Time to rid the blinders about NordStream

The Swedish government's decision to accept the disputed gas pipeline NordStream has caused debate. Is the Russian-German gas pipeline a security policy threat to vital Swedish interests? Or is it a project that safeguards stability and development in Russia? In a recent interview by Andreas Henriksson from political web journal makthavare.se, I try to put some of these questions into perspective.

Vilhelm Konnander participated as one of the lecturers at the Fokus magazine conference "When technology changes politics" a few weeks ago, where he spoke at the Global outlook seminar. He is also one of the authors of the international blog gateway Global Voices, and has both professionally and privately followed developments in Russia for a long period of time. Makthavare.se asked him to give his views on the gas pipeline, and also account for the role that Russian gas and oil giant Gazprom plays in current Russia.

Q: How do you think that the Russian political leadership looks at the gas pipeline? Is it an important project for them from a strategic and geopolitical perspective, or is it a more downright economic project that carries its own merits and might have fallen had Swedish resistance been to great?

A: It is time to rid ourselves of blinders concerning the Nordstream issue. For Russia, NordStream and energy exports is a classical question of domestic foreign policy. It is about fattening a system that rests on a far-reaching political and economic symbiosis between competing political and economic élites, which seek to monopolize political and economic power. And the loyalty of élites is dependent on the incomes from oil, gas, and other raw materials, and how these profits are divided.

Extenstive regulations, taxation, and charges on the domestic market, has put the Russian energy industry in a position where the largest profits are made on foreign markets. For example, the internal Russian price on gas has, at times, been as low as a mere 3 percent of the export price. In the course of time, Gazprom's export incomes have varied between 50 and 70 percent of the business conglomerate's total revenues, despite the fact that substantially lower gas volumes have been delivered to Europe than to the domestic market. The Russian élites have thus enveloped itself into a so great dependency to divide the spoils of energy export revenues that it has become an integrated part of the country's informal system of government.

Q: And what would be the consequences of that?

Today, Russia's political stability is dependent on stable energy export revenues. In the event that this money flow is stopped - especially in times of economic crisis - it may subvert or threaten the political stability of the country.

The link between falling energy prices and Russian systemic collapse is obvious, regardless of whether one speaks of the fall of the Soviet Union or the financial crisis in the wake of which Putin came to power. Therefore, the effects of the international financial crisis is now all becoming resemblant of a fight for life or death to get hold of a piece of an ever diminishing cake. The consequences of Russian domestic political instability are still unclear, but increasing Russian desperation might cause greater uncertainties in the foreign and security policy area - in contrast to the clarity and predictability of recent years.

Q: What then might we expect from or great Eastern neighbour in the future?

A: In this perspectve, NordStream is, of course, important, but a basic mistake from the Swedish horizon is to constantly depart from very obscure geopolitical perspecitve, at the same time as the fundamental Russian domestic motives behind the project either are put in the background or regarded as purely economic.

In the interplay between politics and business, NordStream and similar projects are strategically vital for Russia, and here the domestic driving forces marginalise any potential foreign policy considerations - especially concerning a country like Sweden, which is hardly visible on the Russian political map. Continued Swedish resistance to NordStream would therefore be regarded as a ridiculous source of irritation from a Lilliputian country in the European periphery.

Q: In Sweden, NordStream has been thoroughly discussed, mostly from a critical perspective, by representatives of both the political blocs. Do you think that the NordStream management - and consequently the heavy political actors behind i in Russia and Germany - have paid any attention to Swedish critique, or would they have built the pipeline no matter what the Swedish government would have thought and said?

A: That Russia and Germany would have shown any greater consideration of Swedish critique is not very probable. Some considerations may well be made as for the stretch and makeup of the gas pipeline, and Sweden may surely also grumble and protract the issue if desired, but eventually both Moscow and Berlin counts on the Swedish government coming around. It is one thing if Sweden throws gravel into the Russian machinery, but to oppose both Russia and - above all - Germany will prove difficult in the long run.

Q: How important is NordStream, in your opinion, to Germany?

