Holding the Russian Energy Bear at Bay

The WSJ had an encouraging piece last week on Georgia's economic development.  President Mikhail Saakashvili has been taking on autocratic Russian President Vladimir Putin over Europe's growing energy dependence on Russian natural gas supplies through the Ukraine.  Russia's strategy, according to the WSJ, (subscription required) is:

"Gazprom -- the leading vehicle of Kremlin energy influence -- has accelerated a three-pronged strategy. First, it is campaigning to bottle up its control of Central Asian gas resources. Second, it is consolidating and expanding its hold on energy infrastructure among countries that were once part of the Soviet Union. Finally, it is trying to use a deepening war chest to acquire private and privatizing energy assets elsewhere in Europe.

Rising tensions with Moscow reached a crescendo last week when Mr. Putin, before meeting with German Chancellor Angela Merkel in Tomsk, Siberia, accused the West of "unfair practices" and agreed with Mr. Miller that it would redirect supplies elsewhere if its European expansion plans were blocked. A senior EU official says Mr. Putin's "pipeline rattling" is in direct response to EU pressure that Russia ratify an International Energy Charter requiring it to open pipeline access to competitors -- much as telecommunications companies share their bandwidth.

Secretary of State Condoleezza Rice, who said at a Senate hearing recently that energy politics is "warping" international diplomacy, joined the battle in Ankara, Turkey, urging Turkey and Greece to reduce their dependence on Russia by favoring new pipeline plans that rely on Azerbaijan. Vice President Dick Cheney flies to Kazakhstan this week as part of a continued effort to get it and Turkmenistan to join pipeline plans that would reduce Russia's near-complete dominance of Central Asian resources."

Europe's growing dependence on Russian natural gas was brought home to the average European when Russia cut off supplies to Ukraine during the last winter season, demanding steep increases in payments.  According to the Washington Post:

"Europe relies on Russia for about a third of its natural gas supplies. Those supplies arrive via two major pipeline routes constructed in the 1980s over the objections of the Reagan administration. Today the United States realizes that Russian gas will remain vital to Europe, but it is pushing nations to diversify supplies so that Russia cannot exploit Europe's energy dependence for political purposes....

At the same time, however, Russia sells 80 percent of its natural gas to Europe and is worried about European plans to increase gas purchases from Algeria and Libya, as well as about liquefied natural gas from Qatar, which plans to triple its exports."

Mr. Saakashvili is working with Germany's Angela Merkel and other European countries, including Turkey, to bypass the old Soviet system.  In today's Wall Street Journal story "In Russia's Shadow, Georgia's Leader Remakes Nation":

"Mr. Saakashvili, who has strong backing from the U.S., is trying to transform Georgia's economy in a hurry. His aim is to end centuries of Russian domination and to forge new ties with the West. Corruption is down, and tax revenues have at least doubled since 2003, due in part to a new flat tax and improved collection, helping to pay for the government's many projects. The nation's gross domestic product rose 8.5% during the first quarter....

New pipelines that pass through Georgia are coming on line this year, giving Western nations access to oil and gas from the Caspian Sea area, one of the world's few significant new sources of energy outside of the Middle East and Russia. Georgia also is a key plank in the Bush administration's efforts to promote democratic governments in the former Soviet bloc."

The US embassy in Tbilisi supports a 650 person staff.  The United States is very committed to economic and energy reform in Georgia to counter Mr. Putin's impressive efforts in consolidating state control over Russia's energy and using it as a political weapon with Europe, the West and Asia.  To counter this, ahead of the upcoming G-8 summit, the US has been working to support alternative routes that bypass Russia and its reserves of natural gas.  Referring back to the Washington Post article:

"Bryza and more senior U.S. officials have been promoting pipeline routes that would bring gas from fields in Kazakhstan, Turkmenistan and Azerbaijan near the Caspian Sea through Turkey to Europe. One such pipeline, from Azerbaijan through Georgia to Turkey, opens Oct. 1. U.S. officials have been saying that reserves in Azerbaijan alone could justify bigger pipelines even if territorial disputes over the Caspian Sea are not resolved. (Missing from the U.S. vision: supplies from Iran, whose natural gas reserves are second to only Russia's.)

Former Soviet Bloc countries are enthusiastic, especially since Russia has boosted prices on gas sold to Moldova and Belarus. Georgia President Mikheil Saakashvili said during a recent visit here that he supports a pipeline that would bring gas from the Caspian Sea basin through Azerbaijan and Georgia, then under the Black Sea (to avoid Russia) to Romania and then north to Poland. Building that line would take at least five years."

Germany would be one of the largest beneficators of an alternative route for energy, and Ms. Merkel has met with the Georgian President to discuss these options.  It will be interesting to see if Turkey's desire to provide an alternative route for energy supplies could become an important area of leverage in their often troubled bid to become a member of the European Union.

Regardless, Georgia represents an improved US and European ally in trying to roll back Russian advances in energy control.

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