Gas export as a source of Russian foreign policy


During Cold War, Soviet Union held the world faith in its hand; it was the empire of greatness in tern of economic, political, and military. However, after 1991, Soviet Union collapsed; its economy shrieked over a night from the 3rd largest economy of the world, Russian economy was in the same position with Costa Rica. However, after the national election in 2000, Russia showed the sign of coming back when the ex-KGB, Vladimir Putin, became the President of Russia. One of Putin's masterpieces was the reform of Russian Foreign policy based on energy resources, especially gas. Therefore, this essay will analyze how natural gas has become a tool that drive Russian foreign policy.

Energy export as a foreign policy tool

Kremlin has aimed to assert its political dominance by using massive energy resources on other countries, especially EU countries which was outlined in the country's energy strategy signed by President Vladimir Putin in the summer of 2003 - the purpose of this strategy is to put energy policy to be the driving part of Russian diplomacy. The energy policy is to reproduce mineral raw materials in Russian soil under the condition of market relationship, but the policy is too important to be run by private sector. In the energy policy, Kremlin aims in the exportation of gas rather than oil because it realizes that the market (many European countries) can import oil from some place else through seas, but, for gas, the situation is different. Delivering gas by using gas pipeline seems to be the cheapest and the most practical way to supply gas to Europe which the demand of gas tends to increase year after year. Whereas, the current instability of Middle East always instablilize the gas price, EU countries would like to increase their import of Russia natural gas. As a result of rising demand, political and policy differences between EU and Russia which might affect every would not be raised to argue due to energy dependency, so, in the future, EU may become less critical of the way Russia asserts its foreign policy. On the contrary of what people think, Kremlin does not play direct role in energy export, but rather uses a company called "Gazprom" which is under the direct regulation of Kremlin, in fact Gazprom is considered to be the gas division of Kremlin. Kremlin uses Gazprom to assert its power by investing in al least 16 out of 27 EU countries such as Italy, Germany, and France.

Russian foreign policy in action

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In order to create energy dependency in EU countries, Russian gas needs pipeline to do the work. Gazprom already has Blue Stream pipeline which runs through Black sea to Turkey, but a pipeline that will affect Northern EU countries is the Nord Stream. Kremlin intends to build 750 miles gas pipeline, Nord Stream, which will transport gas under the Baltic Sea to Germany, and bypass Ukraine, Belarus, and Poland. Therefore, the Nord Stream will create energy and political dominance over Ukraine, Belarus, and Poland which means if they do not pay, Russia can cut gas supply to them without worrying about supplies to customers on the far west. This pipeline was the result of secret alliance between the former Chancellor Gerhard Schroder, the head of German Government, and Putin's Kremlin when billion loans supporting the construction of Nord Stream was granted just days before the ex-German chancellor left the office - shortly became chairman of the pipeline consortium. Thereby, after 2012, Germany will import 2/3 of its gas from Russia via Nord Stream. In contrast, EU countries must seek energy insurance by building a gas pipeline to compete with Nord Stream, Nabucco, which will take gas from Central Asia and the Caspian to Europe, not from Russia. Nabucco pipeline is supposed to be complete in 2012 which will bring 30 billion m3 of gas to Europe from 4 possible sources: Iraq, Iran, Azerbaijan, and Central Asia.

