Saturday, June 30, 2007

Putin still crushing the Moron's master plans for global dominance

A pipeline into the heart of Europe

By M K Bhadrakumar

Not many people know that Russian President Vladimir Putin co-authored in 2004 a fascinating book on classical judo titled Judo: History, Theory, Practice. In his book, Putin describes how with "minimum effort, maximum effect", it becomes possible to bring your opponent flying on to the mat. The trick is to "give way in order to conquer".

When Putin flew into Zagreb last weekend, his words came to mind - instead of "digging in your heels and resisting your opponent's onslaught", you just unlock at the last minute, and your big and strong opponent, "not meeting any resistance and unable to stop", will lose balance and fall. It seems the bigger the opponent, the heavier he falls.

Look at it this way. One of the enduring foreign-policy legacies of the administration of US president Bill Clinton has been that in a "unilateralist" move, ignoring the United Nations, flouting international law, humbling Boris Yeltsin's Russia and herding panicky Europeans into a sheep pen, Washington just dismantled the erstwhile Yugoslavia. A stunned international community could do no more than watch the scale of power at the command of the United States.

Yet when the progenies of that US operation - Croatia, Bosnia-Herzegovina, Macedonia, Montenegro, Serbia, Slovenia - along with neighbors Greece, Bulgaria, Romania and Albania held the first energy summit of the Balkan region in Zagreb, the Croatian capital, last Sunday and decided to roll out the red carpet to receive a "special guest" in their midst, that was for Putin. No matter Washington's best efforts for the past decade to exorcise Russia from the Balkans, Russia won't go away. It is back in the region that has been part of its history.

Putin arrived in Zagreb in dramatic circumstances. The day before he left Moscow came the announcement in Rome about Russia and Italy entering into a momentous partnership to build what the Wall Street Journal described as a gas "pipeline into the heart of Europe". The news came hardly four weeks after Moscow, in a series of sweeping energy deals with Vienna, dealt a coup de grace to the Nabucco pipeline project promoted by Washington with the intent of keeping Russia out of its new sphere of influence in southern and southeastern Europe.

And from Zagreb, Putin headed for Istanbul on Monday to consolidate Russia's strategic understanding with Turkey on keeping the US from meddling in the Black Sea region. Addressing the summit of the Black Sea Economic Cooperation Organization in Istanbul, Putin pushed for long-term energy contracts for the Black Sea littoral states. In about 72 hours flat, Europe's energy map may have been redrawn.

The Austrian waltz
Russia has swiftly moved to consolidate the gains of Putin's energy summit with his Kazakh and Turkmen counterparts on May 11-13. The trilateral Central Asian summit had agreed, among other things, to modernize and enlarge the gas capacity of the Soviet-era pipelines that run from Central Asia to Russia; to increase the volume of gas exports from Central Asia via Russian pipelines; to deepen further Russian participation in developing Turkmenistan's gas reserves; and to commit long-term Kazakh oil exports to Russian pipelines.

As per the assessment by an American area specialist, "Western energy policies in Eurasia collapsed in May 2007. During this month, Russia seems to have conclusively defeated all Western-backed projects to bring oil and gas from Central Asia directly to Europe ... Cumulatively, the May agreements signify a strategic defeat of the decade-old US policy to open direct access to Central Asia's oil and gas reserves. By the same token they have nipped in the bud the European Union's belated attempts since 2006 to institute such a policy."

After the Central Asian summit, Moscow has swung westward to the Balkans. Washington's approach during the past decade in the Balkans and the Black Sea region lay in the pursuit of certain consistent geopolitical objectives - pressing ahead with the North Atlantic Treaty Organization's expansion into the region; making the region a bridge for further NATO expansion into the Caucasus; systematically rolling back Russian influence; setting up US military bases ("lily pads") in Bulgaria and Romania; promoting regional alliances against Russia; and creating strategic space between Germany and its Russian partner.

Russia has used the energy card in breaking through the cordon sanitaire assembled by Washington. Three major developments in the past month have brought Russia back into the Balkans. First came what an alarmed American specialist called Moscow's "Anschluss of Austria". The reference was to Putin's visit to Vienna on May 23-24, which has laid the foundation for an Austrian role on Europe's energy map as a "hub" for natural gas sourced from Russia.

Putin went to Vienna straight from the tense summit with the European Union in the Volga River city of Samara on May 17-18. Moscow was peeved that the EU was nit-picking, lacked any coherent Russia policy, and was often being manipulated by Washington.

