The following opinion article by Robert Amsterdam was published in Germany’s Süddeutsche Zeitung.
In a shock to German consumers and politicians of all stripes, on January 1, 2016, Russia suspended supplies of gas to Germany through the Nord Stream pipeline. Russian President Dmitri Rogozin announced that the shut-off will continue until Germany agrees to a 100% increase over current pricing. Germany maintains that under a multi-year contract currently in force Russia cannot impose such a drastic increase in gas pricing.
Gazprom AG Chairman Gerhard Schröder stated, “100% may seem like a steep increase. However, given the recent deterioration of Russia’s economic position, it is in Germany’s interest to continue to subsidize Russian domestic gas prices and promote the survival of Russian production capacity.” Meanwhile, Berlin’s allies, many of whom have negotiated separate gas supply contracts with Moscow, distanced themselves from the fracas, maintaining that despite President Rogozin’s increasingly alarming anti-German rhetoric, this is merely a commercial dispute and Russia’s shutoff is simply the exercise of a contractual right.
Most analysts concur that acceptance of the gas price hike will havea ruinous effect on the German economy, which has not yet fullyrecovered from the collapse and reconsolidation of the European bankingindustry in 2010. Few see any viable alternatives for Berlin,particularly following the 2012 reintegration of Ukraine into Russiawhich gave Moscow direct control over all gas pipeline routes toGermany.
U.S. President Barack Obama showed little sympathy. “The Europeansled by Germany made their bed with Russia and must now pay for choicesthat the U.S .always said were inadvisable.” Meanwhile, U.S. prices fornatural gas are now approximately one sixth of European prices givenEurope’s over-reliance on Russian-controlled supplies.
While not impossible, the above scenario is far-fetched. Yet itillustrates the possible consequences of current EU energy policies inthe context of a recklessly assertive Russia. The reality is that theonly way to secure Germany’s gas supplies today is to secure Europe’sgas supplies.
Much-touted as a means to reduce the current reliance on Ukrainianroutes, the Nord Stream pipeline being built under the Baltic Sea onlyincreases rather than diversifies European gas dependency on an evermore dangerous and unstable autocracy. The muscle-flexing leader whohas only recently threatened to target nuclear warheads at Europeancapitals is the same person who has worked so hard to make the supplyof energy an extension of the Kremlin’s geopolitical power.
This is the same person who has methodically destroyed markets andmarket players, constrained supplies, inflated prices and set up murkymeans of payment through invisible or corrupt billionaire middlemen,notably in the Russian-Ukrainian gas trade.
Indeed, given the state of the rule of law and economic developmentin Russia, where political interference, corruption and inefficiencyhave been on the rise rather than in retreat; and given Moscow’sgrowing anti-Western antagonism in geopolitical affairs, futuregenerations may condemn us as having been naïve for blinding ourselvesto the risks of overreliance on one large supplier. Russia has a lot ofwork to do if it hopes to re-gain the trust of its European neighborsas a reliable energy supplier.
This is not to say that Germany or Europe should turn away fromRussia. On the contrary, a major effort should be made to promoteRussian integration into the economies of the rest of Europe. Thisintegration however must be on the basis of transparency and marketprinciples in line with the EU’s legal, ethical and environmental norms.
The gas war is not purely “commercial”, as Gazprom asserts sinceRussia has developed an anti-market pricing regime in the first placethat rewards the political loyalty of key neighbours, notably Armeniaand Belarus’ and allows murky middlemen to siphon off billions by”re-exporting” Central Asian gas to Ukraine.. Although Gazprom preparedfor the current gas war by appropriating the vocabulary ofmarkets–portraying themselves as victims of energy blackmail, andcalling for transparency, competition, and fair market prices–theactual conduct of the colossal company over recent years hasconsistently involved manipulation of the energy trade and the creationof price distortions.
Russia has worked strategically and spent enormous sums of money toensure heavy European reliance on its gas, by gaining access and oftencontrol over almost all competing suppliers. The policy has been atremendous success, and if Europe does not act quickly to preservecompetition and diversity of supplies, it will be too late even to try.
Robert R. Amsterdam is an international lawyer based in London, whowrites a blog at www.robertamsterdam.com. This article expresses hispersonal views and not necessarily the views of any of his clients.
Photo: Supporters of the pro-Kremlin youth movement “Nashi” pile firewood by aportrait of a peasant with an axe depicting Ukrainian President ViktorYushchenko in front of the Ukrainian embassy during a demonstration incentral Moscow, January 16, 2009. The European Union piled pressure on Russia and Ukraine on Friday to resolve a dispute cutting gas supplies to Europe in mid-winter and Germany said Russia must honour energy contracts. (Reuters Pictures)