Natural Gas As An Instrument Of Russian State Power

Redefining the scarcity of natural gas in the contemporary security environment -- The salience of natural gas in the emerging geopolitical model of Russia as an energy superstate -- Carrots and sticks : a look at Russia-Ukraine gas pipeline politics -- Divide ut regnes : reflexive control and gas pipeline politics in Eurasia -- Conclusion

This monograph is meant to provide an unbiased examination of: the scarcity of natural gas in the contemporary security environment; the salience of natural gas in Russia's national security strategies; and, the natural gas pipeline politics in Eastern and Central Europe. While the tendency of most energy security scholars has been to collectively analyze Europe's dependency on oil and gas, this author analyzes the two energy markets separately, and demonstrates that natural gas is a more potent instrument of coercion in the contemporary security environment than oil was in the traditional security environment. Sufficient evidence is also provided that Russia continues to perceive NATO as a hostile alliance, and that future natural gas disruption by Russia-who holds a monopoly on the supply of natural gas via pipeline to Eastern and Central Europe-will prove deadly to the economies of many NATO member states. The salience of natural gas as an instrument of state power is emphasized in Russia's negotiations with Ukraine; this monograph credits the 2006 and 2009 gas wars between the two nations as the main causes for the failure of the Orange Revolution in Ukraine. Ultimately, today, Russia uses the same tools it used in Ukraine-in the context of natural gas negotiations-to bribe Western European nations; to divide the NATO Alliance; and to rule over its traditional sphere of influence in Eastern and Central Europe. Finally, the author emphasizes that with the Russian construction of Nord Stream and South Stream natural gas pipelines, and unless alternatives to Russian natural gas are found, it is only a matter of time until Russia will use natural gas as an instrument of coercion against NATO member states.

"Since the Cold War, Russia has been perceived as a broken nation that no longer represents a threat to the North Atlantic Alliance. This book emphasizes that Russia overcame this major vulnerability by developing the capacity to use unilateral economic sanctions in the form of gas pricing and gas disruptions against many European North Atlantic Treaty Organization (NATO) member states. It agrees with many scholars and politics alike who fear that Russia will leverage its monopoly of natural gas to gain political concessions. The author suggests it is only a matter of time until Russia will use natural gas as an instrument of coercion to disrupt NATO's decision making process." -Douglas C. Lovelace, Jr. Director, Strategic Studies Institute A former Intelligence Officer, Ion A. Iftimie is an energy security expert with over one decade of successfully advising senior military, business, and government leaders on Eurasian natural gas industry and related national security issues. This is the second, revised edition.

While in the 1980s oil was considered "the only commodity whose sudden cutoff would have a drastic effect on national welfare or on economic activity," the 2030s come with the image of a world in which the sudden cutoff of Russian gas to Europe will have similar disastrous effects on the economies of many European and North Atlantic Treaty Organization (NATO) member states. This monograph argues that Russian control of the natural gas supplies and of the export infrastructure systems of natural gas to Europe gives tremendous leverage to Russia in imposing its national security policy. If in the traditional security environment the use of military force was the Union of Soviet Socialist Republic's (USSR) preferred method of political coercion, in the contemporary security environment Russia is struggling with a weaker military that no longer represents a threat to the North Atlantic Alliance. This book emphasizes that Russia overcame this major vulnerability by developing the capacity to use unilateral economic sanctions in the form of gas pricing and gas disruptions against many European NATO member states. It agrees with many scholars and politicians alike who fear that Russia will leverage its monopoly of natural gas to gain political concessions; and it supports the viewpoint that "Russia's energy-centered foreign policy is not limited to the states of the former Soviet Union and is clearly designed to increase its leverage in key geostrategic theaters and over United States allies." While Russian officials insist that these fears are overblown, skeptics believe that "if there were a serious enough dispute, the Russians might do just that [use its energy security leverage against NATO member states]." The concerns of these skeptics cannot be dismissed without an unbiased examination of the scarcity of natural gas in the contemporary security environment, of the salience of natural gas in Russia's national security strategies, and of the natural gas pipeline politics in Eastern and Central Europe. To address these questions, the monograph has been separated into four chapters. Chapter 1 will demonstrate that like oil in the traditional security environment, under certain conditions, natural gas can serve as an effective unilateral instrument of state power in the contemporary security environment, and that its disruption by Russia will prove deadly to the economies of many NATO member states in Eastern and Central Europe (traditionally, Russia's sphere of influence). Chapter 2 will explain why Russia perceives NATO as a hostile alliance, and how Russia uses natural gas as an instrument of coercion in its sphere of influence. In Chapter 3, a look at Russia's use of natural gas as a national security instrument of coercion in negotiations with Ukraine will help energy security analysts determine the conditions under which Russia will leverage its energy superpower position in its relations with European Union (EU) and/or NATO member states. Additionally, a look at Russia's failures in the use of such coercion in Ukraine will assist NATO member states in Eastern and Central Europe to identify ways to reduce the threat of disruption of Russian gas supplies. Finally, Chapter 4 will expose the processes Russia uses in the context of natural gas negotiations to bribe Western European nations-such as Germany, France, and Italy-to divide the NATO Alliance, and to rule over its traditional sphere of influence in Eastern and Central Europe.

