Clearly, the two small US military bases in Romania and Bulgaria and the proposed missile defense base and radar in Czech Republic and Poland are not going to stop Russian expansion: pipelines are much more effective tools of foreign policy than missiles.

When it comes to its oil and gas strategy, the Kremlin is in a league of its own. This is like watching a chess grandmaster playing multidimensional chess with oil and gas fields and pipelines over decades. Middle Eastern rulers should take a number and attend the master class.

Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security at the Heritage Foundation

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