MOSCOW, September 2 (RIA Novosti) Europe ready for a new Cold War with Russia / Caucasus crisis caused by Russia's governance problems / Defying the Kremlin, Chisinau may lose Transdnestr / Ukraine joins WTO, Russia shuts Ukraine out / Russia's Gazprom Neft, the oil arm of energy giant Gazprom / Russia, China compete for Turkmen gas
Europe ready for a new Cold War with Russia
Yesterday's European Union emergency summit was not the first or last attempt by the bloc to review its relations with Russia, writes a Russian analyst.
Konstantin Simonov, director general of the National Energy Security Foundation, writes in the popular daily Vedomosti that Europe has repeated its old mistake by looking at its current agenda when it should be peering into a more distant future.
Evidence of this is its proposal to halt talks on a new Partnership and Cooperation Agreement with Russia, which has no links with the economic and political dialogue, or to block Russia's accession to the World Trade Organization, which is crumbling due to the stance of its member countries.
Simonov said the EU stance comprises two parts. One is the stance of its Eastern European members, who claim Russia has always been an aggressor and, should it grow stronger, will attack everyone in an attempt to restore the empire. The other, advocated by Old Europe, is that Europe should treat Russia with caution for fear of losing it as the main fuel and energy supplier.
The latter view is more pragmatic but it also does not give Russia the right to consider itself a European country.
The two parts of the EU are therefore ready for a new Cold War with Russia. However, the new EU members are eager to start it, while the old members would like to see a softer version of the 1970s and 1980s, when the Cold War did not prevent Soviet oil and natural gas supplies.
This is impossible now, the analyst writes. The division of politics and business in the 1970s and 1980s was possible only because Europe had alternative hydrocarbons suppliers, whereas the Soviet Union had no other markets for its energy resources.
Russia and Europe must now either admit failure to come to terms and start preparations for a war, which may even deteriorate into a "hot" phase, or try to develop a new system of global security to replace the old one ruined not by the conflict with Georgia but largely by the actions of the United States.
The U.S. has long stopped respecting the opinion of international institutions, which is damaging Europe, Simonov writes. Examples can be seen in the war in Yugoslavia, which resulted in the creation of several Muslim states in the heart of Europe, the Kyoto Protocol, which has failed to become effective because of the U.S. stance, the war in Georgia, and a possible war against Iran, which will kill Europe's last hope for alternative hydrocarbon sources.
The sides have not yet passed the point of no return beyond which a global war may become inevitable. Russia and the EU can still negotiate a new world order, eventually involving other players.
However, Europe seems intent on pushing Russia towards China, Simonov writes. The Russian authorities are now more eagerly discussing a stronger union with China.
Caucasus crisis caused by Russia's governance problems
In the past few weeks, one of the world's largest economies voluntarily took on the mantel as leader of a group of marginal countries, suspended all integration processes with the global economic and political systems it had launched, radically changed the climate of its domestic policy and destroyed its own image in global politics, along with its known opinions on major issues and goals. It is in absolute chaos now, said Dmitry Butrin, head of the economic policy department at the Kommersant publishing house.
Why did we have to do it? There may be no answer to that at all, Butrin suggested. All we have so far is several fairly logical interpretations of what's going on. However, each of these versions implies a much more sophisticated foreign policy planning than is traditional in Russia.
It all becomes a little clearer if we stop looking at the events as parts that fit into a large-scale plan, but see them as the result of ineffective state governance in Russia.
The government has been losing its grip in every sphere since 2002, as corruption grows at the top levels, personnel problems worsen, private economic sectors experience booming growth, and an ineffective military apparatus of "power vertical" develops.
Under this scheme, the war with Georgia could have been an independent initiative of the army and security chiefs operating on their own, or part of a plan to use force to replace Mikheil Saakashvili, a long-time pain in the neck for our top leaders.
And, the short-lived armed conflict could certainly have catalyzed the Russian government's overreaction. They had expected anything but an immediate and ignominious defeat on the diplomatic and media front, a fast outflow of capital, and failure of all kinds of weapons Russia wielded except missile launchers.
As a result, the government's fury and annoyance with itself have been siphoned off into international politics for lack of a better choice, Butrin speculates. Even in peace time, President Dmitry Medvedev and Prime Minister Vladimir Putin did not have the political option of blaming each other for failures.
This explanation looks the most probable, even if painful, considering that the officials responsible for the country's budget, and worse, for its strategic missile forces, are starting to become dangerously hysterical.
But the outlook is quite favorable, Butrin concludes. In a short while, the hysteria will subside as new economic problems arise, because government officials are more sensitive to them than to anything else. A hunt for those responsible or guilty will begin within Russia's boundaries. Russia's political isolation will be mild, voluntary and passive on both sides. Putin will form a new government in October, mostly of trusted, obedient, Soviet-style members.
