Two decades ago, Europe and the Soviet Union first pondered a long-term energy-based relationship, one in which the Soviets would use their considerable energy reserves to fuel European economies. The prospect of European reliance on Soviet supplies triggered concern in the United States and some European capitals. Doubts were countered by the prospect of integrating two economic groups in a way that would effectively tie their futures together.
The Soviet collapse did not end the relationship; Russia’s economic (and energy) ties with Europe have strengthened considerably since the fall of the Berlin Wall. In 2001, the EU and Russia proclaimed “an energy partnership” that would bind them together in the 21st century.
Fears of European dependence have resurfaced as Russia appears to be using those energy resources to pressure trading partners. At the beginning of the year, Russia temporarily shut off gas to Ukraine in a dispute over prices. That step alarmed many about a Russian retaliation in the event of a dispute with Europe. Recent statements by Russian officials have indicated a willingness to play hardball when crossed.
While Russian rhetoric and brinkmanship should be condemned, the truth is that Russia needs its customers as much as they need it. Europe is not dependent on Russia; rather the two depend on each other.
Russia has about 34 percent of world’s gas reserves and 13 percent of prospected oil reserves. It is the world’s leading exporter of natural gas and the second-largest exporter of oil and petrochemicals, producing one of every nine barrels of oil. It is the fastest growing producer of energy in the world.
The EU is a major consumer: Russia’s Gazprom, the state-owned giant, provides about one-quarter of all EU gas. Dependence varies from country to country. The Netherlands gets 5 percent of its gas from Gazprom, while Finland imports all its gas from Russia. Germany gets about a third of its supplies from Gazprom, a share that is expected to rise to about 40 percent.
Dependence cuts both ways: Gazprom’s exports to the EU were worth about $26 billion last year, roughly two-thirds of its revenue. Russia also needs access to Western capital to proceed with ambitious plans to develop new reserves.
Gazprom’s executives understand that it is not enough to pump oil and gas out of the ground. They want to diversify their holdings and acquire interests downstream: Retail prices are several times that of producers’ and Russia is eager to claim a bigger share of those revenues. Thus, Gazprom is seeking to buy Centrica, Britain’s largest gas retailer. It is also cutting deals with national energy suppliers throughout the EU. German Chancellor Angela Merkel recently watched as officials from Gazprom and a German subsidiary signed agreements to jointly develop Siberian gas fields and distribute gas in Germany and Central Europe.
The bid for Centrica has some in Britain nervous about dependency on Russia, prompting talk of modifying investment laws to block the purchase. EU officials worry that the deals with EU member governments undermine the union’s Energy Charter Treaty and its negotiating position. Warnings from EU officials about the need for reciprocity in the relationship — if Russia can invest in Europe then European companies should be able to invest in Russia — were returned with a warning from Moscow that Russia could go elsewhere for customers if Europe did not welcome its investments. (That statement was disavowed when it was interpreted as a threat.)
Some see the energy issue as one of Great Power politics. Russia seeks to maximize its international leverage and skyrocketing oil prices make the energy card irresistible. Moscow has played the same game with Japan and China, artfully getting each country to outbid the other for the rights to pipelines in Siberia. Europe’s need for energy makes it a three-way game.
Central Asian governments want to play too, and they are trying to build their own pipelines to the West. Those projects would end Russia’s stranglehold on that region’s energy supplies. Leaders of the same governments are frequent visitors in Washington and Beijing, where they solicit support to secure their own supplies and limit Moscow’s influence.
U.S. Vice President Dick Cheney weighed in last week when he criticized Moscow for using its energy leverage for political purposes. But even he cannot afford to go too far with his criticism. The U.S. needs Russian support on the U.N. Security Council to deal with the thorny issue of Iranian nuclear ambitions as well as those of North Korea. This complex interdependence of interests is a fact of life in the 21st century and should temper the more extreme protests against reliance on Russia.
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