From Gazprom to the Kremlin, business as usual

There has been a perplexing question that exercised the minds of many energy analysts after the election of Dmitry Medvedev, Gazprom’s Chairman of the Board of Directors as Russia’s president: will there be any change in its energy policies?

THE answer came from the Kremlin as clear as such: Russia’s energy policies are highly unlikely to change in the wake of the 2nd of March presidential elections. Russia’s new president Medvedev has repeatedly pledged to maintain what he has described as political continuity. This answer was solidified by the fact that the new president still serves as chairman of the board of natural gas monopoly Gazprom and has tended to defend the gas giant against “unfair criticism by the West that included claims of energy blackmail.”

Nevertheless, it is evident that Russia will continue exercising energy blackmail with the aim of having more political influence on European and international politics. Starting from the 3rd of March, Gazprom cut gas supplies to Ukraine by 25 percent, and the following day it again limited gas supplies to the neighboring country by another 25 percent. Gazprom officials argued that Ukraine owes some $1.5 billion in gas debts and Kiev has been plotting to limit natural gas supplies to Europe. However on March 5th the gas giant suddenly announced an agreement with Ukraine and ended its earlier supply restrictions, announcing that Ukraine had agreed to pay its debts.
This latest gas dispute between Russia and Ukraine posed a threat to European energy security, since Russia supplies about three quarters of gas destined for the European Union (EU) through Ukraine. A similar supply cut in January 2006 briefly disrupted gas supplies to the EU. In reality, the non-stop gas disputes occurring between the two countries highlight Europe’s vulnerability to foreign energy providers.

Russia further complicated the situation when Gazprom pushed for the construction of sub-sea pipelines to pump Russian gas to western Europe, by-passing Ukraine and other transit nations, which might experience instability.

Before emerged victorious in the presidential election, Medvedev had supervised some major energy agreements with Serbia and Hungary. In February, he conducted deals between Gazprom and local energy firms in these two countries. Agreements signed during Putin’s reign is expected to bear fruit during Medvedev’s. The $15 billion sub-sea South Stream pipeline system is expected to carry about 30 billion cubic meters (bcm) of gas a year by 2013. In June 2007, Gazprom and Italian oil and gas company Eni agreed to build the South Stream pipeline under the Black Sea to Bulgaria, where it would be divided into a northern route going to Austria, and a southern route via Serbia into Italy.

Gazprom has been actively pursuing expanded cooperation with major gas producers, like Iran and Algeria, a matter which raised speculations about the creation of a gas cartel to control prices. And although Russian officials have repeatedly denied any gas cartel plans, Iranian officials have insisted that Iran, Russia, Algeria and Qatar are holding talks on the creation of an OPEC-like gas cartel.

On the domestic arena, Medvedev is expected to maintain the Kremlin’s drive to increase government control over the country’s energy sector. Gazprom and state-run oil company Rosneft have already been allowed to put approximately one-third of Russian oil and the bulk of the country’s natural gas under state control.

One of the reasons, observers think, behind the continuation of the current energy policies is that no actual change has happened in Russian politics in the past few weeks following the election of Medvedev. Outgoing President Vladimir Putin, who currently serves as prime minister, has continued to make headlines with directives on domestic and international policy. Therefore, it seems, he will remain the man behind the wheel, despite working from behind the scenes.


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