Wednesday, October 25, 2006

Colossus Next Door

Tom Friedman's column in today's New York Times (Times Select required) looks with concern at Russia's growing domination of Europe's energy markets, in parallel with the political transformation within Russia. He sees the situation reflecting a unified theory of "Petropolitics", in which oil prices and freedom are inversely related in emerging countries. This is thought-provoking and clever, but it all sounds a bit pat. It also obscures important questions of cause and effect, as well as the broader geopolitical context. Are Russia's present political trends worrying because they are increasingly authoritarian, or merely because Russia holds the key to Europe's growing natural gas imports? For me, this is about a lot more than just energy.

There's no question that Russia holds the whip hand on the EU's natural gas supplies, as I've discussed previously. Mr. Friedman worries that Russia already supplies 40% of Europe's gas. It ought to be of even greater concern that it controls 60% of the EU's gas imports. It's worth recalling, however, that the logistics of gas are quite different from those for oil. Without building expensive exports pipelines or LNG plants to serve other markets, Russia can't divert that gas to China overnight. Russia's choice of where to sell its incremental gas ought to be of at least as much concern to Europe as whether the latter will find itself cut off in some future contractual dispute.

There's also a risk of attributing too much influence to energy, and not enough to other factors that will be crucial in determining the nature of Russia's relationship to the West. Is Russia's goverment becoming more authoritarian because it can afford to do so, since oil and gas prices are high, or is it becoming more authoritarian because in the last century, the number of years in which Russia was truly democratic can be counted on the fingers of one hand? Did it really matter that the price of oil was "near $16/barrel" (actually $20) when the Berlin Wall came down? If it had been $35, as it was only a year later--after Iraq invaded Kuwait--would the former USSR have stayed together or gone in a different direction?

For that matter, Russia was one of the main contributors to the low oil prices of the late 1990s and early 2000s, with its tremendous production resurgence, driven by the profit motive for the first time in 75 years. Recent reversals of this, with the consolidation of Russian energy under greater state control, reduced the rate of growth of the country's production and created a crucial supply void that helped drive prices to their recent highs.

Rather than arguing about which is the horse and which is the cart, though, I'd suggest putting Russian energy in its proper perspective. If Putin's Russia is developing along lines that make us uncomfortable and reasserting itself in geopolitics in unhelpful ways, e.g., with respect to Iran's nukes and other issues, then that's where we need to focus. Our energy worries seem more of a consequence than a cause, here. Blaming the situation on high oil prices and attempting to fit Russia into a global "petrolism" movement shortchanges our understanding of events within Russia and leaves us without useful insights for dealing with the EU's big Eurasian neighbor.

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