Russia’s political energy

Ilya Zaslavsky, Chatham House expert on the role of energy in the Kremlin’s foreign policy

Large-scale energy projects initiated by the Kremlin are commonly referred to by Russian officials as the “backbone” of the country’s economy. Meanwhile, according to an expert at the British research center Chatham House Ilya Zaslavsky, the economic value of these projects is “at least controversial”.

“It’s not the country’s budget that benefits from the construction of giant new oil and gas pipelines, but a rather narrow circle of people who head the Kremlin-controlled national companies and those who are close to Putin,” the expert told the Russian service of the Voice of America. “In addition, such projects are a very effective instrument of foreign policy for the Kremlin. No other government in the West has such political and economic leverage. “.

As an example of such a policy, experts usually cite the Power of Siberia gas pipeline, the construction of which has been postponed in recent years due to unprecedented costs estimated at $ 55 billion. Despite the fact that the cost of the pipeline itself and the costs of developing new fields in Eastern Siberia required to obtain additional gas volumes make the project unprofitable, structures affiliated with Gazprom have already begun work in the region.

“The construction of the pipeline will not only allow entrepreneurs from Putin’s inner circle to receive additional income, but also provide the Kremlin with additional opportunities in relations with China,” says Ilya Zaslavsky.

Likewise, the “economically senseless” pipelines Turkish Stream and Nord Stream enrich the representatives of the Russian political and business elite, while at the same time allowing Ukraine to be excluded from the scheme of gas supplies to Western Europe and Turkey..

“The cost of transporting gas via Nord Stream is now identical or higher than the cost of delivery using traditional transit through Ukraine,” says Zaslavsky. “But this pipeline has allowed the Kremlin to achieve significant political gains, setting the stage for ending Germany as the main distribution center for Russian gas in Europe.”.

The fact that Russia is using oil and gas reserves as one of the main instruments of its foreign policy has been talked about in the West for several years now. In 2009, the US State Department created a special department whose main task was to help the countries of Eastern Europe in “reducing dependence” on supplies from Russia. Nevertheless, experts assess the results of this work as “rather modest”.

“I cannot say that this is an unsolvable problem,” continues Zaslavsky. – There is an example of Lithuania, which was able to build its own terminal for receiving liquefied natural gas. Yes, of course, the countries of the region have been preparing for this for a long time, evaluating all the pros and cons of a large project. But immediately after that, “Gazprom” not only lowered prices, but also ceased to behave emphatically aggressive during negotiations with representatives of not only Lithuania, but also all the Baltic states. This is a really big problem for the states of the former USSR and the countries of Eastern Europe, but it did not arise today. The dependence on oil and gas supplies was artificially created by the Soviet Union during the formation of the Warsaw Pact, including in order to have an instrument of political and economic influence on its allies and satellites “.

Kirill Belyaninov: That is, it was for the implementation of this idea that the existing infrastructure was created, and it is impossible to get rid of this dependence.?

Ilya Zaslavsky: I don’t think this system needs to be completely broken. It is enough to force Russian companies to work transparently, according to European rules, and save them from the temptation to engage in political and economic blackmail in the most sensitive periods. In addition, there is an already established idea that any supply of Russian gas or oil threatens the security and even the sovereignty of the state. But far from it.

Bulgaria can be cited as an example. The biggest “energy vulnerability” of this country occurs during peak loads – in winter or at the height of the hottest summer. It was during these periods that Moscow initiated artificial energy conflicts in 2006 and 2009, seeking political and price concessions..

The solution is to find an alternative source of oil or gas supplies that will help solve the problem for a short time and only during the peak period..

This is what the countries of Eastern Europe are doing now, building alternative routes for the delivery of energy resources, interconnectors and gas storage facilities. For them, even relatively small gas supplies from Azerbaijan, for example, and not from Russia, can play a huge role during peak times..

KB: That is, the Kremlin uses the supply of energy resources as the main instrument and economic and political blackmail?

OF.: Yes, there are often purely political interests behind energy disputes. In 2006 and 2009, Russia tried to demonstrate to European governments that Ukraine is not a worthy partner and cannot be considered a normal state at all. It was Kiev that was then accused of disrupting supplies to Europe, although the valve was twisted in the Kremlin..

There are serious studies that show that in the first two terms of Putin’s rule, Gazprom was used at least 50 times as a tool of pressure and blackmail in relations with closest neighbors and European countries. In all cases, it was about solving exclusively political problems that have nothing to do with the economy and commerce..

In the first half of 2015, for example, Putin tried to stop the reverse supply of gas sold to Europe to Ukraine. Then supplies via the Nord Stream-1 pipeline were sharply and without intelligible explanations reduced..

But Europe is well aware of this, and now they are investing serious resources in the development of alternative energy – solar, wind … In Denmark, they began to use methane produced from manure. But Eastern Europe is still lagging behind, and there is simply not enough political will for the full development of such sources..

KB: Some Western observers believe that the situation with energy supplies from the Russian Federation to the countries of the former USSR and Europe will not change as long as Russian companies, instead of doing business, carry out the political will of the Kremlin..

OF.: For a long time I have urged people who deal with Russia to stop thinking that there are private and state-owned companies in the Russian Federation. The system is designed in such a way that supposedly “private” companies always act in the interests of the Kremlin and carry out the political decisions of the country’s leadership. All small and medium-sized companies have already been destroyed or controlled by officials.

As for large companies that position themselves as private enterprises, then they are completely controlled by representatives of the authorities or people associated with the regime. It depends on the Kremlin whether they will receive tax breaks or export preferences, so there is no need to talk about conducting an independent economic policy at all..

KB: Speaking at a conference organized by the Washington-based Democracy Support Fund, you said that the sanctions imposed by Western countries against Russia are not effective and have not brought results.

OF.: I consider these sanctions superficial. In addition, we must first understand what exactly we can consider the result of the imposition of sanctions. If the goal was to send a signal to the leadership of the Russian Federation or somehow react to Moscow’s actions, then this result was achieved.

But you can compare these actions with the policy of Western countries towards Iran. When it became clear that the money received from the sale of oil and gas would be used by Tehran to finance programs to create nuclear and missile weapons, the Western community was seriously scared. European and American companies were banned from operating in Iran, Tehran was banned from trading energy resources, and intermediaries who tried to do business on this were persecuted and caught around the world..

In turn, both Gazprom and Rosneft easily find ways to bypass the sanctions imposed after Crimea. They issue Eurobonds and their CEOs continue to travel to London and speak at International Petroleum Week. Western companies continue to develop joint projects with both Gazprom and Rosneft. Moreover, a number of new agreements were signed after the start of the conflict in Ukraine..

In my opinion, the problem is that Western leaders still do not want to completely sever relations with Russia, and are still trying to come to an agreement with the Kremlin, hoping that it will change its policy, including in the energy sector. But it seems to me that these hopes are not destined to come true..

  • Kirill Belyaninov

    International journalist. He worked in hot spots in Karabakh, Tajikistan, Georgia, Bosnia, Chechnya. Engaged in investigative journalism.

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