HAPPY NEW GAS

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The gas conflict with Ukraine has been a useful reality check for Russia

Ever since the CIS was established, Russia has attempted to use its energy resources for political leverage over other former Soviet republics. The natural gas pricing dispute with Ukraine has clearly demonstrated that Russia needs to take a different approach.


Rarely does a year get off to such a stormy start. The “small victorious war” the broke out between Russia and Ukraine in late 2005 has ended in an agreement.

The first question to ask is this: who actually won this war?

The answer is by no means simple.

Officially, Russia seems to have achieved its purpose – the text of the final agreement (actually, the full text has not been made public) includes the magic numbers: “Russian gas at $230 per thousand cubic meters.” But this money won’t be paid by Ukraine; it will be paid by RosUkrEnergo, the intermediary company, half-owned by GazpromBank. Ukraine, meanwhile, will pay $95; of course, this is more than the previous price ($50), but Ukrainian politicians are generally satisfied with it, especially since Gazprom is increasing payments for gas transit across Ukraine (from $1.09 to $1.60 per thousand cubic meters per hundred kilometers).

Calculating the exact profit/loss balance for Gazprom and Naftogaz Ukrainy is fairly complicated at this point, but in general it’s clear that some sort of reasonable compromise has been reached with regard to money – “friendship has won.”

From now on, most of the natural gas delivered to Ukraine won’t come from Russia. It will come from Turkmenistan, Kazakhstan, and Uzbekistan (hence the price of $95!). What does this mean for Russia? Losing the Ukrainian market? But perhaps we need more “losses” like these: Russia (Gazprom) will be spared the honor of essentially sponsoring a “brother republic,” and Russian gas, no longer described as “brotherly,” will be sold to Europe at normal prices. Let’s have less brotherly gas, and more euros!

So in economic terms, at least, Russia isn’t losing out.

But what about political terms?

Here the question is much more complicated.

It all comes down to how Russia’s political goals are defined.

If you take the view that the goal here was to punish the Ukrainians, show them who’s boss, who’s the elder brother, and so on – that goal certainly hasn’t been achieved. What’s more, Russia has now proved to itself and to the rest of the world that such goals are a priori unachievable and absolutely unrealistic.

Russia is a self-sufficient, independent state; that’s a fact, regardless of whether it meets with the approval of anyone in the United States, Ukraine, Britain, or Somalia. And the same applies to Ukraine. Some people are annoyed by that, others are glad of it – but it’s a fact. Ukraine is an independent state, just like Russia. Various experiments (including the latest gas experiment) have shown clearly that henceforth, the Russia-Ukraine relationship will be a relationship between two different states with equal rights. This relationship can only be based on compromises – as befits relations between independent states.

So what’s new? After all, Ukraine (like other CIS countries) has been independent since 1991. Yes, that’s true. The difference is that some illusions have now been dispelled, like gas. The illusions of those (fairly influential) Moscow politicians who have, until now, regarded Ukraine’s independence with a grin (whether a condescendingly ironic grin or a rather evil grin).

But if this fact – the fact that Ukraine and other CIS countries are independent – is finally being taken seriously, to the full extent, it leads to some very important conclusions for Russia’s entire policy.

In late 2005, President Putin announced a fundamentally important strategy for Russia: a policy course aimed at establishing an oil-and-gas energy superpower.

This policy course is: a) entirely realistic, based on the actual state of affairs; b) substantially new, and capable of politically exacerbating the situation which has taken shape spontaneously in Russia. Gazprom and Rosneft (and the major privat oil companies associated with them) now find themselves cast in the role of “the Empire’s spears” – strategic energy forces. A situation that took shape spontaneously is acquiring a goal, a strategic policy goal formulated by President Putin.

That’s very good.

But this goal itself can also be interpreted in different ways.

There are at least two fundamentally different readings of it (although they often overlap).

First option: the state’s political efforts are aimed at lobbying for the interests of the Russian energy sector, followed by the rest of the Russian economy. That means working to increase prices for our raw materials, conquer new markets, establish new transport routes, and attempt to expand (for example, by acquiring foreign gas and oil pipeline systems – something that’s worked in Belarus, but hasn’t worked in Ukraine). In short, what’s good for the Russian energy sector (Gazprom) is good for Russia (at this stage). Let’s call this the economic option.

Second option: the economic capacities of Gazprom, Rosneft, and other companies work to satisfy the state’s geopolitical and other ambitions. That means, for example, selling gas, electricity, and oil at a loss – as payment for some sort of “political influence” in the CIS. This could be simply a matter of “prestige for the sake of prestige,” but there might also be some far-reaching goals (hints at an “imperial comeback” of the USSR, for example). In short, what’s good for Russia’s political ambitions (or the ambitions of Russian politicians, by no means the same thing!) is good for Gazprom. Let’s call this the political ambitions option.

As everyone knows, this is exactly what Russian policy has been like ever since the CIS was established.

Now, at last, I think there will be an end to that kind of policy. This would be the major outcome of the gas war. Hopes for such a development are encouraged by President Putin’s recent statements at a meeting with Gazprom CEO Alexei Miller and Industry and Energy Minister Viktor Khristenko.

If this happens – well, thank you, Ukraine!

While striving to be “completely born” as an independent state, to cut the psychological umbilical cord tying it to Russia, Ukraine is bound to “overdo the independence thing” at this stage, entering into competition with Russia. These are the adolescent behavior problems of a state in the process of formation, a nation taking shape.

I don’t know how useful it is for Ukraine, but the “Ukrainian cold shower” is extremely advantageous for Russia. The objective picture, including Ukraine’s reaction, are proving to Russia that the political ambitions option is a lost cause and forcing Russia to choose the economic option – the only possible and rational development path.

This is what Putin was talking about. No more barter. Trading for money. Clear measurements of profit and loss (in money). Equal rights. Transparency. This is the only way for Russia to manage its relations with other former Soviet republics, which are FOREIGN countries.

They say to Russia: “Don’t lecture us on how to live, just support us financially.” Russia’s rational response: “All right, we won’t lecture you – but we won’t provide any financial support either.” From now on we have equal rights, we respect each other, we don’t interfere in each other’s domestic affairs, we trade with each other. Happy New Year, happy new gas!

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