A: All since Willy Brandt's Ostpolitik was launched in the 1970s, Berlin and Moscow have enveloped into a mutual dependency according to the formula "change by rapproachment," where gas deliveries to Germany has become the basic ingredient in the political concepts of both continental powers.

Even if Angela Merkel's (the German Chancellor) enthusiasm towards the project is more controlled than her predecessor's , Gerhard Schröder, who by the way is on Gazprom's payroll, the realization of the gas pipeline is central to future German-Russian cooperation. That Germany, in current times of economic crisis, would terminate a project, which ensures long-term, secure, and cheap gas deliveries, would be very surprising - both from a political and a financial perspective.

Q: How politically directed is the Russian gas and oil giant Gazprom?

A: The question should perhaps rather be how economically directed the Kremlin is by Gazprom. That both Russia's president, Dmitry Medvedev, and on of the country's previous Prime Ministers, Victor Chernomyrdin, have been chairmen of Gazprom should be a clear indicator. Despite privatization attempts during the 1990s, Gazprom has remained a state gas monopoly with great influence on political power. With increasing political control over so called strategic resources, Gazprom has served as a tool for quasi nationalizations of remaining private gas and oil companies, why its position has been all the more strengthened. The question about Gazprom and the Kremlin is like tha classical question about the hen and the egg: Which one came first?

Q: To what extent would you say that Russia is using its great oil and gas resources as an instrument of foreign policy power?

A: Rhetorics about Russa as an energy superpower have, in recent years, almost become a mantra for Russian leaders, as a way of strengthening national self-images and confidence. However, judging from results, it is hard to show that Moscow is using energy as a direct foreign policy tool. Seen frlom an economic and domestic political viewpoint, the energy issue is, however, currently part and parcel of almost all Russia's conflicts with its neighbours in recent years - Estonia, Ukraine, Lithuania, and Georgia.

What is interesting is, however, to look at how Moscow indirectly uses energy as a means of strategic manipulation. With the help of energy, foreign policy advantages and concessions are simply achieved in other areas than exactly the one that each conflict focuses on. Energy is used indirectly rather than directly as a foreign policy tool, where domestic politico-economic considerations often determine foreign policy action.

Q: What do you think about the Swedish debate about NordStream? Is it substantially mostly correct or is it mared by antiquated Swedish fears of the Russians?

A: When Nordstream is addressed in Swedish debate, it is not hard to make up an image of a security policys establishment, where old realist political views are mutually confirmed and reinforced - no matter whether it is about security policy reservations or pretexts for the very same kind of perspectives. The interesting thing is not what is actually said, but what is not said.

Fundamentally, Sweden is faced by a catch 22 concerning the gas pipeline. Should one seek to undermine Russia's political stability by torpedoing the NordStream project, with increased Russian security policy unpredictability as a consequence, or should one indirectly contribute to support the continuation of a corrupt and authoritarian regime, of which one at least knows what to expect? That is a question that gets little or no attention.

Q: As you see it, is there something we in Sweden have misconstrued in the security policy and geopolitical judgement of NordStream?

A: We, basically, pose the wrong questions about NordStream, and consequently get all the wrong answers. As long as the Swedish political and security policy establishment is dedicated to self-binding about the question of our relations to Russia - regardless of whether it concerns NordStream or general approaches - we risk ending up with the wrong conclusions. As 20 years have passed since the fall of the Berlin wall, it is possible that we as little now as then might predict fundamental changes in Russia. Still, the invasion threat from the East returns in various forms. From military threat to criminality, from criminality to refugee invasion, from refugee invastion to epidemics, from epidemics to energy. The list is long, but what has become reality?

Translation published by permission of Andreas Henriksson, makthavare.se

Getting too hot?

"Russia is a northern country and if temperatures get warmer by two or three degrees Celsius it's not that bad - we could spend less on warm coats and agricultural experts say that grain harvests would increase further." Thus, Russian president Vladimir Putin jokingly put it in 2003, opening a major international conference on climate change in Moscow. For long, Russia was hesitant to signing the Kyoto protocol on global climate change, before Moscow eventually subdued to international pressure in 2004.