Moscow felt it far more productive to concentrate on building up its partnership with individual EU countries at the bilateral level. At any rate, Putin found a very receptive partner in Vienna. Austria, of course, has a 40-year history of close energy cooperation with Russia. Last September, Austria entered a long-term contract with Russia whereby Gazprom will meet 80% of Austria's gas requirements of 9 billion cubic meters (bcm) annually during the next 20-year period.

During Putin's visit, the first section of a massive gas-storage facility near Salzburg was commissioned, which has an overall capacity of 2.4bcm. The facility is being built at a cost of 260 million euros (nearly US$350 million) by Gazprom and, upon completion in 2011, will be the second-largest underground gas-storage facility in Central Europe.

Austria has recently allowed Gazprom to enter the downstream business in the highly profitable domestic gas-distribution system in Salzburg, Carynthia and Styria, which account for half of Austria's nine Laender (states). This is the first arrangement of its kind for Russia in the European market. (Russia has been selling gas to Austria at $240 per 1,000 cubic meters, while the Austrian consumer pays anywhere up to $1,000.) But Putin's visit primarily aimed at expanding Austria's role as a crucial gas-supply hub for transiting Russian gas to France, Italy and Germany in Western Europe; to Hungary in Central Europe; and to Slovenia and Croatia in the Balkans.

The volume of Russian gas transiting through Austria already exceeds 30bcm annually. An important feature of the arrangement is that Gazprom is directly handling the transit of its gas through Austrian territory. During Putin's visit, Gazprom signed a memorandum of understanding with its Austrian counterpart, OMV Gas International, whereby the former will acquire a stake in Austria's Central European Gas Hub, which controls the transport of gas in Central Europe.

Also, Gazprom will build with OMV at Baumgarten near Vienna a Central European Gas Hub and Gas Transit Management Center, which will be the largest in continental Europe. The unkindest cut of all, from Washington's point of view, was that in all probability, Putin put the nail on the coffin of the Nabucco gas pipeline project, which the US had been promoting for evacuating Central Asian gas from Erzurum, Turkey, to Austria, bypassing Russia. Ironically, Austria's OMV Gas International should have been Nabucco's operator.

The documents signed in Vienna testify that Putin probably convinced Austria that Gazprom could supply Central Europe sufficiently, and there was no real need for Nabucco. A Russian commentator said, "Nabucco's future now looks gloomy."

All in all, armed with the decisions of the trilateral Central Asian summit on May 11-13 (which cemented Russia's role in the export of Central Asian gas), Putin's visit to Austria has ensured that: (a) Gazprom is enlarging its market share in Austria; (b) Gazprom is gaining direct access to the European consumer; (c) Russia will use Austria as a transit corridor for capturing other European markets; (d) Washington's hopes regarding Nabucco suffered a setback; (e) Moscow will link up with the Balkan countries via Austria, defeating the US strategy of excluding Russia from the region.

Into the heart of Europe
Clearly, Washington's strategy of bringing together the EU countries into a hostile mode against Russia on the energy-security issues is not working. The fact of the matter is that the European countries increasingly view Russia as an engaging business partner. Foreign investment in Russia grew by 180% in the first quarter of this year, as compared with the corresponding period last year, and has touched $24.6 billion.

US investment stood at $364 million, whereas all top investors in Russia in the first quarter of 2007 have been European countries. Writing in Newsweek magazine, an expert on the emerging markets at Morgan Stanley Investment Management, Ruchir Sharma, pointed out last week that Russia is both a statist and a free-market economy.

European business people realize this. They know that returns on investments are high in Russia. Sharma said, "What distinguishes Russia from many other oil-rich countries is the quality of its human capital, something that's helping the country rapidly converge with the more developed nations in terms of a thriving business and consumer culture."

Thus, contrary to the prognosis by American observers, BP, which came under pressure in the dispute over the Kovykta gas fields in Siberia, has chosen to grow its business in Russia and to form a "strategic alliance" with Gazprom rather than quit.

This is even after being compelled to sell its 63% interest in Russia Petroleum. To quote from Der Spiegel: "The lesson that all big international companies are learning in Russia is that in the current high-price environment, it is very difficult to survive without a local partner ... And that means helping the Russians, who have plenty of cash, with advanced technology and overseas expansion."

Der Spiegel commented, "The company [BP] says it has already earned back its roughly $8 billion investment ... BP can ill afford to lose a venture that accounts for one-fifth of its world reserves, a quarter of its production, and 10% of its profits ... BP is in Russia for the long haul."