This is certainly not good, says Butrin. But in any case, it is better than war, which can easily flare up from "cold" to "hot" with all the modern rhetoric. Russia has created a strong political opponent, the West, which is also only human and prone to hysteria. Two similar opponents could quickly drag things down to the worst, Butrin adds.
Defying the Kremlin, Chisinau may lose Transdnestr
On Friday, the government of Moldova stated it wouldn't approve international recognition of Abkhazia and South Ossetia. This said, Chisinsu openly defied the Kremlin, which now needs support in the international arena like never before. The government's decision immediately affected the situation in the republic and on Sunday, Transdnestr's leader Igor Smirnov stated that the only way he saw for settling the dispute was by recognizing his republic's independence.
Moscow has recently applied different approaches to addressing the conflicts in the post-Soviet space. Its policy towards the seceded republics was mainly determined by its relations with their leaders. There was bad guy Saakashvili in Tbilisi, who sought to turn his country into a U.S. military bridgehead against Russia, whereas Moldovan President Vladimir Voronin pursued a more flexible policy trying to maneuver between the two centers of power - the West and Russia. Moreover, unlike Saakashvili, Voronin understood that it was impossible to resolve the problem of his country's unification using force.
Using the example of Georgia and Moldova, the Kremlin's strategists must have decided to teach everyone else a lesson punishing "the bad guy" and rewarding "the good one." Putin's April orders regarding Abkhazia and South Ossetia didn't relate to the Moldovan Republic of Transdnestr; the State Duma's resolutions contained no recommendations to recognize the republic on the Dniester River. Chisinau sent a clear message that in exchange, it could abandon its NATO plans for good and become Moscow's reliable ally. The Moldovan president didn't even attend the latest GUAM meetings.
A source at Transdnestr's Security Council told Nezavisimaya Gazeta that using the example of this breakaway republic, Russia wants to demonstrate to the global community that it is able to take up the role of an effective peacekeeper and settle the trickiest conflicts using political methods.
As for Moscow, the problem is the Moldovan president appears to be an unreliable ally. According to Transdnestr political analyst Alexander Porozhan, "You can't trust Moldova at this stage." "The situation will be clarified only after the upcoming elections of the Moldovan Parliament in March, 2009," Porozhan believes. "The Moldovan Communists are now playing a game with Moscow: they are seeking close relations with the EU and the U.S. but are also aware that they won't succeed in the next elections without Moscow. The West has renounced them after all - it is not going to back them. And Moscow must have backed the communists once again."
Ukraine joins WTO, Russia shuts Ukraine out
Ukraine will become the latest target in the trade war Russia is waging on the World Trade Organization (WTO). First Deputy Prime Minister Igor Shuvalov has instructed the relevant ministries to protect Russia's economy from products imported from Ukraine, now a WTO member. The free trade regime with Ukraine may either be cancelled or tightened considerably.
In any case, Russia will not open its markets to Ukrainian sugar in 2009.
A source in the Economic Development Ministry told Kommersant that the government was expecting proposals in a week. The ministry is planning to file several proposals, including a radical one to withdraw from the 1993 free trade agreement with Ukraine.
Ukraine's WTO accession was announced on May 19. According to the agreement, Ukrainian products are currently imported to Russia tax-free, with the exception of sugar and alcohol added this year. Ukraine also undertook self-restrictions on exports of seamless pipes to Russia.
On the other hand, the restrictions on Ukrainian sugar exports were due to be lifted after January 1, 2009, and alcohol, in 2010. Ukrainian sugar exports have been meager anyway since Russia introduced prohibitive import duties on sugar in 1998, $220 per metric ton of raw cane sugar and $340 per metric ton of beet sugar.
Russia has been preparing a change in its trade regime with Ukraine since May, but the process was not political, and the threat of a hypothetical Ukrainian trade expansion was viewed with restraint.
The Economics Ministry source said the latest comparative analysis of the two countries' tariffs systems had been conducted in 2004. It established that Ukrainian customs tariffs on 40% of products were 5% lower than Russian ones; on 20% significantly higher; and on 40% equal. But he said the situation might change after Ukraine's WTO accession.
Officials in Ukraine are convinced that Moscow has made a political decision. "Russia is trying to punish Ukraine for the role it played in the Georgian-Ossetian conflict," said Mikhail Salnikov from the Sokrat investment company. He also said the situation was threatening Ukrainian pipes and engineering products exports to Russia.
The ministry source said they were also working on two more liberal scenarios regarding Ukraine, involving other exceptions from the free trade regime or additional agreements on special protective measures in case of a sharp rise in Ukrainian imports. The choice will be made by President Dmitry Medvedev and Prime Minister Vladimir Putin, and that will be a political decision, he said.
