Russia's Ugly Show Is a Warning for Europe

Ukrainian President Victor Yushchenko only has to look in the mirror and see his pockmarked, disfigured face – the result of chemical poisoning – to know that the KGB is still in charge in Moscow. Since the beginning of this year we all know it, too. Russia’s state-owned gas company Gazprom cut the supply of gas to Ukraine after the latter refused to pay the new price Russia is charging Kiev: a rise from 50$ to 230$ per 1,000 cubic metres of gas.

As in the days of the Cold War, the Russians have their Western apologists. The latter say the price rise is the result of Russia’s wish to introduce free-market price mechanisms. However, as Andrei Illarionov, the former economic adviser to Russian President Vladimir Putin, said last Saturday, the price hike is a political move signalling the rise of neo-imperialist trends in Kremlin policy. Illarionov, a libertarian economist, resigned last week after the Kremlin had asked him to help cast the price rise as a free-market measure. Illarionov likened the measure to Nazi and Soviet ultimatums issued to Eastern European nations before their annexation on the eve of World War II. He urged the Kremlin to step away “from the brink of a precipice that we are approaching so blindly and quickly. Energy weapons are being used against neighbors. The move toward a policy of imperialism [...] has a clear and high price that will eventually be paid by the citizens of a nation that embarks on the imperialist path.”

According to Illarionov the political target of Russia’s price rise and cutoff of Ukrainian gas are the coming Ukranian parliamentary elections in March. Recently Russia has also cut off Moldova from its key power supplier and blocked oil deliveries from Kazakhstan to Lithuania. Illarionov told Time

“What they are doing to Ukraine is obvious price discrimination. […] One feels that the main objective is having the negotiating partner sufficiently insulted in order to make reaching the agreement impossible. One feels that Russia seeks frustrating the deal for some duration. Actually, Konstantin Kosachev, Chair of the Duma’s Foreign Relations Committee, put it succinctly when he said the other day that no deal would be reached before Ukraine has its parliamentary election in March. […] Russia has made it plain it wants [control over] Ukraine’s gas transporting system. Then, Gazprom says, the prices will go down.”

As readers of the Brussels Journal know, Andrei Illarionov, one of the bravest men in Europe today (who now runs the serious risk of ending up with a face like Mr Yushchenko’s), has been replaced as Putin’s advisor by one of the most repulsive of Europeans: the German Socialist former Chancellor Gerhard Schröder. Since last month Herr Schröder is cashing in 1 million euro a month as political advisor of Gazprom. This is the booty Herr Schröder earned for agreeing, in his final weeks as Chancellor, to build a gas pipeline on the Baltic seabed. By 2010 the line will allow the Kremlin to pump gas directly from Siberia to Western Europe, bypassing nations such as Ukraine, Poland and the Baltics.

As the events of the past three days have shown, it is difficult today for Russia to deprive these nations of their energy supplies because the pipelines to Western Europe pass through their territories. The axing of gas supplies to Ukraine initiated a domino effect causing a drop in Russian gas deliveries to Western Europe, which imports a quarter of its gas needs from Russia.

The Ukrainian-Russian conflict has made the European Union very nervous. While the United States regretted the Russian move, saying that the issue “raises serious questions about the use of energy to exert political pressure,” the EU energy commissioner Andris Piebalgs was anxious to state that “nobody was to blame” and that “the situation was complex.” The situation, however, is not that complex at all. As the US government spokesman said: “We support a move toward market pricing for energy but believe that such a change should be introduced over time rather than suddenly and unilaterally.” Matters would be different if Gazprom were a private company. Such companies do not price their products according to the political inclinations of their clients, as Gazprom does when it charges Moscow-friendly Belarus 49$ for the amount of gas that Ukraine has to pay 230$ for, simply because Mr Putin (and Herr Schröder) does not like Mr Yushchenko.

Gazprom is Russia’s gas monopoly. It was brought under government control last Autumn. There is a pattern here. Two years ago Putin nationalized the Russian oil industry by dismembering the private oil company Yukos. What Russia is doing is dangerous for the whole of Europe because Gazprom is the largest gas company in the world, owning over 90% of all Russia’s enormous gas reserves and 25% of the world’s. It is gradually acquiring a monopoly position in the whole of Europe. Today Putin is abusing this power to squeeze Ukraine, but if Europe does not react the Kremlin might soon be in a position to squeeze Europe and treat all of us as its treats Ukraine today.

