March 30, 2009

The Russian Reset and Europe

By: Ida Garibaldi

Europe will be closely watching as leaders of its two most important partners—Russia and America—meet for the first time on April 1 on the sidelines of the G20 summit in London. The meeting between President Obama and Russian President Medvedev is expected to be cordial and absent of points of tension, but Europeans will try to read between the lines to see if the Obama Administration’s “reset” rhetoric will translate into action or will be stonewalled by the Russians.

Europe’s nervous attention is understandable. European energy security is in jeopardy: The current world economic crisis is having a dramatic impact on Russia’s capabilities as a reliable energy partner, adding to the already worrying political implications of European energy dependence on Moscow. Washington’s posture towards the Kremlin will indicate whether or not the United States will step up its efforts to encourage more European energy independence, and whether the Obama administration has considered that European allies could soon have to choose between securing their gas supplies and siding with the United States.

In January Russia once again interrupted its gas supplies to Ukraine. Moscow raised the gas prices for Kiev (from $250 to $418 for 1000 cube meters of gas); Kiev wanted higher fees to let Russian gas pass through its territory (from $1.60 to $2.00 for 1000 cube meters of gas every 100 km). At first the row seemed to be a purely economic one and its consequences limited to the two countries involved. However, on January 5 the events took a turn for the worse. Moscow accused Kiev of siphoning off its gas from the pipelines running to Western Europe. Kiev denied the charges but Russia unilaterally decided to shut down all the supplies to the Ukraine pipeline system. Slovakia, Hungary and Bulgaria suffered immediate and prolonged consequences. Germany, Austria, Italy and France were better prepared with larger stocks of gas, but felt the political and practical effects of the squeeze.

It’s not the first time that Russia uses energy as a weapon to achieve its economic and political goals. In January 2006 Gazprom–the Russian State owned gas monopoly–shut down its supplies to Ukraine to force Kiev to pay higher prices. Western European distribution immediately decreased up to 40 percent. In 2007 Moscow cut its supplies to Belarus, with instant consequences on supplies to the rest of the continent. With Germany at that time rotating president of the European Commission Chancellor Angela Merkel protested vigorously, but took no further measures to punish Moscow.

The European Union (EU) imports about 43 percent of its gas, the plurality of which (39 percent) comes from Russia. According to the European Commission, by 2030 the EU will import up to 70 percent of its energy needs: by 2025 50 percent of the electricity used by EU countries will come from gas, compared with 29 percent in 2000. Thus far, Brussels’ energy security strategy has been to promote conservation, liberalize the EU’s energy market, and strengthen its relationship with Moscow.

Europeans must change their attitude toward Russia after the latest energy crisis. Indeed, the 2009 spat between Russia and Ukraine not only displayed Moscow’s ruthlessness in pursuing its political and economic goals, but above all its economic shortcomings, which make it an unreliable gas supplier for Europe.

Indeed, the world economic crisis did not spare Russia and lower oil prices deeply impacted an economy largely based on its energy exports. Gazprom alone supplies 25 percent of the nation’s tax revenue. The gas monopoly is also the country’s main source of foreign currency. Experts agree that this year’s fight with Ukraine was mainly motivated by Russia’s need for liquidity. Since the beginning of the year the Rouble has been heavily devalued and Russian foreign currency reserves have been drained trying to defend the national currency. Russia has lost the economic stability and growth that it needed to update its gas extraction and distribution infrastructures. Well before the economic crisis hit, the production at Gazprom’s three main extractions sites (which produce 70 percent of the monopoly’s gas) was dipping by 6 to 7 percent per year, making it hard on Gazprom to fulfill a growing domestic and international demand.

Things are bound to get worse before they get better. Russia should be considered and treated as a reliable gas supplier only if it behaves as such and it is able to deliver its gas efficiently and punctually. Europe has to consider whether it wants its energy security to be in the hands of a politically and economically volatile partner. And Washington should seize the opportunity to step up its involvement in European energy matters by encouraging its allies to pursue energy security outside their relationship with Russia, perhaps, as suggested by Senator Dick Lugar (R-Indiana), within the framework of NATO. If European nations remain tethered to a Russia willing to use energy as a political and economic weapon, they will not have the maneuverability that America needs in allies. European nations have already shown little stomach for a tough line on Russian bullying of Ukraine and Georgia.

As spring blossoms the troubles of a cold winter seem past us. However the matters that sparked the Russia-Ukraine row in January have hardly been settled.  It would be a gross error to wait another year before facing the issue of European dependence from Russian gas. The European countries that have been hit the worst have gotten the hint: Slovakia and Bulgaria are considering reopening two nuclear power plants in Jaslovské Bohunice and Kozloduy. Even Italian Prime Minister Silvio Berlusconi, who defined “understandable” Gazprom’s arm-stronging of Ukraine is taking some timid steps in the right direction. Italy just signed an agreement with France to build four new nuclear power plants.

An American friend of mine, who recently studied in Italy and has a passion both for cooking and Russia told me that anytime he turned on his gas stove he couldn’t help it but think of Putin’s mood swings. Before hitting “the reset button” in London with President Medvedev, President Obama should ponder carefully the consequences of European energy reliance on the strategic vision of Russia’s undependable political leaders. After all, wouldn’t we all prefer to eat our spaghetti al dente rather than raw?

-Ida Garibaldi is an adjunct professor at St. John’s University – Rome Campus. She was awarded her PhD in transatlantic studies at the Catholic University of Milan, Italy.