Red Square, by <a href="">Paolo Crosetto</a> (<a href="">CC</a>).
Red Square, by Paolo Crosetto (CC).

Policy Innovations Digital Magazine (2006-2016): Briefings: Russia and the New Great Game

Feb 20, 2008

Energy security, it could be said, is in the eye of the beholder. Much to the chagrin of American and European observers, Russia last month moved to consolidate its strategic position in the areas of oil and natural gas by acquiring control of Serbia's oil monopoly (NIS) and signing a $15 billion pipeline deal with Bulgaria. This will cement Moscow's strategic position as gatekeeper of Europe-bound energy resources from the Caucasus and Central Asia.

The Europeans, who already depend on Russia for more than one-third of their oil and gas, are nervous. The Americans, keen on maintaining Europe's energy and economic independence, are worried. The Russians, who have just secured greater control over their most lucrative export and increased their diplomatic leverage, are relieved. As it happens, all three are right.

These two deals are but the most recent moves in what one might call the Great Energy Game, with the world's main powers jockeying for access to resources and markets. The aim: to win their own energy security, however it may be defined. In the run-up to the July 2006 G8 summit meeting devoted to the issue, the United States defined its energy security as "reduced dependence on Middle East oil [and] greater variety of oil resources," reported the International Herald Tribune. In other words, American energy security means increased and varied access to energy resources, particularly hydrocarbons.

For Russia, the world's number one exporter of natural gas and number two of oil, energy security is defined as "access of Russian energy to Europe," implying "[o]wnership of European and American pipelines," thereby constricting energy channels. In this winner-take-all competition, one player's energy security is antithetical to the other's, and control of upstream and downstream assets is the ace in the hole.

The stakes are huge for Russia. The country's economic recovery from the 1990s freefall has hinged to a large degree on exports of expensive oil and natural gas, namely to Western Europe. The political fates of President Vladimir Putin and his expected successor, Dimitri Medvedev, are related to Russia's standing in the energy game. Indeed, Putin's impressive popularity (consistently above 60 percent) is due in large part to rising living standards and a perception that under his leadership Russia has regained its great-power status, lost in the wake of the Soviet Union's collapse.

Consistent defiance of U.S. interests, and attempts at establishing close, quasi-hierarchical relationships with Russia's "near abroad" have given the Russians something to be proud of. Thanks to energy revenues, Moscow has recently proceeded to significantly upgrade its military for the first time since the end of the Cold War; in late 2006, it deployed a new generation of missiles capable of evading American missile defenses.

Russian leverage in the energy sector has translated into more assertive policy toward its neighbors, both immediate (the Baltics, Ukraine) and distant (Europe). If war is politics by other means, the same can be said for commerce. Russia's policy toward Ukraine is emblematic of the geopolitical slant of its commercial energy policy.

For a few days in January 2006, Russia's Kremlin-influenced gas quasi-monopoly Gazprom (with Medvedev as Deputy Chairman of the Management Committee) completely cut supplies to Ukraine, ostensibly over that country's refusal to pay the 450 percent increase in power prices demanded by the company. Until then, Ukraine, as a member of the ex-Soviet bloc, had been allowed to buy natural gas for much cheaper than the world price; Gazprom's "favorable terms" for Ukraine were the abrupt introduction of "European" prices.

The Gazprom move had far-reaching implications, as more than three-quarters of Russian gas exports to Europe flow through Ukrainian pipelines. The crisis, one year after the Orange Revolution that brought the Western-friendly Viktor Yushchenko to power in Kiev was, according to observers, an attempt to remind the Ukrainians and Europeans of their strategic links to—and dependence on—their gigantic neighbor, which considers Ukraine a part of ancient "Kievan" Russia. Influencing the upcoming Ukrainian parliamentary elections may also have been a motive.

It is no coincidence that Gazprom's aggressive stance was adopted only months after Yushchenko initiated pipeline talks with Georgia and evoked Ukraine's "integration in the European and Euro-Atlantic structures," presumably euphemisms for the European Union and NATO. For many Ukrainians, the message from the crisis was clear: Don't cross Moscow. The pro-Russia Regions Party, led by the down-but-not-out Viktor Yanukovych, duly won the highest percentage of the vote three months later, putting a halt to Ukrainian NATO and EU ambitions. Not surprisingly, Russian foreign minister Sergey Lavrov responded strongly to Ukraine's recent request to be accepted into NATO's Membership Action Plan, hinting that "future cooperation" between the two countries could be compromised.

Such a forceful posture does not represent a significant shift in Russia's approach: Since the collapse of the USSR, Moscow has frequently cut energy supplies to its ex-satellites for political motives, with Lithuania, Estonia, Latvia, and Ukraine as the main victims. More Russia-friendly states, like Belarus, have also felt Russian pressure.

While seen primarily as assertive, Russian foreign policy may in fact be reflexive, echoing its fear of renewed containment by American allies. Over the last few years, Moscow has watched as three previously compliant regimes in the "near-abroad" fell one-by-one to Western-backed opposition, often through democratic elections overseen by OSCE-affiliated monitors. Moscow points to American involvement in the "color" revolutions of Georgia, Ukraine, and Kyrgyzstan—all three are players in the European and Central Asian energy games—as evidence of an American strategy to encircle Russia and reduce its control over its most valuable asset.

This fear was further reinforced by U.S. Secretary of State Condoleezza Rice, who concisely expressed American unease with Russia's dominant position, explaining in 2006 that "one of [our] concerns is that there could be a monopoly of [energy] supply from one source only, from Russia."

The players of the Great Energy Game see it as zero-sum, with one competitor's gains resulting in another's loss. This view seems unlikely to change soon, as instability in the Middle East fosters strategic cooperation between Russia and Iran, which together hold more than 40 percent of the world's natural gas reserves. On the other thorny energy issue of nuclear power, Moscow and Tehran have already consummated their allegiance, with Russia recently delivering the last shipment of nuclear fuel needed to power Iran's nuclear reactor at Bushehr.

With Moscow holding the best hand, and Washington's sleeve apparently empty of aces, now is the time to engage in constructive dialogue with Russia. For openers, each side needs to furnish the other with energy security assurances. Without assurances and without a more transparent mechanism for military engagement, this game could get out of hand—and without a referee there's no telling where that might lead.

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