Sunday, October 15, 2006

The Bear in the Room that We Forgot About

Sarah Kendzior pointed me to the importance of Russia for the Central Asian states, especially Uzbekistan, alerting me to an issue I have failed to give sufficient attention to. I have been distracted by the demise of the Soviet Union, the wars around its frontiers, the shifting alliances and symbolic representations that have taken form in the states left in the Soviet wake, plus the evident signs of corruption and centralization of powers by Vladimir Putin. But there is an empirical reality in Greater Central Asia that has not gone away: that Russia is the dominant player.

Russia is still the major fuel source for Europe and the potential major fuel source for the Far East. Already Russia is responsible for most of Europe's gas, oil and uranium. In fact it is the largest producer of gas in the world and the second largest producer of oil. Its strategic control of gas was underlined on January 1, 2006, when Russia halted gas supplies to Ukraine for refusing to pay a price that had suddenly been raised from $50 per 1000 cubic meters to $230. Russian owned (51%), Gazprom is the world's largest gas company in output and reserves; in market capital it is the third largest company in the world; and because its shares have more than tripled in the past 12 months, Gazprom could overtake ExxonMobil and General Electric and become the world's largest company. Its gas output in 2005 was, in energy yield, equivalent Saudi Arabia's daily output of oil. And the company is aggressive: it is investing in Western distributors and hiring prominent European figures like Gerhard Schroeder and the officials of other big energy companies (such as E.ON and BASF).

The key market for now is Europe but China's dramatic growth augurs for its becoming another consumer of Russian energy. Which gives Russia leverage in pricing disputes with the Europeans. Gazprom has often hinted that disputes with the Europeans could oblige it to give more attention to China. The obvious trend is competition from West and East, with Russia holding control of -- rather, being -- the prize in the middle. So Russia, already the gas lifeline for Europe, could soon become the vital source of energy, or at least the transit territory, for China and the rest of the Far East.

That means that Russia is in a position to ignore the carping about human rights and democracy by the Western states: Already Russia has $170 billion in foreign reserves (banking 95% of its oil profits above $27 a barrel), and it has a huge budget surplus; moreover, its annual gross domestic product is growing annually at 7%.

The fear of being swallowed up into a new Soviet-scale Russian empire has induced some of Russia's closest neighbors to take active steps to link up with the Europeans. GUUAM (the acronym for Georgia, Uzbekistan, Ukraine, Azerbaijan and Moldova - that is, the countries poised to gain from the energy wealth of the Caspian Sea) was founded in 1997 ostensibly to "favor economic multilateral cooperation", but in reality to seek the protection of the EU and NATO. Recognizing their agendas, Russia has imposed restrictions on imports of milk and meat from Ukraine, of wine from Georgia and Moldova, and of mineral water from Georgia. And according to some of these countries Russia is supporting troublesome separatist movements. The looming influence of Russia has induced
President Karimov of Uzbekistan to pull out of the organization (making it now GUAM), a move that will likely enable him to avoid retribution for doubling gas prices in October, 2006 (Gazprom, which pipes it westward, says it will pass the cost on to its European consumers).

So besides the oil money that seems to be flooding into extremist movements in the Middle East and Central Asia, and the drug money that is funding the Taliban in Afghanistan and Pakistan, gas money in the hands of rouge leaders may be the next problem for the developed world. According to the BBC "Putin, [is] the undisputed czar of the global gas club - seconded by Iran's Mahmud Ahmadinejad, Venezuela's Hugo Chavez and Bolivia's Evo Morales."


The Roving Eye: The Gazprom nation
Published: May 26, 2006 (Asia Times Online)

Uzbekistan Vows to Double Its Gas Prices
Published: October 13, 2006 (The Moscow Times)

Uzbekistan warned Russia and its Central Asian neighbors Thursday it would double its gas export price at the start of next year, putting price pressure on a supply chain that stretches to Europe.

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