American strategic analysts feel exasperated that European capitals are simply not coordinating with Washington anymore on issues of energy cooperation with Russia. EU Energy Commissioner Andris Piebalgs told Radio Liberty point-blank, "There is no reason to doubt Russia's dependability as a supplier as it is in that country's financial interests to deliver on its promises. However, Russia can be expected to do what is good for Russia. I think we should be positive."

Piebalgs went on to imply that Washington could help by lifting sanctions against Iran. "Definitely, our hopes are that we could resolve the uranium-enrichment issue with Iran, because Iran has huge potential supply," Piebalgs said.

We may find the interplay of these various factors in the Russian-Italian gas pipeline mega-deal, which was announced on the eve of Putin's departure for Zagreb. In terms of the deal, Gazprom and Italy's Eni will build a new $5.5 billion gas pipeline called the South Stream (Yuzhy Potok) from Russia to Europe with an annual capacity of 30bcm.

The 900-kilometer pipeline will start from Russia's Beregovaya, cross the Black Sea at a maximum depth of 2km and, after reaching Bulgaria, will split, with one part heading for southern Italy (and Greece) and another toward Romania, Hungary and Slovenia to northern Italy. A lateral spur from Hungary into Austria is also a possibility. The construction on the project, in which Russia and Italy would split the costs, will commence as early as the beginning of next year. It is scheduled to be completed in three years.

Countries along the routes will be offered minority stakes in the project but, interestingly, no transit deal is contemplated. (Putin announced in Zagreb that Russia is finally through with transit deals for its exports to Europe.) The South Stream is expected to source its gas from Central Asia and Siberia.

As the implications of the project sink in, American specialists are scrambling. They realize that at this rate, there may soon be no more "great game" left in the upstream race for Central Asian gas. Equally, in the downstream, Russia has put its toes into the cozy exclusive tent that Washington has been erecting in the Balkans out of the debris of the erstwhile Yugoslavia.

The art of kuzushi
Putin underscored the strategic significance of these developments when he addressed the energy summit in Zagreb. He drew attention to the reality that in 2006, Russia supplied as much as 73bcm of natural gas to southern and southeastern Europe (half of all Russian gas exports to Europe), apart from 59 million tonnes of oil. He said Russia wanted a partnership that is based on the principles of "balance of interests".

Putin outlined the huge scope of cooperation ranging from sale of Russian gas to improving the energy infrastructure of the Balkans; using the region as a transportation route for Russian gas; building underground gas reservoirs in a number of Balkan countries; developing the gas network in Macedonia; expanding the gas-pipeline network into Albania, southern Serbia and Kosovo; taking part in the privatization and modernization of the energy-generation capacities in the Balkan countries; reconstructing the Soviet-era energy facilities in the Balkans; and developing the creation of regional energy transit hubs.

He singled out the electricity sector and proposed a synchronization of the energy systems in western, central and southern Europe with the energy systems of the Commonwealth of Independent States and the Baltic states. Putin said: "This project's implementation will enable us to create an electricity chain forming a ring around the entire Black Sea region and uniting all the European countries located in the region. This will help to put in place the main parameters for a common energy market" (emphasis added).

The Russian daily Kommersant summed up the far-reaching implications of what Moscow has put together in recent weeks. It said, "Gas will flow into Europe from different sides, enclosing it in a veritable ring, but that gas will always either belong to Russia or to some country that Russia rigidly or even ferociously controls."

The bulk of Putin's judo manual is about kuzushi, the art of breaking your opponent's balance. On page after page, with the help of delicate drawings, Putin lucidly explains the intricacies of eight backup throws that will work if an entry throw setup fails. The energy politics in southern and southeastern Europe will leave Washington wondering how many backup throws Putin may still have up his sleeve between now and next March, when he retires from the Kremlin job.

Nine months can be a very long time in politics. What if, in the meantime, the Europeans take to judo, while the US remains bogged down in Middle East affairs? Putin wrote, in fact, for the common European reader. According to Putin, judo needs utmost concentration of mind, a controlled diet, and a disciplined life on the whole. Brute physical force as such is not necessarily an attribute.

M K Bhadrakumar served as a career diplomat in the Indian Foreign Service for more than 29 years, with postings including ambassador to Uzbekistan (1995-98) and to Turkey (1998-2001).

Original article posted here.

1 comment:

daniel said...

Russia's oil boom is an interesting issue. The U.S. is one of many countries that will be interested in the production of oil in the Russian province. Here is a list i found of the companies involved, as well as some other info...

Russian Oil Production