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Friday, Jan. 19, 2007

Europe, energy and Russia


LONDON -- German Chancellor Angela Merkel has a very different attitude toward Russia from the last three or four German chancellors, perhaps because she grew up in former East Germany, under Russian control.

She's not anti-Russian (she speaks the language fluently), but she doesn't think that they deserve special treatment. So when Russia suddenly cut off the flow of oil to Germany and several other European Union countries on Jan. 8 because of a dispute with Belarus, she did not waste time on tact.

"It is not acceptable," she said, "when there are no consultations about such actions. That always destroys trust."

It was the harshest thing that any German chancellor has said to any Russian leader since the collapse of the Soviet Union 15 years ago -- and she said it, moreover, in her capacity as the current EU president, a post she had assumed just days before. Something is going on here.

The dead of winter is the ideal time for an energy supplier to have a confrontation with an energy-poor customer in a cold climate, and this is the second January in a row that Russia has pulled the plug on a neighbor who was resisting massive increases in the price it paid for Russian gas and oil.

Last year it was Ukraine; this year it's Belarus. In each case, Moscow brought them to heel by turning off the taps -- but that also cut off EU customers further west, since the pipelines pass through those countries first. The EU was not amused.

"We are paying for these energy resources and are never late in our payments," said EU Energy Commissioner Andris Piebalgs last week. "We have a right to insist that you never disrupt supply."

But behind Piebalgs' stern insistence that "the disruption to oil supplies we have seen in the last few days must never, never happen again" was the knowledge that it might well happen again. The Russian negotiating style is too muscular for the EU's taste, and what happens to Ukraine or Belarus today might happen to other Russian customers tomorrow.

When Moscow told Minsk that the price of gas was going up from $47 to $105 per thousand cubic meters on Jan. 1 and that it was imposing a "customs duty" of $180 per ton on the oil Belarus buys from Russia, Belarusian President Alexander Lukashenko's first response was defiance: "We will live in dugouts but we will not surrender to blackmail."

Belarus has no energy resources of its own, and Lukashenko's popular support among poorer Belarusians depends entirely on the fact that he has preserved the old Soviet system and the guaranteed minimum living standard that it provided. His support would probably not survive a prolonged bout of hardship as a result of a confrontation with Russia over energy prices, so he took a different tack.

Just after new year, Lukashenko accepted the Russian demands on oil and gas prices -- but then he tried to claw the money back by imposing a $45 a ton "transit fee" on all the oil passing through Belarusian pipelines to the EU. What's more, knowing that he could never force Moscow to pay up, Lukashenko started collecting the fee in kind by diverting oil from the pipeline that crosses Belarusian territory on its way to the EU. So Moscow shut the pipeline down.

Fair enough, in the bandit world of post-Soviet capitalism -- it brought Lukashenko sharply to heel. He gave in completely, and since he has now also been forced to sell 50 percent control of Belarus' pipelines to Russia, he will never pose this problem again.

But further west, the EU is quietly re-doing its energy calculations as the lesson sinks in that it is unwise to be too dependent on energy supplies from post-Soviet Russia. (The EU imports a quarter of its oil and 42 percent of its gas from Russia.)

As EU Energy Commissioner Andris Piebalgs put it: "If there's disruption of supply, it's not retaliation that's required but appropriate action. . . . You simply conclude that this partner is not worth your trust and you don't make any more contracts."

There will actually be lots more contracts, because nobody can switch the bulk of their energy purchases overnight, but the trend line in EU purchases of Russian energy is likely to be down.

Chancellor Merkel is already saying that Germany should reconsider its plan to phase out nuclear power by 2020, although she cannot do so under the terms of the current coalition agreement with the Social Democrats.

More importantly for the near future, she is urging private industry to build a network of gas pipelines across the EU that is connected to liquefied-natural-gas ports in Germany and elsewhere. That would give the EU, and especially the former communist countries of eastern Europe, an alternative to heavy dependence on Russian energy.

Russia doesn't care. In the long run, it can probably sell almost all of its exportable oil and gas to China and other East Asian customers (though the pipelines mostly have yet to be built). But a major strategic shift is getting under way: The EU no longer assumes that Russia is a reliable partner or even a friend.

Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries.


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