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European dependence on Russian energy is heavy. The European Union imports nearly half of its natural gas and 30 percent of its oil from Russia.^[1] Russia is consolidating its grip on oil and gas in Europe.^[1]

[edit] Major gas recipients

Russian natural gas as a % of domestic consumption.

Major recipients of Russian natural gas in 2005 (percentage of total domestic consumption):^[1]

1.  Slovakia 108%
2.  Finland 105%
3.  Greece 96%
4.  Bulgaria 89%
5.  Czech Republic 84%
6.  Austria 70%
7.  Turkey 65%
8.  Hungary 62%
9. Former Yugoslavia 57%
10.  Poland 47%
11.  Germany 43%
12.  Italy 30%
13.  France 26%
14.  Romania 23%
15.  Switzerland 12%

The volumes of natural gas transmitted to Europe and Moldova through Ukrainian territory from January to October 2009 was 24.8% down compared to the same period in 2008. In 2008 the gas transit through Ukraine to Europe was 4.3% up compared to the year before.^[2]

[edit] Russian companies

Gazprom is the Russian state-owned energy company that exports natural gas to Europe. It also controls a large number of subsidiaries, including key infrastructure assets. Transneft, a Russian state-owned business responsible for the national oil pipelines is another important Russian company supplying energy to Europe.

Gazprom structure is not transparent. According to the risk analysis firm AZEast Group partner Roman Kupchinsky's testimony given to the U.S. Senate Foreign Relations Committee, "Gazprom, with the silent support of the Kremlin has set up 50 or so middlemen companies, silently linked to Gazprom and scattered throughout Europe - such as the Centrex group of companies and the Gazprom Germania network - which do not add any value to the price of Russian gas being sold on European markets; yet they earn enormous sums of money which appears to simply vanish through shell companies in Cyprus and in Lichtenstein."^[3] A paper by Keith C. Smith noted that Russian firms have demanded foreign joint venture partners to agree to funnel profits through offshore accounts and well-known havens for "confidential funds" or to intermediary firms that bring no added value to the venture.^[4] Money laundering is used in "backdoor financing" for companies that want to conceal their Russian links and for key individuals in the West who hide the origin of their "consulting fees".^[4]

[edit] Russian strategy and tactics

According to Ariel Cohen's paper "Europe's Strategic Dependence on Russian Energy" (2007) Russia is consolidating its grip on oil and gas in Europe utilizing the following strategies and tactics.^[1]:

• Locking in Demand - Moscow is attempting to use long-term contracts with European countries to lock in demand. By dealing separately with countries rather than as a group, Moscow can discriminate countries on prices.^[1]
• Locking in Supply - Moscow attempts to consolidate its control of strategic energy infrastructure throughout Europe and Eurasia, including supply, sale, and distribution of natural gas as well as as pipelines, refineries, electric grids, and ports.^[1]
• Derailing Competition - For example, Moscow has pushed South Stream which competes against the EU's Nabucco pipeline as well as the proposed extension of the EU-backed South Caucasus Pipeline.^[1]
• External Consolidation - Moscow is consolidating control of supply outside Russia, particularly by signing long-term exploration and supply agreements with Turkmenistan, Uzbekistan, and Kazakhstan.^[1]
• Internal Consolidation - Moscow is consolidating Russia's oil and gas sector in the hands of state-controlled entities. Major international entities are pushed out of Russia.^[1]
• A Gas OPEC - Russia is "stealthily and steadily" developing a "gas OPEC" cartel to control the output and price of gas. The cartel would include major producers, including Argentina, Bolivia, Venezuela, Iran, and Qatar.^[1]

Moscow signed the Energy Charter Treaty in 1997, but it has refused to implement it.^[4]

[edit] Russia's interest groups

Germany's Gerhard Schröder and Russia's Vladimir Putin in Moscow on 9 May 2005.

According to Keith C. Smith's Russia and European Energy Security - Divide and Dominate (2008), the Kremlin has systematically created or cultivated "friendly" interest groups in both Central and Western Europe. These groups "benefit financially from their formal and informal ties to Russian state energy companies".^[4] He asserts that:^[4]

There is serious political risk to Europe from its growing dependency on Russian energy resources. However, the greater danger is that this dependency is making a significant portion of Europe’s political and economic elite reliant on nontransparent financial payments that erode national sovereignty and distort national decisionmaking.

