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John Metzler Archive
Wednesday, January 21, 2009

Big chill — gas crisis shatters European pipe dreams

UNITED NATIONS — The recent gas showdown between Russia and Ukraine has triggered a serious economic knock-down effect throughout the European Union. Thus while mega-Russian natural gas supplier Gazprom argued with neighboring Ukraine over energy prices, far down the pipeline in Europe, politicians and business leaders remain nervously apprehensive about the reliability of their deepening dependence on Russian energy supplies. An apparent resolution of the immediate crisis between Moscow and Kiev may have eased the symptoms but not the longer-term reliability problems for West Europe.

Russia had literally shut off the energy valve to Ukraine in the deep darkness of winter. While supplies soon stopped in Ukraine, the trickle down effect hit some European countries head on. Slovakia, Bulgaria and the Baltics who are 100 percent dependent were first to feel the Big Freeze in homes and factories!   

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Despite the commercial arguments put forth respectively by Moscow and Kiev over pricing, the bottom line remains that downstream in Europe, which gets about 25 percent of its gas from Russia, and especially among the massive importers such as Germany (39%), France (16%), and Italy (27%), there’s a bigger long-term concern. Currently eighty percent of the gas transits pipelines running through Ukraine.

The chilling effect is quite simple; while Russia maintains a lucrative commercial relationship with Europe, at the same time also holds an icy hand over the supply spigot to Europe’s economy and heat during the depth of Winter. Though the business dispute between Russia and Ukraine has cost Moscow’s Gazprom $800 million in lost West European revenues, the flip side of the argument means that the Europeans are reminded who controls the energy supply over a significant part of their prosperity.

Back in 1981 on the verge of President Ronald Reagan’s inauguration, there was a testy debate between the new American Administration and many European countries who were anxious to build this natural gas supply relationship with the former Soviet Union. I recall being in Germany where business managers and many politicians had blithely rationalized the deal with Russia (some will remember the Yamal pipelines) as a normal business relationship. President Reagan countered that creating a significant dependence on Russian gas would make Europe politically, economically, and strategically vulnerable to the Soviets. Many Europeans countered, “Ha, what naiveté of this American cowboy in the White House!

The German news magazine Der Spiegel smirked, “Only Ronald Reagan it appears, might still spoil the deal of the gas, money and steel managers.”

A 2006 NATO report in Brussels warned about Russia forming a “natural gas OPEC” with other suppliers such as Algeria, Libya and Iran. While the report was hardly alarmist, it stated the obvious; Russia would gain the possibility to hold EU energy supplies hostage. More laughs from the Europeans who of course, knowing better, reminded all that this was a business relationship and the Cold War is over.

Look at recent European headlines and see there’s now a Cold War both from a frigid winter and serious energy supply shortfalls. “European Union a Victim of Russian ‘Gas Diplomacy,’ ” Le Monde/Paris, “Gazprom Slashes Supplies to Europe,” International Herald Tribune/Paris, “EU Sees Little Hope of Renewed Gas Supplies,” Die Welt/ Berlin.

While European Union countries have suffered and politely complained to both Russia and Ukraine, engaged in the usual summitry, and established another European force of “monitors” at critical gas supply junctions to oversee the situation, the underlying fear emerges of a dangerous dependence on foreign energy supplies. The key consumers notably Germany, France and Italy are nervously concerned over the reliability of supplies.

Significantly the dispute, in my opinion, is first and foremost about Ukraine and the continuing sovereignty of this ex-Soviet Republic to pursue a future free of direct Russian control. Vladimir Putin has laser focused his political attention on regaining larger influence over the “breadbasket” republic, which also hosts the Russian Black Sea Fleet. Since the reformist 2004 “Orange Revolution,” Ukraine, has endured power struggles between those favoring the West and those favoring Moscow. Now in the midst of an economic crises and serious inflation, Ukraine’s domestic political rifts will deepen with the Kremlin playing its hidden hand.

State-run Gazprom despite being a global energy titan, is also effectively speaking, a geo/political arm of the Russian government. One does not have to be too creative to see the distinct advantage of playing the energy card in the depth of Winter to influence political change.

This downstream collateral damage to the Europe Union, serves as an inducement for the Europeans to solve the dispute with Moscow, to diversify their energy suppliers/transit routes, and to avoid deeper dependence on Gazprom. Given the season and the political climate, there are many lessons but very few realistic options.


John J. Metzler is a U.N. correspondent covering diplomatic and defense issues. He writes weekly for WorldTribune.com.
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