Thursday, January 11, 2007

Is Russia Intimidating Europe Again?

At the beginning of 2006 Russia created a natural gas shortage across Europe when it reduced supplies to Ukraine in an effort to force that country to capitulate demands to pay global market prices for Russian energy. Now, just a year later, Russia is engaging in a slow-down of oil deliveries in a bid to induce Belarus’ to pay market prices. What makes the situation all the worse is that Europe’s “strategic partner” did so without even so much as consulting with the EU.

Just as last year, the European response has been anemic. In fact, even as European leaders once again discuss how to diversify energy supply sources in order to reduce dependence on Russia, the Russo-German Nord Stream pipeline project contains apace.

The Russian energy power play comes on the heels of its success in forcing a renegotiation of the terms of the Sakhalin-2 gas with Shell that effectively ceded control of the project to Gazprom, the Russian state-owned gas monopoly. The Russian government threatened legal action on the basis of trumped up charges of ecological damage and cost overruns to bring Shell to renegotiate the terms of a production-sharing agreement. Widely decried in the West as little more than nationalization of the project, Moscow celebrated the result as a “victory for justice” and the undoing of an unfair deal worked out with a weakened Russia in the aftermath of the collapse of the Soviet Union.

In effect, the Russians are sending a clear message to Europe about who is the senior partner in the “strategic partnership” between the two. Europe’s failure to respond adequately is establishing a precedent that will seal the relationship between the two in favor of Moscow.

One wonders if Europe’s inability to deal effectively with Iran has not further encouraged Russia. Either way, Russian use of the “energy card” is helping to maintain a “jittery” global energy market that keeps energy prices higher than they otherwise might be; and that is good for Russia (and Iran).

1 comment:

Shawn Deluhery said...

I agree with your post. Russia and the Middle East seem to have realized something. By selling less oil today, they can sell more oil later. In doing so, they make more money as oil sold tomorrow is sold at a higher price than today.

I saw an economic feasibility study done on ethanol. The conclusion was there simply is not enough ethanol to replace oil. Actually, it wasn’t even close. So, where do we look next?

It’s an interesting situation with Iran. On the one hand, they have a resource we covet. On the other hand, we are funding their government and policy decisions by purchasing oil. I’m not sure how to solve this one Dr. Goss? How do you get firms who are short sighted? Meaning, how do you get companies to invest in alternatives when the results are not immediate? Don’t you have to go to government research and development through studies and universities?