Let's face it: Environmentalism is simply not something one would expect from Putin and his crowd of siloviki and oil barons. As Russia signed the Kyoto protocol in November 2004, it was against the strong advice of both the Ministry for Industry and Energy and the Russian Academy of Sciences. In exchange, Moscow received EU support for Russia's admission to the WTO, why the Kremlin probably considered the deal a fair trade. Warm feelings for preventing the greenhouse effect had little to do with Putin's position on Kyoto.

Russia's traditionally energy intensive industries would normally vouch for a negative stance on limiting the country's greenhouse gas emissions. However, this has posed no great problem for Russia, as the Kyoto protocol is calculated on the 1990 emission levels. Given the economic and industrial collapse of the early 1990s, Russia still has a long way to go before reaching such levels again. Instead, it has been argued that the country might actually benefit from the Kyoto protocol by selling emissions credits to other countries. With the current economic boom in Russia, though, the deal is increasingly questioned for concerns that it might hamper industrial growth. Not surprisingly, the mighty energy sector is one of the greatest critics of the Kyoto protocol. However, this might paradoxically become the opposite in a few years' time.

Yesterday, Russian gas monopoly Gazprom declared that its export of natural gas to Europe had decreased by 16%, as compared to the same period last year. The reason for Gazprom's drop in output was evidently warmer weather in Europe, leading to decreased consumer demand. Also, exports to the FSU dropped by 15%, and the supply to Russian consumers by 11% during the same period.

While it is still too early to say whether this winter's mild weather is due to global warming, it is quite clear that if this tendency would become permanent in years to come, it would have a grossly negative impact on international gas demand and prizes. One obvious loser of such a development would be Russia's energy sector, which constitutes the engine for the country's economic growth. Thus, if global heating would put a check on energy prizes, Russia's energy-dependent economy is a candidate for severe crisis.

So, should we expect Gazprom executives to turn into ardent environmentalists? Will Ivanov and Medvedev campaign to stop global warming for next year's presidential elections? Most probably not! Still, one never knows. When it comes to realities, Russian politicians are usually swift to change opinions if money is at stake. If plunging energy prizes would hit Russian pockets, we might witness an eventual shift in Kremlin views on global warming. As we have still to see the true consequences of the greenhouse effect, it remains uncertain how fast an impact it will have on global temperature levels. The forms of and extent to which global warming will affect Russia is thus for the future to decide.

Russian-Ukrainian Gas Crisis: Profits vs Politics

The recent gas crisis between Russia and Ukraine has raised fears - not least in the EU - that Moscow is increasingly using energy as a political weapon. Such fears may be correct from a general perspective, when reviewing the political will of the Kremlin. An opposite case must, however, also be made for economics - that the crisis was more a case of profit than of politics.

An overarching question of the Russian élite since the late 1980's has been how to maximise ones own profits. The driving-force has been the individual desire for wealth. During Yeltsin's privatisation, such desires resulted in unharnessed "bandit-capitalism." Enormous fortunes were made by more or less doubtful means. Although president Putin seems to be trying to redistribute some of this wealth to his own political and private benefit, most oligarchs have been left alone as long as they don't meddle into politics. From the perspective of the mega-rich and major enterprise, trying to leave politics aside of making money has become a goal in itself, regardless of whether you are within or outside the walls of the Kremlin. To make profit in real money and to avoid being forced into economically worthless political deals should appear the obvious choice in rational terms for enterprise. Private interest comes before state interest. This, initially, may have been the motive of Gazprom - the Russian gas monopoly - in connection to the Russian-Ukrainian gas crisis. Still, many Western analysts claim that the crisis was politically motivated. Such analysis, however, leaves out the first logical step of analysis, namely that of making real money.

