Streetwise Professor

February 20, 2007

No Symmetry

Filed under: Commodities,Energy,Russia — The Professor @ 10:53 am

Commentor (and former student) Samir makes several excellent points, but I’ll focus on one. Specifically, the uncoordinated European response to Gazprom.

One of the points that Gazprom and its acolytes attempt to use to gull the lazy minded is that there is a symmetry between Europe and Russia/Gazprom. Europe has one major supplier–Russia–but Russia has only one consumer–Europe. I have even seen the term “bilateral monopoly” used in this context. Relatedly, Gazprom constantly retorts “security of demand” whenever Europeans have the temerity to question the security of their Russian supplies, suggesting that Gazprom is as vulnerable to opportunistic behavior by its customers as are its customers to a gas shutoff by Gazprom.

Strike up another chorus of “I don’t wanna hear it!” Europe is not a monolithic entity in the same way Gazprom is. Not only are there several handfuls of European countries, each of whom pursue their own interests (EU rhetoric to the contrary), but even within most European countries there are multiple consumers of gas, including utilities and industrial consumers. That is, the demand side is relatively fragmented and competitive compared to the supply side. Moreover, Gazprom is a past master at playing off one European government against the other, and European companies against one another. Divide and conquer is an old game, and Gazprom/Russia play it well. Sad to say, they are aided in this by short sighted, cynical European governments. As Samir notes, the French just cut their own deal with Gazprom. Germany has been a major enabler, although Angela Merkel is pulling back somewhat. The question remains, however, as to whether she can overcome the influence of the German banking and industrial establishment, which has a long history of cynical dealings with Russia (as during the early Bolshevik period immediately following Brest-Litovsk). The Italians have also been major collaborators.

Thus, there is no symmetry between the monolithic Russian supply side and the fragmented European demand side, and Putin’s/Gazprom’s repeated attempts to assert such balance where none exists is further evidence of their disingenuousness. Actually, I can tolerate that; I don’t blame the wolf for its nature. What I cannot tolerate is the failure to think by those in the west who parrot such nonsense.

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