July 2007

Oil and gas in the capitals

Russian-US rhetorical jabs may mean many things

Vol. 228 No. 7
Oil and Gas

Sorting out the contentious Russia-US dialogue. The June 2007 G-8 Summit saw a lot of old Cold War rhetoric surfacing. This exchange of accusations and clarifications concentrated mostly on the US anti-missile project and the stern Russian reaction to it. Even official statements claiming that “the Cold-War is over,” whether made by US Secretary of State Condoleezza Rice, German Chancellor Angela Merkel, or Russian Minister of Foreign Affairs Sergey Lavrov, have failed to be completely convincing. If the situation between the US and Russia had been perfectly happy, would it have been necessary to claim that no new Cold War was in the coming?

Actually, there is no doubt that relations between Russia and the US have deteriorated to an extent never reached since the NATO operation in Kosovo during April 1999. This is a long-term trend, and in no way is it linked to a single issue, including energy.

It is possible that Russian President Vladimir Putin’s surprise proposal, to use Russian-held radar in Azerbaijan for a joint US-Russia anti-missile project, could lead to a compromise on this particular topic. The whole trend will not be changed by any compromise. However, one should not confuse diplomatic clouds with shadows of the defunct Cold War.

Origins of this trend can be traced to different issues. Most certainly, the Russian elite resent the US policy, taking place in what is seen from Moscow as Russia’s backyard (Ukraine, the Caucasus and Central Asia). Russia has joined forces with China to balance US influence in Central Asia and has, to some extent, succeeded in recovering a strong position in the whole area.

There are too many conflicting views on a host of important issues, like Kosovo’s future, the demise of the ABM Treaty or the US intervention in Iraq. Even if Russia can be seen to be closer to US positions on the Iranian military nuclear program, Moscow is still adamant that no military intervention should be done against Iran.

Last but not least, the new Russian development policy implies a strong degree of governmental control on the raw material sector, especially oil and gas. This could be a potential reason for conflict with US companies’ interests.

These issues are certainly ones where opposition between the two countries is the most pervading. Speeches about a “derailing of reforms” in Russia or a weakening of democracy look more cosmetic. Russia is no less a democracy under Putin in 2007 than it was when Boris Yeltsin began the war in Chechnya or rigged presidential elections in 1996. It would be difficult, also, to pretend that economic reforms have derailed in Russia, when one looks at the high, stable growth the country has enjoyed since 1999.

Russia rebounds. Through economic and state rebuilding, as well as high oil and gas prices, Russia is re-appearing as a major international player. The “return of Russia” process is obvious in Europe, but it can be seen, too, in Africa or Latin-America. Compared with the situation in the late 1990s, this is a major difference.

Deterioration of US-Russia relations is a given fact. There is no reason why this could not change for the better in years to come. However, this situation is definitely not linked to any ideological competition. Moscow is not claiming to hold any kind of greater Universal Truth and certainly does not harbor any dream of world domination.

Even increased governmental intervention in economic policy (particularly oil and gas) is done in Russia through joint-stock companies and a new kind of mix between the private sector and government-controlled entities. Nobody wants to resurrect Gosplan, the former Soviet central planning committee, and the Duma, the Russian parliament, is happily housed in the former Gosplan building.

Politically, there does not seem to be any coherent “bloc” forming among various countries to support either Russia or the US. This is why it would be a serious mistake to compare the current situation with a new bout of Cold War. Cold War would imply the existence of a well defined West and East. This is far from today’s reality.

Germany, despite whatever Mrs. Merkel may have said about former Chancellor Gerhard Shroeder’s previous Russian policy, has not weakened its links with Russia. To the contrary, economic cooperation between Berlin and Moscow has been growing during the last 18 months. In France, although the newly elected President, Nicolas Sarkozy, had spoken in tough terms about Russia while campaigning, he adopted a much more pragmatic approach when meeting Putin during the G-8.

Obviously, countries like Poland or the Czech Republic are not very comfortable with the return of Russia as an important European player. But even among former Eastern European countries, this is not a shared opinion. Hungary, a country that suffered greatly when Soviet troops repressed the 1956 uprising, has clearly chosen the German-Russian Burgas-Alexandropolis pipeline project as opposed to the US-supported NABUCCO gas line effort. Slovakia and Bulgaria are also leaning toward Moscow-sponsored projects.

Changing priorities. The recent G-8 summit has rammed home two important changes in 21st Century international relations. First, Russia has interests of its own, and both a willingness and the means to defend them. For better or worse, this has to be acknowledged. Second, no matter what some European leaders might say when they are campaigning, economic interests are, now, much more important than ideological statements. Russia is not to be seen the same way from Washington, as from Berlin and Paris. When the Soviet Union collapsed, so, too, did the notion of a unified West.

Political elites must come to grips with this fact. The end of the Cold War has not meant that we are entering a conflict-free world. But it does mean that we cannot think of conflicts and alliances in the same way that we did during the Cold War. If there is one really important lesson to be learned from the G-8 summit, it is “Welcome to the multi-polar world.” WO

Jacques Sapir is professor of economics at EHESS-Paris and at the Higher School of Economics in Moscow. He is a regular contributor to this column.

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