As the crisis arose in late December, Russian gas monopoly Gazprom demanded that Ukraine paid a price roughly equivalent to that, which Western European customers pay (some 230$ per cubic metre compared to the Ukrainian price of 50$). Raising revenues from exports to Ukraine almost fivefold, was - needless to say - tempting to Gazprom in order to boost the company's stock price. In June 2005, the Russian government became majority shareholder in Gazprom, which opened up possibilities to lift the state-imposed 20% limit of foreign investment in the company by year's end. This would also be in line with the liberalisation schemes of Gazprom and its aim to expand in the oil-market, creating - all in all - the basis for a shooting stock price and compensation for the failed merger with oil-producer Rosneft. This would indicate that the main reason for Gazprom's action against Ukraine was to attain higher profits.

In contrast to this, one may instead argue that the political side of Gazprom's action was too obvious to be ignored. Accordingly, Russia would - by means of Gazprom - want to put further pressure on Ukraine - possibly to destabilise or topple its pro-Western government - before the country's parliamentary elections in March. Furthermore, the mere fact that Gazprom's chairman, Dmitry Medvedev, is also Russia's vice Premier, would make for a strong case that Gazprom's action was politically motivated. This may well be the case, but judging from Medvedev's surprised reaction when confronted with the stern reaction of the EU, as Gazprom turned off gas supplies to Ukraine, he obviously was ignorant of the full consequences of Gazprom's action. Is it really possible that the Kremlin was ignorant of the possibility that cutting Ukraine's gas supply might also mean cutting down gas supplies to the West? Didn't Medvedev or someone in the Kremlin think of the fact that gas to Europe first goes through Ukrainian pipelines, thus making it easy for Ukraine to compensate a cut in their supplies with those that would have gone to Europe. This, evidently, was how Ukraine acted with the consequence that gas supplies to Germany, Hungary, Slovakia and other EU countries were heavily reduced, creating a crisis as much with the EU as with Ukraine. Russia was portrayed as an unreliable business-partner by international media, and European politicians called for reviewing and diversifying energy supplies. Even worse, Russia again became a source of threat to Europe. Gazprom's action thus heavily damaged confidence in Russia in political as much as economic terms. Trust between Russia and Europe was dealt a heavy blow.

So, the question arises: Are the masters of the Kremlin really so crude in their political thinking as not to foresee the consequences of their actions? Did they really not consider that the issue could develop into something more than a bilateral crisis between Russia and Ukraine. I, for one, would like to think that this is not the case if regarding Gazprom's action as a political issue. It is true that the Kremlin has made a series of serious political misjudgements and mistakes in recent years, but despite all blunders, I do hope that Putin and his entourage are not so much of political novices as to be outright stupid. Therefore, to the extent that the Kremlin was involved in Gazprom's action against Ukraine, some other factor than politics would appear to have blurred their judgement. This factor might be that profits preceded politics. The prospects of increased profit by raising the price of gas to Ukraine might explain why the Kremlin oversaw the possibility of negative side-effects for Russian credibility in relation to the EU. Thus, the economic analysis might have crowded out thinking in political terms.

The alternative - that Russian action was deliberate and informed - would truly be tantalising. This would mean that Russia has reached such a level of confidence and self-sufficiency in foreign policy terms, as to be willing to risk relations with Europe and to signal that the country has the power to put a threat to the EU by cutting energy supplies. It is true, that energy is increasingly seen as an intrument of Russian security policy, but it is as much true that this instrument so far has been used with some caution and only in relation to former soviet republics. Would it, however, be true that the Kremlin - having gained control of Gazprom - rationally foresaw the political consequences of the company's action, European calls to review Russia as energy-supplier should be taken very seriously. As long as this has not been proved, however, it might be more plausible to assume that Russian judgement was blurred for financial reasons. Thus, it appears that profit preceded politics and private interest came before state interest. Another unintended consequence is, of course, that keeping politics and economics aside failed, and that Gazprom - in contrast to its aim to liberalise - is now looking at much greater political involvement in and direction from the Kremlin. To conclude, how likely is it - all things considered - that the Russian-Ukrainian gas crisis was the effect of a Russian rational political decision?