Russia today is no longer out to collect all of the Slavic soil and soul in its own hands, nor is Russia any longer in the business of world revolution. The Russia of today is not a revolutionary power, nor is it content to leave things as they are. If there is a long-term, sustainable strategy it has two main aspects, one old-fashioned, one ultra-modern. The modern one means control of energy resources, pipelines and LNG technologies worldwide, possibly forming, in spite of many protestations to the contrary, a kind of Gas OPEC. The more traditional one is to create dependence, protect investment, secure friendly governments and put soldiers, if possible, on both sides of the border.
Pipeline politics
The most dynamic dimension of Russian foreign policy is not foreign policy at all – at least not within the established ‘Westphalian system’ (Robert Cooper) of states, sovereignty and equilibrium. It is a new kind of trans-imperialism based on control of enough oil and gas to determine much of what happens in the world market, and on the availability of enough funds to create a global system. This helps to keep prices stable and, even more important, to hedge against the kind of crises that made the oil price crash twice, in the mid-1980s and again in 1997-98.
Gazprom, the state monopoly, is the most important instrument of this strategy. The home base for Gazprom, however, is weaker than it looks. Investment has been low, in fact insufficient to keep current levels of extraction beyond 2010. Foreign companies like Royal Dutch Shell and BP have been shown the door out of Eastern Siberia so that Gazprom can gain full control in Sakhalin II and get rid of the production-sharing agreements of the 1990s – Russia’s equivalent to the ‘unequal treaties’ which the Chinese never tire of complaining about. But while Gazprom is congratulating itself on achieving 100 per cent control, the technology imported from Western companies in exchange for energy is almost impossible to replace.
Furthermore, domestic consumption continues to grow and does so at giveaway prices – for Gazprom directors it must be torture to observe how much costly gas, instead of being sold for dollars worldwide, is just being wasted because domestic prices are low, individual consumption cannot be accounted for, and opening windows is still the preferred method of regulating temperature at home. But raising gas prices in the face of public discontent, when inflation is driving up the price of foodstuffs, is not something the Kremlin wants to try.
The dynamic side of Russian foreign policy is to a large extent about oil and gas, increasingly in the form of LNG. Energy is part and parcel of a post-modern grand strategy that has grown out of Soviet energy policies ever since the first oil crunch after 1973, has experienced ups and downs, and is now being used to provide reassurance to the Kremlin as much as to the nation at large.
Moscow’s rulers have done everything possible to control pipelines far beyond their own turf – not unlike the Chinese or, for that matter, the United States. The US-sponsored and part-financed Baku-Ceyhan oil-pipeline, following the same logic, was built at the same time as the older Russian systems, bypassing the northern slopes of the Caucasus en route to Novorossiysk on the Black Sea, were growing more and more ramshackle due not only to the wars in Chechnya and trouble in nearby Daghestan but also as the natural result of neglect and inefficiency.
The new Great Game is not about forward-based Cossack regiments, nor is it about T 34 tanks or SS 20 ‘mirved’ missiles but about oil, gas, and pipelines. The Kremlin, far from reconstructing the overstretched Soviet Union of the past, instead wants to control the natural resources of Central Asia and also the downstream consumer markets. Only a few weeks after having secured the South Stream project with Turkey and Italy – and, possibly, Serbia – another agreement was signed, this time on the supply side, with the presidents of Turkmenistan, Uzbekistan and Kazakhstan, all of those countries having vast amounts of gas to sell from their landlocked fields and, if possible, into different directions, to China for instance, or to Iran. The Kremlin strategy is to make sure that pipelines are under Russian control. While Gazprom creates facts on the ground, EU summits can continue to recite pious wishes for European energy independence. Only a few weeks after the contracts with Austria’s OMV, Italy, Bulgaria and Turkey had been signed, Gazprom clinched a deal with the Serbian gas and oil monopoly, closing the gap between the Balkans and the Adriatic Sea and Italy – and possibly Algeria. This strategic move cost Gazprom no more than what the Financial Times called a ‘bargain price’ (26 January 2008) in return for guaranteeing Belgrade a key role in shipping gas to Western Europe and handsome fees (€200 million per annum) for transit. In the financial auction for Serbian political loyalties the European Union, anxious to protect Kosovo’s precarious independence, had wooed Belgrade by waiving some of the stiff entry conditions to the EU and offering a substantial stabilization package. But Gazprom, bidding on behalf of the Kremlin, outsmarted the Brussels eurocrats. It was the looming Kosovo question that secured for Russia Inc. both a powerful political presence and a controlling stake in south-eastern Europe’s energy future.
Gazprom, aka the all-powerful ministry of gas technology of Soviet times, has found its new incarnation as a state monopoly, and more often than not it is difficult to decide whether a certain strategy is business-based or a political move. Where the Soviets feared to tread, Gazprom goes global, much as the Chinese do, and no less than the US. Concessions in Bolivia, for instance, were added to Gazprom’s portfolio in the second half of 2007.
Another scramble for Africa
This, however, was not enough. In 2008 the New Year was greeted with a mega-deaclass="underline" ‘Gazprom plans Africa gas grab’ was how the Financial Times revealed a Russian bid for Nigeria’s vast reserves on 5 January 2008. Gazprom was offering to invest in energy infrastructure in return for the chance to develop some of the biggest gas deposits of the world. In 2007, Putin had written to Nigeria’s leader Umaru Yar’Adua, in power since April of that year, to seek energy cooperation. What Russia offered seems to have overwhelmed the Nigerians. ‘Mind boggling,’ as one of the Nigerian officials close to the deal admitted. ‘They are ready to beat the Chinese, the Indians and the Americans.’ In this list of global players, with Russia in pole position, the Europeans were not even mentioned. Gazprom happily confirmed that a deal was on its way: ‘We made a decision to go global in terms of acquiring assets and developing strategy outside Russia. Africa is one of our priorities.’
In the recent past, Nigerian energy had been dominated by Royal Dutch Shell, Chevron and Exxon from the US. They concentrated mostly on oil, Nigeria being Africa’s biggest producer of crude. Growing demand for natural gas and the capacity to cool it down to liquid status and transport it safely have changed the equation. The Russians seem to have recognized that gas production was under-performing, and taken their chance. With Gazprom and the Chinese state monopolies bidding against each other, the market turns in the direction of state-backed companies challenging Western rivals. What Gazprom proposes is to win gas exploration blocs and, in return, approval to build LNG plants. In 2006, the lion’s share of Nigerian LNG still went to Spain and France (7.10 and 4.23 billion cubic metres respectively). The US had a meagre 10 per cent share, just ahead of Turkey, with all others far behind. Over the past five years, Western companies had invested USD 5 billion in LNG, yielding a revenue of USD 9 billion.