In Germany, members of the SDP have ties with Kremlin and Gazprom, including posts at company boards or party donations.^[5] For instance, Gerhard Schröder signed Germany into an agreement to build the Nord Stream pipeline and after losing elections Schröder received a post at Nord Stream AG. Former Foreign Minister Frank-Walter Steinmeier has been similar to Schröder.^[6][7]

In addition, Germany's policies have been accused of undermining human rights in Russia. Oleg Orlov, head of the Memorial human rights group in Russia, says that Schröder's and Steinmeier's policies on Russia have been "extremely bad for civil society, democracy and the country as a whole".^[8] An article published by the Financial Times Deutschland stated:^[9]

If the new Ostpolitik becomes a reality, the world may begin to view Russia’s human rights violations as Germany’s human rights violations. Every time a political party is outlawed, Germany’s signature will be on the paper; every time an opponent of the state is imprisoned without fair trial, Germany’s hand will be on the key; and every time an outspoken journalist is savagely murdered, there will be blood on Germany’s hands. Is drawing these connections the only way to awaken the ethics among the blindly pro-Russian Social Democrats?

In Poland, Russian agent Vladimir Alganov was recorded discussing bribery of Polish officials in Vienna.^[10][11] Marek Dochnal was caught bribing officials on behalf of a Russian client.^[12]

In early 2009 the Swedish prosecutor's office began to investigate a bribery case where a person had received a $574,000 donation from the Nord Stream project of Gazprom.^[13] Swedish TV 4 also revealed that Gazprom's subsidiary Nord Stream AG has hired several former Swedish officials.^[14] In Finland, Paavo Lipponen first backed Gazprom's pipeline plans as Prime Minister and was then was hired by the consortium.^[15]

In Italy, parliamentary investigations alleged that Prime Minister Silvio Berlusconi's friend was a major beneficiary in a Eni-Gazprom deal which involved Central Energy Italian Gas Holding.^[16]

In Serbia in October 2008, signing of the an annual protocol to the Russia-Serbian gas agreement was criticized as non-transparent. The critics alleged that YugoRosGaz, a joint subsidiary of Gazprom and Yugoslav government is redundant and introduced in the supply scheme under pressure from Gazprom .^[17][18][19]

GPlus Europe is one of the PR agencies used by Gazprom.^[20] GPlus specializes in recruiting former EU officials and eminent journalists.^[21] Hill and Knowlton, another PR company used by Moscow, has given Members of European Parliament private jets flights to Siberia.^[21]

[edit] Russian foreign policy

Swedish Defence Research Agency's Robert L. Larsson's 110-page study Nord Stream, Sweden and Baltic Sea Security (2007) counted over 55 incidents (cut-offs, explicit threats, coercive price policy and certain take-overs) since 1991, most with "both political and economic underpinnings".^[22][23]

Robert L. Larsson's 362-page study Russia’s Energy Policy: Security Dimensions and Russia’s Reliability as an Energy Supplier (2006) concluded:^[24]

From Europe’s perspective, Russia is moving in the wrong direction. Russia has largely ignored criticism, and has been unwilling to change its behaviour. Dependence on Russian energy would not be a problem if Russia played by the same rules as other energy players or European states. In conclusion, the core problem is the combination of Russia’s perception, intentions, capabilities and track record along with lack of real stability, a high degree of unpredictability and a development away from democracy, rule of law and market norms.

Janusz Bugajski's book "Cold Peace: Russia’s New Imperialism" states that through targeted foreign investments and strategic infrastructural buyouts in Eastern Europe Russia is building monopolistic positions and substantial influence over any country's economic, financial, trade, and investment policies. Also,^[15]

Moscow aims to convert East Europe’s overwhelming dependence on Russian energy supplies and economic investments into long-term, constant, and predictable intergovernmental influence. Close connections between the Kremlin and the largest Russian companies, whether through executive appointments, through the promotions of overseas operations, or through financial, legal, and police instruments, demonstrate that foreign policy is closely coordinated. Russian enterprises have been encouraged to gain political influence through involvement with officials, parties, and media outlets in targeted East European states.

[edit] Proposed countermeasures

[edit] Enforcing existing competition laws

Several authors have recommended legal action. Antitrust and anticompetitive behavior by European and foreign companies doing business inside the European Union is prohibited by Article 82 of the Treaty Establishing the European Community. Neither Transneft or Gazprom has yet faced anti-trust charges.^[4]

Keith C. Smith recommends that both Article 82 and the Energy Charter Treaty are used to prosecute Gazprom. In addition, "Western firms should petition the European Union, DG COMP, and national governments to enforce vigorously existing antitrust and competition policies".^[4] The European Union has previously prosecuted Microsoft. Keith C. Smith states that the price tag of Microsoft's behavior is a just small fraction of "the cost paid by Germans, Czechs, Hungarians, Italians, Greeks, and Austrians for Russian oil and gas as a direct result of the state-dictated export monopolies of Transneft and Gazprom".^[4]

Marvin Baker Schaffer suggested that the European Union could prosecute Gazprom and Eni under Article 82.^[25]

