There’s an interesting analysis running on Stratfor which points out that although it would be economically wise to cut gas supply agreements with China, Gazprom made this call with politics in mind. Apparently, Dmitri Medvedev’s sinking fortunes in the “competition” for the presidential appointment vis-a-vis Sergei Ivanov has driven him to make some risky moves with Gazprom, but China is well aware of its influential weight as a consumer, and embarrassed him by refusing to pay above Russia’s domestic gas prices. I wouldn’t worry about any of Medvedev’s so-called “temper tantrums” – the worst thing for a presidential candidate in Russia is to be the frontrunner. Putin will likely step in soon and tee up a few easy points for Medvedev to score in order to maintain balance, and, most importantly, uncertainty. Stratfor:
Medvedev knew he needed a big success to arrest his slide and figured that getting the Chinese to sign on to a high-dollar natural gas deal was the trick. But when he and the Chinese sat down to negotiate specific pricing, the Chinese refused to commit to paying more than Russia’s (subsidized) domestic prices of about $100 per 1,000 cubic meters. (The Chinese much prefer to deal with Rosneft since Rosneft has a reputation for treating customers and partners as equals, as opposed to Gazprom’s more autocratic attitude.) For Gazprom, this was simply a nonstarter: Gazprom charges nearly three times that for its natural gas exports to Europe, and that is through infrastructure that already exists. In the aftermath of this meeting, Medvedev was mad at China for making him look the fool, and mad at Rosneft for outmaneuvering him (again). So, in essence, he threw a temper tantrum, and the announcement that a deal with China is bad for Russia was the result. For someone who wishes to be president, that was certainly a miscalculation. Despite the creative (at best) economics of the Russia-China natural gas pipeline plans, those plans are a critical facet of the Moscow-Beijing and Moscow-Brussels bilateral relationships. The Kremlin supports the ideology of a multipolar world to contain the United States, and what better way to symbolize that system than to build up the idea of a grand Russian-Chinese economic partnership? That partnership also can be used as a threat to encourage European cooperation — the subtext being that a Europe unfriendly to Russia could be a Europe without Russian energy. Medvedev’s little outburst exposed the core fallacy of Russian foreign policy: that Russia has economic options. Putin is not pleased. But Putin does not have any magic bullet for the situation. Putin personally trained Medvedev for nearly 20 years, ever since the two first met in the St. Petersburg mayoral office before the end of the Cold War, so the president cannot simply drop Medvedev like a hot beet. That would be tantamount to admitting that the all-knowing, all-powerful Putin was not only wrong, but also that he had been wrong for years. There is one additional complication. Russian media and culture are very adept at building up cults of personality, and both have been fixated on Medvedev for months. Consequently, even as Medvedev’s political potential is crashing and burning, his public image has shot up to rock star — many would say sex symbol — magnitude. Putin might not be able to pull the plug even if he wants to. The safest course, then, is to whittle away at Medvedev’s responsibilities, both in Gazprom and the government, while slowly turning down the wattage on his press exposure in the hopes of darkening his image and edging him out of the public mind. But remember, it is not that Medvedev is incompetent; it is that Putin feels he is both too emotional and too popular to be president. Medvedev likely still has a place in not just Putin’s government but also in the next administration. But if he displeases the Kremlin again, he could well consider committing suicide with a sniper rifle from across the street.