Ariel Cohen: The Stealthy yet “Reasonable” Gas Cartel

Scholar Ariel Cohen of the Heritage Foundation puts forward his view on the Russia-led gas cartel. One of his most insightful points is that Russia will likely go about the formation of this group while seeking to prolong the presumption of regularity of its actions, and always strive to appear reasonable and rational. Map: Economist From Dr. Cohen:

Moscow is playing a complex and sophisticated game, one that is likely to maximize its advantages as the leading gas producer with the largest reserves on the planet. First, Russia’s approach is gradualist. Moscow has never been openly enthusiastic about a gas cartel but has waited for an opportunity to launch one. Viktor Khristenko, Russia’s Vice Premier in charge of energy, rejected the idea just days before President Putin called a gas OPEC “an interesting idea” during his February 2007 visit to Qatar. This past week, however, in Doha, Khristenko said, “We have not, do not have, and will not have the goal of organizing an alliance against anyone.” The message in the Russian media after the summit was that no documents were signed to create a gas cartel—a useful message for Gazprom, the Russian state-owned gas monopoly. But careful examination of the official announcement and media reports reveals that there is reason for concern. Second, Russia’s approach is stealthy. Instead of announcing the cartel prematurely, and spooking consumer countries, it is quietly putting the component parts into place. In Doha, Russia initiated the creation of a “High Level Group” that will “research” the pricing of gas and develop methodologies using commonly accepted gas pricing models. Conveniently, Russia will staff this group. Third, Russia is able to appear reasonable. The immediate price-regulating function of the emerging cartel is supported by those Latin American countries that want to dispense with market principles in the gas trade: Venezuela, Bolivia and Argentina. With Iran and Venezuela (supported by Bolivia and Argentina) applying their OPEC-honed instincts to gas and demanding price regulation, Russia can afford to stand aside and let others do the talking. Nevertheless, an unnamed “high ranking member of the Russian delegation” to Doha told RIA Novosti that “as the gas market undergoes globalization, certainly such an organization [a gas cartel] will appear and is necessary.” Fourth, and most importantly, a cartel by any other name is still a cartel. Members of the GECF agreed to discuss dividing up the consumer markets between them, particularly in Europe, where Russia and Algeria are major players. For example, if Russia agrees not to challenge Algeria’s position in Spain, Algeria will steer clear of Germany. This will clearly challenge the European Union’s energy liberalization and gas deregulation policy, which is scheduled to take effect on July 1. The group members plan to “reach strategic understandings” on export volumes, schedules of deliveries, and the construction of new pipelines. They also plan to jointly explore and develop gas fields and coordinate start-ups and production schedules. To continue their work, members will gather for their next annual meeting in Moscow and plan to create a permanent secretariat. Despite protestations to the contrary, this has all the characteristics of a cartel in the making.

Read the complete article here.