Wednesday, 13 August 2008

Energy = Power

It's hard to keep up with developments in Georgia - previous attempts at producing a post have all been overtaken by events.

At the time of writing, the latest news is that Russia has dictated terms to the Georgians (full withdrawal from disputed regions, renunciation of use of force) in return for cessation of hostilities. According to Georgia, and the Guardian's correspondent on the ground, Russian tanks are going through Gori on their way back to the border, possibly targetting military infrastructure. (Further update: Georgian villages are being burned and looted)

Whatever the details, it's pretty clear that Russia has come out on top. Not only has it secured the safety of its newly-minted citizenry in South Ossetia, it's also a) broken and humiliated Georgia, b) sent a clear message to other neighbours and c) established pretty clearly how little it regards the protestations of the West.

The last point is pretty clear. America condemned the Russians strongly; the EU sent Sarkozy to broker a truce; former Warsaw Pact countries sent delegations to Georgia in support. But so what?

The US doesn't have a lot of levers. Political negotations concerning membership of the WTO or access to NATO may offer some incentives; further expansion of NATO or missile-shield installations in Eastern Europe could act as a stick. But Russia is currently flush with petro-dollars and unimpressed with earlier NATO co-operation; meanwhile, we now know how Russia reacts to percieved hemming-in of its territory.

The EU is closer to Russia, but that doesn't translate into influence. This spreadsheet breaks down trade between the EU and Russia, and it's difficult to see what sanctions are available. Russia provides 28% of the EU's energy imports. We've already seen Russia blackmail the Ukraine and the EU by turning off the tap; no reason to believe they wouldn't do it again. Against that, we export cars, machinery and direct investment - all of which are available from elsewhere. Gas is a lot less fungible.

What's really alarming is that Russia knows full well how powerful it's control of the EU's gas is. This article from the Asian Times explains what Russia is going to cement its advantage: buying up the world's gas:

Gazprom, Russia's energy leviathan, signed two major agreements in Ashgabat on Friday outlining a new scheme for purchase of Turkmen gas. [...] In essence, the two agreements ensure that Russia will keep control over Turkmen gas exports [...] The agreements with Turkmenistan further consolidate Russia's control of Central Asia's gas exports. Gazprom recently offered to buy all of Azerbaijan's gas at European prices.

From all appearance, Gazprom, which was headed by Russian President Dmitry Medvedev for eight years from 2000 to May 2008, has taken an audacious initiative. It could only have happened thanks to a strategic decision taken at the highest level in the Kremlin.[...] Curiously, the agreements reached in Ashgabat on Friday are unlikely to enable Gazprom to make revenue from reselling Turkmen gas. Quite possibly, Gazprom may now have to concede similar terms to Kazakhstan and Uzbekistan, the two other major gas producing countries in Central Asia. In other words, plain money-making was not the motivation for Gazprom. The Kremlin has a grand strategy.

The overall implications of these Russian moves are very serious for the US and EU campaign to get the Nabucco gas pipeline project going. Nabucco, which would run from Turkey to Austria via Bulgaria, Rumania and Hungary, was hoping to tap Turkmen gas by linking Turkmenistan and Azerbaijan via a pipeline across the Caspian Sea that would be connected to the pipeline networks through the Caucasus to Turkey already existing, such as the Baku-Tbilisi-Ceyhan pipeline. But with access denied to Turkmen gas, Nabucco's viability becomes doubtful. And, without Nabucco, the entire US strategy of reducing Europe's dependence on Russian energy supplies makes no sense.

Now would be a really good time for cold-fusion to start working.

UPDATE: Playing around with this map gives a really good idea of why Russia is so keen that Georgia keep in line: pipelines and a buffer zone.

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