Russian President Vladimir Putin said he doesn't think the European community
can do without the natural gas it gets from energy monopoly Gazprom. With a
Russian economy starting to decline, however, it may be Gazprom that's too
strongly interconnected to the European market to break free.
The narrative over European energy security reaches at least back to 2006
when Gazprom first cut gas supplies through Ukraine. The fallout from the latest
disruption in 2009 put opposition darling and former Prime Minister Yulia Tymoshenko
in prison, but now the tables have turned for a Ukraine tilting more strongly
toward the European Union.
Last week, Putin warned European leaders that gas supplies through Ukraine
may be cut if Kiev didn't settle its $2.2 billion gas debt to Gazprom. With
European allies mulling the best way to break Russia's grip on the region's
energy sector, Putin said there are few alternatives to Russian natural gas.
"Can they stop buying Russian gas?" he
asked in a question-and-answer session this week. "In my opinion it is
impossible."
Russia sends about 15 percent of its natural gas supplies bound for the European
community through the Soviet-era transit network in Ukraine. The European energy
market has options in Caspian gas waiting in the wings, and potentially liquefied
natural gas deliveries, though those alternatives provide little short-term
relief.
U.S. State Department spokeswoman Marie Harf warned Putin against using energy
as a geopolitical tool in a crisis that's re-opened old Cold War wounds.
"We've said very clearly that Russia should not use this as a weapon and that,
actually, Russia has a lot to lose if they try to do so," she
said.
Before the situation erupted into one of the most severe Eastern European
crises since the 1990s, the Kremlin had expected 2.5 percent growth in gross
domestic product. Now, Economic Development Minister Alexei Ulyukayev said GDP
growth should be "near zero" and the Ukrainian row may be to blame.
Trade in oil and natural gas nets Russia about 70 percent of the estimated
$515 billion in export revenue and
accounts for more than half its federal budget. Though Gazprom has sought entry
to a growing Asian economy, most of its natural gas heads to the European market,
meaning Putin's Russia may be as strongly linked to the EU as the EU is linked
to the Kremlin.
Russian First Deputy Prime Minister Igor Shuvalov said the
economic situation in the country in part depends on how the Ukrainian crisis
plays out. The World Bank, he said, expects 1 percent economic growth for Russia
this year. The view from the Kremlin, however, is much more pessimistic. With
both Russia and the European community interconnected by
natural gas, the relationship may remain intact despite the rhetoric from both
sides of the lowering Iron Curtain.
Source: http://oilprice.com/Geopolitics/Europe/Putin-...rgy-Gamble.html
By Daniel J. Graeber of target="_blank" Oilprice.com