A panel in a seminar organized by Chatham House and Transparency International said that "These anti-trust and anti-competition practices are a clear violation of Article 82 of the EC Treaty and of Article 45 of the Energy Charter Treaty" and asked "How many Western leaders can really negotiate well with the seasoned KGB-ers who make energy policy?"^[26]

[edit] Other

Claude Mandil, the former head of the International Energy Agency, has said that "We need more energy efficiency, more liquefied natural gas, more renewable energy, more nuclear energy".^[27]

Keith C. Smith proposed that the Union demands the right to immediately investigate the causes of disruptions of Russian or non-Russian oil or gas to any EU member state. When disruptions appear designed to pressure a member state, the European Union should apply economic sanctions on the assets in Europe of Transneft and/or Gazprom. Both companies should be forbidden to buy assets in EU member states until the companies become more transparent in their accounting and operating practices.^[4]

Keith C. Smith recommends that if EU investors in Russia can not own more than 25 percent of Russian enterprises, then Russian enterprises should not be able to own more than 25% of European energy facilities and energy marketing companies.^[4]

Many authors have called for common European foreign policy on energy.

The European Union has made proposals to diversify energy supply. One of them is the Nabucco pipeline.

[edit] Russia in non-energy sectors

Russian companies have taken over a number of companies in Germany, including Wadan Yards, and Infineon-Qimonda semiconductor producers, and nuclear energy and gas related companies. Many of the Russian companies involved in these deals are Kremlin-controlled or close to Kremlin. There have been allegations that the takeovers may have been political favors. Furthermore, they might part of an existing long-term strategy of linking the German economy to Russia.^[28][29]

[edit] See also

• Energy policy of Russia
• Energy policy of the European Union
• Russian influence operations in Estonia

[edit] References

[edit] Further reading

• Cold Peace: Russia's New Imperialism. Janusz Bugajski (November 2004). ISBN 0-275-98362-5
• Petrostate: Putin, power, and the new Russia. Marshall Goldman. Oxford University Press US, 2008 ISBN 0195340736
• The New Cold War: Putin's Russia and the Threat to the West. Edward Lucas. Palgrave Macmillan; Second Edition, Revised and Updated edition (March 17, 2009) ISBN 0230614345
• The New Cold War: Revolutions, Rigged Elections, and Pipeline Politics in the Former Soviet Union, a 2007 book by Mark MacKinnon ISBN 0786720832
• Russian energy politics in the Baltics, Poland, and Ukraine: a new stealth imperialism? Keith C. Smith (2004) ISBN 0-892-06456-0
• Russian Energy Power and Foreign Relations: Implications for Conflict and Cooperation. Taylor & Francis, 2009. ISBN 0415484383

[edit] External links

• Robert L. Larsson (March 2006). "Russia’s Energy Policy: Security Dimensions and Russia’s Reliability as an Energy Supplier". Swedish Defence Research Agency. http://www2.foi.se/rapp/foir1934.pdf. 
• Christophe-Alexandre Paillard (March 2007). "Gazprom, the Fastest Way to Energy Suicide". Russia/NIS Center. http://www.ifri.org/files/Russie/ifri_Gazprom_paillard_anglais_mars2007.pdf. 
• Nord Stream, Sweden and Baltic Sea Security Robert L. Larsson March 2007
• Celeste A. Wallander (Spring 2007). "Russian Transimperialism and Its Implications". The Washington Quarterly. http://www.twq.com/07spring/docs/07spring_wallander.pdf. 
• Russian Leverage on the CIS and the Baltic States. Jakob Hedenskog, Robert L. Larsson. June 2007
• Zeyno Baran (Autumn 2007). "EU Energy Security: Time to End Russian Leverage". The Washington Quarterly. http://www.twq.com/07autumn/docs/07autumn_baran.pdf. 
• Ariel Cohen (November 5, 2007). "Europe’s Strategic Dependence on Russian Energy". https://www.policyarchive.org/bitstream/handle/10207/13043/bg_2083.pdf?sequence=1. 
• "Central Europe’s Energy Security Schism". The Center for European Policy Analysis (CEPA). July 2008. http://www2.atlantic-community.org/app/webroot/files/articlepdf/Central_Europe_Energy_Security_Schism20080724.pdf. 
• Russia, Georgia and the European Union - The Creeping Finlandization of Europe Marcel H. Van Herpen September 2008
• Keith C. Smith (October 2008). Russia and European Energy Security - Divide and Dominate. http://csis.org/files/media/csis/pubs/081024_smith_russiaeuroenergy_web.pdf. 
• Bendik Solum Whist (November 2008). "Nord Stream: Not Just a Pipeline". http://www.fni.no/doc&pdf/FNI-R1508.pdf. 
• Mariusz Nogaj, Russia - A New Empire under construction: the Russian policy towards former communist satellites - mechanisms of exertion of influence, Naval Postgraduate School, 2008