Although Nabucco will not carry large quantities of gas to Europe, it has enough effects to stir the decision of policymakers in Kremlin. Those effects are, first, it will free countries such as Turkmenistan and Kazakhstan from depending on Russia's pipeline that allow Kremlin to manipulate the price and quantity of their export. Second, it will give leverage to EU countries gas companies to balance and bargain with Gazprom in the better position; hence, Europe would have security on its energy dependency. However, EU countries' dream of having Nabucco pipeline to balance Russian power seems to fade away when Kremlin has decided on building South Stream - $5.5 billion westward which is the extension of Blue stream. This extension pipeline will land on Bulgaria and bring 30 billion m3 annually of Russian gas to Europe through the Balkan. This pipeline has a similar route with the 'Nabucco', but it will be built and operated by Kremlin and Italy's giant energy firm: ENI. The South Stream will go to Southern part of Italy via Greece, and another branch of the pipeline will pass through Romania, Hungary, and Slovenia, and even reach as far as Austria where the same destination as Nabucco pipeline is. From the example of Southern Stream and Nabucco pipeline, the idea of gas competition is whoever the first to build it will be the winner. Because of this, if the first pipeline were built through the Balkan, it would offer the cheapest gas to Southern and Central Europe, making new opportunity to new investors. From the pipeline competition concept, it seems that Kremlin is really aware of the situation. At an energy summit held in capital city of Croatia - Zagreb in the middle of 2007, 6 former Yugoslav republics, plus Greece, Bulgaria, Romania, and Albania, gave a warn welcome to Putin as a special guess who announced a new series of gas and oil plans which humiliate Western effort of balancing Russian power. In addition, Putin also offered Russian investment in infrastructure (storage, and distribution) to those countries in South Eastern Europe. As a result, unlike Warsaw pack, Kremlin has created a pack of energy alliance with South Eastern Europe in order to overrun Nabucco pipeline which is the threat to the prosperity of Russian energy export. Although Nabucco seemed like an unrealistic commitment of EU countries, it did not die. In order to rip off Nabucco for good, Russia and Austria had signed a long-term contract under which Gazprom would supply 80% of Austria's gas consumption over the next 20 years. Therefore, President Putin went to make a visit at Vienna on May 23 and 24 2007. Austria was intended to be the destination of Nabucco pipeline, but when Putin visited Austria, he gave a promise to Austria government that he would make Austria to become a 'hub' for Russian exports of gas - including, much of the Central Asian gas that was supposed to flow through Nabucco. In the end, most of energy consumption of Europe lies in the hand of Kremlin.

Will energy shortage drive Russian foreign policy to its doom?

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Only a few policymakers in Kremlin worry about whether Russia will have enough gas to meet the demands of the next decades. Russia is a country that has the biggest gas reserve in the world, approximately with 47 trillion m3; however, many policymakers concern about the shortage of gas within one or two decades. Vladimir Milov, an outspoken former energy minister said both oil and gas production are facing 'crisis' with gas in a worse state than oil. Although gas production has declined, Europe's demand is going up by 50 billion m3 a year. According to Milov, in 2010, Kremlin and Gazprom need to supply 132 billion m3 of gas both for foreign and domestic customers; therefore, by 2020, all Gazprom's production will be able to supply domestic market only, leaving none for export. If the shortage of gas supply happened, Kremlin would have no leverage to bargain with EU countries anymore. In addition, for Europe, it would face serious energy shortage because most of gas supply came from Russia. There are 2 main reasons for shortage of gas: the ineffectiveness of Gazprom, and the leaky pipeline. First, Gazprom is one of the most inefficient energy companies in the world due to its poor management by elites in Kremlin. Gazprom can earn hundreds of billions of dollars a year, but, its money is spent in ridiculous ways such as colossal perks for the top management, overstaffing, ludicrously grand building, and holiday resorts. In the period of 2000 to 2006, it spent only $12.5 billion on developing new fields, but spent $17.9 billion on buying companies outside the gas industry. On the contrary, Gazprom has earned billion of dollar from buying other more efficiently run companies; however, those brought companies have become less effective due to the interference from Kremlin. Second, one of the legacies that Soviet Union left to Russia is old rotten pipelines. Over 70% of Russian gas pipelines were built even before 1985; however, the average age of pipeline is 22 years; 14% are older than their desired life. According to IEA, 20% or at least 30 billion m3 of gas production exported to Europe are wasted because of leaky pipes and worn-out compressors. Therefore, massive quantities of gas are just vaporized because Gazprom is not able to access to the pipeline. In the end, Kremlin needs to modernize its gas division (Gazprom) in order to make it as a source to push forward Russian foreign policy.

In conclusion, this essay has analyzed how natural gas has become a tool that drives Russian foreign policy in 3 ways: energy export as a Russian foreign policy tool, Russian foreign policy in action, and Will energy shortage drive Russian foreign policy to its doom? In Putin regime, the weapon of Russian foreign policy has changed much from the time of Soviet Union - from the use of military superiority now becomes the use of massive natural resources, especially natural gas. In the near future, Russia will be able to dominate its surrounding neighbors by using natural gas supply as a leverage to bargain against those energy hungers. However, Kremlin and its policymakers must be competent enough to answer the question that whether how long natural gas will be a vehicle that drives Russian foreign policy. Because it is a matter of time of gas deficit in Russia, Russia will have to find other tools to serve its foreign policy.