Streetwise Professor

February 20, 2008

Said the Spider to the Fly

Filed under: Energy,Politics,Russia — The Professor @ 10:54 am

In this last Presidential news conference, Vladimir Putin was in rare form. He was particularly outspoken on American efforts to encourage Europe to develop alternatives to Russian energy:

“We are aware of how the United States has been acting in Europe.”

“It puts pressures, it looks for new delivery routes, it urges others to refrain from buying fuels from Russia. This policy is wrong, and it is also silly,” Putin said, coupling this opinion with a warning against excessive politicization of the issue. As an example, he mentioned Turkey. When Iran slashed fuel export to that country, Russia compensated for the shortfall “without much a do.”

Putin voiced surprise why the West was so much afraid of Gazprom’s growing strength, a Russian monopoly that guarantees supplies to western consumers.

“The consumers should feel happy the economic potential of the Russian provider company is on the rise,” he said.

Yeah, I’m sure that the Europeans are just ecstatic over having Gazprom supplying a large percentage of their gas. Gee, ya think that Gazprom’s “economic potential” is in part built on rents extracted from Europeans by charging supercompetitive prices for gas?

Also note the divide-and-conquer rhetoric, another classic Putin touch; in Putin’s framing, the US is using the Europeans as a pawn against the poor, misunderstood Russians. But warning of the dangers of becoming overly dependent on Russian energy is not just an eeevil American plot to poison European minds against the innocent Russians–myriad thoughtful and farsighted Europeans, those that haven’t been bought off, anyways, recognize that it is very wise to develop alternative supply sources. (And maybe even more Germans will get a clue, after Lukoil cut off oil shipments today.)

Putin also framed things in terms of Russia always meeting its supply obligations. For one thing, that is debatable; consider, for instance, the Ukrainian gas shutoff in 2006 and the knock-on effects in Europe. For another thing, it misses a crucial point–price. Europeans should care not only about whether Russia delivers its contracted quantities at the contracted price–it should care deeply about what those quantities and prices are. A Europe that has numerous suppliers competing to serve it will be able to obtain more gas at better prices than if its supply alternatives are sharply limited, and overly dependent on Russia.

So, if the Europeans are smart they will see through Putin’s bluster and strive mightily to avoid becoming trapped in his–and Gazprom’s–web.

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