There are two lessons to be learned here. It is very dangerous to be dependent on a single energy supplier. This is illustrated by the case of Belgium, which is dependent on French state-controlled companies for 90% of its electricity. This has turned Belgium into a vassal of France and Brussels into a mouthpiece of Paris. If Europe similarly allows the itself to become dependent on Russia, the EU will in a decade from now be the mouthpiece of the Kremlin. To prevent this Europe must diversify its energy resources and seriously consider rebuilding its nuclear power plants. France is 80% nuclear already, which shows that at least Paris wants to be able to confront Moscow on an equal basis. Germany, however, has closed down its nuclear plants. It is no coincidence that this was done during the rule of Russian collaborator Schröder, who intends to go down in history as the man who sold out Berlin to Moscow.

The second lesson is that Russia’s imperial ambitions must be stopped today. It is important to stand by Ukraine and the other countries that lie between Germany and Russia. Rerouting Russian gas directly into Germany via the Baltic Sea, whilst bypassing Ukraine, Poland or the Baltics, should not be allowed. So long as Gazprom remains a Russian state-owned gas monopoly, it is necessary that some other authorities – be it other governments – are in a position to exert some control over the company’s gas deliveries. And seeing as Russia has apparently remained under the political control of former agents of the previous communist regime, such as KGB veteran Putin, it is imperative that Ukraine be brought into NATO.

More on this topic:

KGB Tightens Screws on Ukraine, 1 January 2006

Russia Returns to Dictatorship, 28 December 2005

Prominent Estonians Call for Move Against German-Russian Gas Pact, 28 December 2005

Berlin-Moscow Gas Pact Easy to Thwart... if Balts Have Guts, 21 December 2005

Schröder Exchanges Berlin for Kremlin, 14 December 2005

Time for synthetic fuel.

Time for synthetic fuel. Hitler ran his war machine on coal derived synthetic diesel fuel. South Africa currently produces over 200,000 barrels a day and the cost of a barrel of synthetic oil is almost one half ($35) that of the current price from the Gulf states ($63). The primary reason synthetic fuel production slowed, was the availability of very cheap oil following WWII.

Coal gasification also provides (in addition to synthetic oil) a reliable supply of clean burning gas for home heating.

Combining these with extensive nuclear power plants, would greatly reduce Europe's dependence on imported energy.

The transition from fossil based oil to synthetic oil requires government backed investments and approximately ten years. The money saved would have a dramatic, positive impact on most EU member budgets.

Free market gas.

Now what about this? Ukraine relapses into an anti-European attitude and cuts off Russian gas to Europe? Wouldn't we bless the Baltic seabed pipeline then?

This article actually sounds like another attack on the free market in the name of politics, this time to corner Russia. Does that justify it?

A real free market hates cartels and monopolies. It loves a plentitude of free market players and diversity in supply. We *buy* most of our electricity in France, yes, but thanks to the pan-European power grid, we can buy it elsewhere too when the French would manipulate electricity prices for political reasons. What's the case then against a pipeline grid in which the Baltic seabed line could be one of the shunts in case of any political pressure on another line?

And why the heck should Ukraine pay prices below the market value? This "privilege" has a high price and it can very well be used (and it just was) as a political blackmail tool. Now Ukraine has to pay market prices, it is *free*. Maybe paying the real cost of energy will streamline Ukraine's ailing and corrupt economy. And Ukraine is free to ask a much higher rental price for the Crimean peninsula with the Russian Black Sea fleet now, as the pressure of their subsidized gas is gone. Because there is only one Crimea so Ukraine is a monopolist there.

I bet that part was in the deal struck for the peaceful normalization of the gas price.

I agree with VH, except I

I agree with VH, except I would diversify and enable a short term diversification of my resource sources. I would object to France's snooping into our electricity grid; I dont mind the Ukraine having to pay more for Russian gas. Why? France + Walloonia & history= influence in Belgium (against FL?), a more troubling situation than in the Ukraine.

