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Vol. 224 No. 7 |
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| JACQUES SAPIR, CONTRIBUTING EDITOR, FSU |
Russia’s energy sector adjusts to the post-Iraqi war context. Russia is slowly adapting to the post-war world. The energy sector clearly was shaken by a war that Moscow wanted to avoid. But realism always has been a cornerstone of Kremlin leaders. Some lessons have been learned, and this should be understood if one wants to avoid misreading future political developments.
As written in this very journal, Russian oil interests in Iraq, if important to some companies, never were a decisive factor. Russian policy toward Saddam Hussein has not been shaped by private interests, public debt or even former Soviet sentimentalism. Old, retired generals could have written classical anti-American papers in Russian media. But they are no more than old, retired generals. Oil tycoons also could have written papers, usually pro-American.
But oligarchs are no longer a coherent political force shaping Russian policy. For all their wealth, they have lost much of their political power, particularly their grip on the Kremlin. Foreign policy is a place where national interest is at stake. It is the arena of classical, national interest keepers-of-the-flame – the foreign policy (MID) and intelligence service (SVR) establishments. It is no surprise, then, that old Yevgenii Primakov (former foreign minister) popped up again in President Vladimir Putin’s inner circle.
Putin joined forces with French President Jacques Chirac and German Chancellor Gerhard Schröeder to some observers’ surprise, but not because he was against Washington or leaning toward Saddam. Actually, Putin has a record as one of the most pro-Western Russian leaders, and he strongly censored Saddam’s regime many times.
Instead, US policy has been seen as a direct threat to Russia’s national interests, even if this was not understood by supposedly wise people in Washington. Russia is strongly committed to the multi-polar world idea, and any process that circumvents the UN and its Security Council amounts to a direct aggression. One has to add that Europe is the main customer for Russian oil and gas, and is its greatest foreign trade partner.
Since Sept. 11, 2001, considerable literature has pointed to “strategic cooperation” between the US and Russia, particularly regarding energy. It is time to look at the bottom line – business with the US is less than 4% of Russian trade. Before enlargement, the EU’s share of Russian trade was 35% to 38%. Once EU enlargement completes, the share will be more than 45%. Obviously, trade flows are not comparable. If one looks at the hydrocarbon sector, there were some wild hopes before the war. And again, they don’t seem to be substantiated.
Russia is not ready to become a major US oil supplier any time soon. Russian oil output is stagnant, and still below Soviet-era levels. It could be expanded with great investment, but information about real field situations is scarce and often misleading. Power struggles for oil field control do not favor transparent, reliable information about production efficiency and near-term potential.
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Any near-term gains made by Russian oil production are not likely to be exported to the US. (Photo courtesy of Sibneft)
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When looking at oil transactions, prices asked and officially paid are inconclusive. This columnist has found that in at least four documented cases, money schemes distorted the actual transaction price to such an extent that published figures were meaningless. Certainly, some fields could produce much more than current rates. For how long and at what cost is difficult to compute. Russia certainly has promising new fields, as well, but their potential is well hidden and some tough players are already present.
Transportation is another problem. Existing pipelines are saturated. Railways are used, but more to avoid the export tax levied on oil than as a really viable substitute. New pipelines could be built but not without political support. So far, there is no proof that the Kremlin will support massive investment in this sector, just to foster exports to the US.
Gas is a different world. Here, we have substantial new production and transportation capacities. However, everything is in Gazprom’s hands. Spot market sales show that the gas giant is trying to expand its market share. Nevertheless, Europe is still the logical customer, with electric power production the main issue. Some European nations have invested heavily in nuclear power, and gas can be either a substitute or a perfect complement.
Russian energy policy will reflect political choices. In the post-war context, everybody looks to be busy mending fences. The St. Petersburg summit and the following G8 event are examples. Still, some major changes have taken place.
In his May 16 address to the nation, Putin made it clear that Europe is Russia’s strategic choice and, he said, “the anti-terrorist struggle is not to be turned into a bid for world hegemony.” If nobody in Washington noticed this loud and clear signal, then some people are just deaf and blind. Chirac’s opening speech in St. Petersburg on May 30 focused on energy and Russian cooperation. Here, too, we have a clear signal.
Europe will not be the last word in Russian energy policy. China, too, could become an important oil and gas customer. Talks about a new eastward-oriented pipeline seem quite advanced in Moscow. Central Asian countries, which have been moving back toward Moscow’s lead since last fall, are obviously interested.
However, business with Beijing has another dimension: relations with Iran. No energy policy can be developed between Russia and China without looking to Iran, a country that already exports to China and could easily export northward to Russia. The Iranian issue is casting a strong shadow on post-Iraqi war reconciliation. By the way, the first high-ranking Western official to visit Teheran after the Iraqi war was French Foreign Trade Minister François Loos. It could be just a coincidence. Then again . . . . 
Jacques Sapir is professor of economics at EHESS-Paris and at the Higher School of Economics in Moscow. He is a regular contributor to this column.
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