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Geopolitics of Russia’s Energy

The FT has posted an interesting speech by their energy correspondent, Carola Hoyos.

Geopolitical Shifts: Russia: While Europe and the US clung to history, making comparisons with the 1970s, and worrying about the rising power of the Middle East (remember President Bush’s concern about the US’s addiction to Middle Eastern oil in his 2006 “State of the Union” address) it was in fact outside the Gulf that some of the most concerning changes were happening. I landed in Moscow in late-October 2003 just as thousands of miles east, Mikhail Khodorkovsky, the chief executive of Russia’s biggest and most dynamic oil company was being handcuffed and taken to prison in Siberia. Unbelievably, Yukos did not cancel the interviews my Moscow bureau chief and I had lined up the next day and we literally watched from inside as the company’s walls collapsed around the rest of its management under the relentless onslaught of the Kremlin. Neither of us could have imagined that the exercise would end with Khodorkovsky still imprisoned years later and western investors sealing the Kremlin’s actions with a $10 billion kiss by allowing Rosneft, bolstered by Yukos’s assets, to launch (late last year) a successful IPO on the London Stock market. Of course, Russia’s actions did not stop with Yukos. The story continued, with major chapters including Sakhalin II and Moscow’s gas disputes with Ukraine and Belarus. And as Yukos’s death built Rosneft, the Kremlin’s successful wrestling match with Shell and other IOCs has benefited Gazprom. From the other side, the US, Europe and Nato watched with concern. Bush had clearly misread Putin’s soul as he famously looked into his eyes. In Washington disillusionment has set in as the world has watched the newfound power oil prices have afforded the Kremlin erode democracy, shut down free speech and fuel corruption. During a speech in Europe this weekend, Robert Gates, the US’s new defense secretary and an old cold warrior, said he was almost nostalgic for a less complex time. The former director of the CIA said he “wondered” about Russian policies that seemed to work against international stability, bluntly giving as an example: “Its temptation to use energy resources for political coercion.” The impact of Russia’s actions has also been detrimental on its longer-term energy supplies. The double digit oil production growth the country had achieved as recently as 2002 has slowed to a trickle and the IEA worries Gazprom is investing too little to be able to meet its future commitments to Europe. Meanwhile, the promising new energy frontier of the post-Soviet era has turned into a difficult, dangerous or impossible place to do business for many international oil companies who had been scrabbling to strike deals such as the one BP achieved when it created TNK-BP. Meanwhile, downstream, Russia’s new muscle has led to deep distrust as European national champions have emerged and sentiment is growing to keep Russia – and also Algeria – from being able to market directly to customers.