Gazprom is the world's single largest producer of natural gas, long acknowledged as a state-within-a-state. In 2005 it reached a turning point in its history when the Russian government reasserted its majority stakeholder position, whilst also continuing it's own push to gain control over an increasing share of Russia's energy complex overall. This timely report provides answers to questions such as: what do these movements mean for the future of the Russian energy sector? What will be the impact of state control over Gazprom on domestic and foreign shareholders? And what do these changes portend for the future of natural gas exploitation, production, distribution and the ultimate export of Russian gas to downstream consumers? And what will these changes mean to world? This series of reports establishes for the first time the confluence of Russian foreign policy with the acquisition of foreign energy assets by Russian entities. Nine specific country profiles focus on the oil, gas, electricity and nuclear power industries. Each report written by an author of international standing, explains how Russian foreign energy downstream mergers and acquisitions are transpiring to consolidate the new Russian empire.

The Russian gas industry provides 50% of Russian domestic energy supplies, a substantial proportion of CIS gas supplies, and around 20% of European gas demand. Declines in production at existing fields mean that Gazprom will face increasingly difficult decisions about moving to higher cost fields on the Yamal Peninsula. The alternative will be increasing imports from Central Asian countries and allowing other Russian gas producers to increase their role in the industry. Russian exports to Europe will gradually increase and deliveries of Russian LNG will commence to Asia and the both coasts of North America. Pipeline gas deliveries to East Asian countries may have a longer time horizon. Export projects aimed at new markets will depend crucially on the maintenance of (oil and) gas prices at the levels of 2003-05. European exports will also depend on the pace of EU market liberalisation and Gazprom's ability to agree mutually acceptable terms for transit, principally with Ukraine and Belarus. Reform, liberalisation and restructuring of the Russian gas industry have been more substantial than has generally been recognised. Most important has been price reform which, in 2005, allowed Russian industrial customers to become profitable to serve at regulated prices. Price increases may significantly reduce future increases in domestic gas demand. The increasing need for production from companies other than Gazprom will ensure that liberalised access to networks expands considerably over the next decade. In the 2000s, Gazprom reclaimed its CIS gas business from intermediaries, while maintaining its de facto monopoly of exports to Europe and establishing a similar degree of authority over future exports to Asia. The merger of Gazprom and Rosneft will provide the potential to become a force in the domestic and international oil markets, particularly given the authority that the president has conferred on the company in terms of Russian energy policy.

Public debate about energy relations between the EU and Russia is distorted. These distortions present considerable obstacles to the development of true partnership. At the core of the conflict is a struggle for resource rents between energy producing, energy consuming and transit countries. Supposed secondary aspects, however, are also of great importance. They comprise of geopolitics, market access, economic development and state sovereignty. The European Union, having engaged in energy market liberalisation, faces a widening gap between declining domestic resources and continuously growing energy demand. Diverse interests inside the EU prevent the definition of a coherent and respected energy policy. Russia, for its part, is no longer willing to subsidise its neighbouring economies by cheap energy exports. The Russian government engages in assertive policies pursuing Russian interests. In so far, it opts for a different globalisation approach, refusing the role of mere energy exporter. In view of the intensifying struggle for global resources, Russia, with its large energy potential, appears to be a very favourable option for European energy supplies, if not the best one. However, several outcomes of the strategic game between the two partners can be imagined. Engaging in non-cooperative strategies will in the end leave all stakeholders worse-off. The European Union should therefore concentrate on securing its partnership with Russia instead of damaging it. Stable cooperation would need the acceptance that the partner may pursue his own goals, which might be different from one’s own interests. The question is, how can a sustainable compromise be found? This thesis finds that a mix of continued dialogue, a tit for tat approach bolstered by an international institutional framework and increased integration efforts appears as a preferable solution.