Power grids

"I would object to France's snooping into our electricity grid;"

But the grid is not *ours*, it's pan-European. If we purchase our electricity from France, that's probably (I hope so!) because they offer the best prices.

Now consider this scenario: France cuts off electricity to Flanders after its independence. Well, then France has to cut its supply to Holland too, and to part of Germany. We can purchase electricity there. My point was that a diversification in supply lines dissuades political pressure, and the point was made in regard to Russia. Anyways, many French trucks have to pass thru Flanders on their way north. Hence, the scenario is unreal.

When the EU's founding fathers started the whole thing in the fifties, their main goal was to prevent another devastating war in Europe's heartland by intertwining the economies in such a way that any war would produce a major lose-lose situation. Part of Germany's expansionism before WWII can be explained by its lack of prime energy sources and raw materials having no colonies, and by their urge to have an Atlantic seaport.

If you don't like politics to interfere in energy supply, just enable a more free and diverse market. This article seems to advocate a political isolation of Russia, which is not very wise.

As to diversifying energy sources, of course the nuclear option has to be revived in Belgium. The safety is not even an issue, as the nuclear power plants park in Givet is in a French bulge into Belgian territory, not further away than 5km on three sides. Any major accident there would affect Wallonia, Flanders and Holland since Givet uses the Meuse for its cooling. And water, as we all know (except the Green parties) has a tendency to run downhill.

Ofcourse the scenario is

Ofcourse the scenario is unreal; nonetheless I wish to be as much as self-reliant/dependant as can be. France can cutt electricity supplies, as long as I can switch to an alternative source within a couple of minutes...that is my point; always assure the switch-over.

Germany's lack of colonies; what lack of colonies?

I thought you guys were in

I thought you guys were in favour of the free market. So why shouldn't Ukraine pay the price of the free market?

Excellent article. There is

Excellent article. There is 1 line that I disagree with however.

"France is 80% nuclear already, which shows that at least Paris wants to be able to confront Moscow on an equal basis."

France is not trying to confront Moscow on an equal basis. It is joining Moscow to confront the United States. Moscow's energy policies will force the rest of Europe to join their axis without France having to suffer while the rest of Europe is being forced into the axis.

I'd love to hear views on

I'd love to hear views on what Comrade?...Tsar?...Putin ultimately wants. Chumming up to Tehran must offer tempting opportunities to settle old grudges with the west, and, I suppose, a black-mailed Europe and a oil-paralyized USA couldn't prevent a restoration of the borders of the old soviet reich. Do you think that's the game here? Curious and worried in the USA.

Placing the Ukraine into

Placing the Ukraine into NATO is theoretically feasable, but can Ukraine afford the modernisation of its armed forces to NATO standards?
What will happen to Sevastopol, which is rented by the Russians?
It will lead to a deterioration of relations...cold war anew?

Additionally the Russians are creating a markethole for competition to move in and seem to be unreliable which could force Western European countries to diversify the provenance of their resources. If there will be one looser it will be Gazprom.

German appeasement of terrorists, dictators

The comment on "repulsive" friend Schroeder is amusing. But even under Ms Merkel we see policies which undermine any consideration of Atlantic alliance. Just as in all nations, most Americans spend time with family, watch sports, etc. Of those who watch politics a vocal minority is so anti-Bush that their response to any issue is mechanical. But among those who watch politics and who reflect on the issues, I detect a visceral response to the recent release of a Hezbollah terrorist (supposedly with a "life" in prison sentence) who brutally murdered an American serviceman 20 years ago, and the near-simultaneous release of a German "hostage" by terrorists.
This will not soon be forgotten by the Americans who pay attention to world developments. Germany is now competing with France as the most hated Euro regime.
Whatever your views of the world and who is responsible for various problems, it cannot be considered a positive development to see the hardening of such attitudes.

german dealings

astute observation.thanks

Isn't this an enormous

Isn't this an enormous opportunity for another supplier to jump in? How difficult would it be to pump gas in the other direction (i.e. through Western Europe to Ukraine etc.)? Send in some tankers and sell at a price below Putin's extortion rate, I say!