RBC Daily, Kommersant
Gazprom Neft eager to develop oilfields in Iran
Russia's Gazprom Neft, the oil arm of energy giant Gazprom, has agreed to develop Iran's North Azadegan oilfield and produce oil at three other fields. The sides will discuss the terms in September.
Analysts say Gazprom Neft could earn as much as $3 billion annually from the North Azadegan oilfield.
The North Azadegan deposit, with recoverable oil reserves of 150 million tons (1.1 billion barrels), was discovered in 1999. It is located 50 miles west of Ahwaz in southwestern Iran and ranks among the world's largest. Gazprom Neft plans to produce 5.5-5.6 million tons (41.16 million bbl) annually there.
Gazprom Neft is also considering oil production at three other fields in Iran, notably Shurum, Kukh-i-Rig and Dudru, on the same buyback conditions.
Svetlana Savchenko, head of investment planning at 2K Audit-Business Consulting, said Gazprom Neft could seriously increase production by developing Iranian deposits, but tensions over Iran's nuclear program make investment highly risky. The Russian company will have to invest hundreds of millions of dollars, because it has pledged to cover all expenses.
On the other hand, potential revenues are economically promising.
Dmitry Lyutyagin, an oil and gas analyst at the Moscow-based investment company Veles Capital, said Gazprom Neft, which is to sell back to Iran up to 40% of oil produced at the field, might earn $28-$33 per barrel of crude (or slightly less taking into account its investment) atcurrent oil prices, which promises high profitability. Given the planned production of 5.5-5.6 million tons, the Russian company will earn as much as $3 billion annually.
Western companies are leaving Iran. France's Total left in early summer, while Spanish oil and gas company Repsol YPF and Royal Dutch Shell have withdrawn from the development of the 13th phase of South Pars.
But Russian companies are increasing their presence in Iran. In midsummer, Gazprom and the National Iranian Oil Company signed a cooperation agreement under which the Russian company is to receive a complete package of oil and natural gas projects.
LUKoil, Russia's largest private oil producer, owns a 25% stake in the Anaran exploration project. Tatneft, one of Russia's top ten crude producers, also wants to work in Iran.
Vitaly Kryukov, an analyst with the Capital Investment Group, said a joint venture between Gazprom Neft and LUKoil might bid for participation in the Iranian projects, in which case the Untied States could apply sanctions against LUKoil's American assets.
Russia, China compete for Turkmen gas
Last week, Russia's First Deputy Prime Minister Viktor Zubkov met with Turkmen President Gurbanguly Berdymukhammedov just after the latterheld gas talks with Chinese President Hu Jintao.
Zubkov reminded Berdymukhammedov about his promise to sell 50 billion cubic meters of natural gas to energy giant Gazprom next year and said this was impossible if Ashgabat decided to go ahead with the Chinese contract.
However, Turkmenistan failed to persuade China to pay the same amount promised by Russia.
Although Gazprom said China was no rival on the Central Asian market, Jintao negotiated the signing of a cooperation agreement between state-owned gas concern Turkmengaz and the China National petroleum Corporation (CNPC) in the run-up to Zubkov's visit.
President Jintao said China would start receiving Turkmen gas next year. Although Ashgabat pledged to sell 30 billion cubic meters of gas per year under a previous contract, Berdymukhammedov said August 30 that China would annually get 40 billion cubic meters.
Zubkov who also heads the Gazprom board wanted to know whether Turkmenistan which annually produces 70-72 billion cubic meters of gas could simultaneously meet Chinese and Russian demand.
Russia's Deputy Energy Minister Anatoly Yanovsky said Turkmenistan had pledged to pump 50 billion cubic meters of gas to Russia in 2009, and that Gazprom would get 70-80 billion cubic meters by 2011.
However, Moscow hoped to also receive 70-80 billion cubic meters next year.
Due to greater Chinese demand for gas it is unlikely that Russia will get the 50 billion cubic meters. Russian officials said the Turkmen leader's pledge to deliver the same amount of gas to China next year was not backed by a price contract.
Starting with 2009, the price for gas supplies to Gazprom will be calculated according to the relevant price formula. A negotiator said 1,000 cubic meters of gas would cost just under $300 next year.
CNPC could not afford to pay the price. Sources at the talks said Beijing and Ashgabat did not agree on gas prices. This spring, the Chinese media called the $195 price toted by Turkmenistan exorbitant.
The Chinese leader found that the price of Turkmen gas had soared by one-third this summer.
Berdymukhammedov continues the tradition of his late predecessor, Saparmurat Niyazov, who also liked to sell gas to two clients at a time.
It appears that Zubkov will have to discuss this issue with the Turkmen leader more than once.
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