Sunday, May 10, 2009

Window on Eurasia: Putin’s New Energy Price Policy for the FSU Could Transform Russia’s Ties with Region

Paul Goble

Vienna, May 10 – Russian Prime Minister Vladimir Putin said today that Moscow does not intend to continue to “subsidize the former republics of the Soviet Union” by selling them energy supplies at concessionary prices, a shift that is likely to transform the relationship between Russia and its neighbors but not necessarily in the way many might expect.
On the one hand, this shift will put additional pressure on some of these states to make deals with Moscow in order to keep these energy supplies coming, possibly offering the Russian government even larger stakes in their energy transportation infrastructure in order to pay for what they could not otherwise afford.
But on the other, Putin’s decision to demand market prices could have two very different sets of consequences for others, one of which he almost certainly does not expect and another which may open the door to even more invasive forms of Russian pressure on the countries around Russia’s periphery.
On the one hand, some of these countries may decide, as Estonia did in 1992, that if they have to pay world prices to Russia for energy supplies, they would be far better off making arrangements to purchase them from other countries less interested in using oil and gas as political weapons.
And on the other, by having deprived itself of what has been one of its most effective means of keeping the former Soviet republics wrapped in its embrace, the Russian government may now, as was the case in Georgia last summer, be even more inclined to use other means, including force, to project power.
That could open a new period of tensions between Russia and its neighbors, tensions which could force other countries to choose between conceding dominance of this region to Russia or challenging Moscow by more actively supporting these countries by providing energy assistance or military aid.
At the very least, Putin’s announcement, which came during the course of an interview with Japanese media in advance of his visit to Tokyo, opens a new era in the post-Soviet space, one that will be defined not only by what Moscow now does but equally by how the former Soviet republics and their Western partners react.
Today, Russian news agencies reported that Putin had told a group of Japanese journalists that “over the course of a lengthy period of time – 15 years – Russia reached out to its partners, the former republics of the Soviet Union – and provided them energy supplies at prices significantly below world prices” (
“Over the course of that time,” the Russian prime minister said, “we have subsidized the economies of these countries to the extent of tens of billions of dollars.” Now, he continued, “we consider that this period has ended. It is necessary to go over to market relations” – and consequently world prices for gas, oil, and other forms of energy.
Putin rejected suggestions that Russia had used its energy supplied to put pressure on these or other countries. And he said that the events at the end of last year and the beginning of next when Moscow and Kyiv were unable to agree on the price and transit for gas were “sad and difficult.”
Obviously, he continued, the shift to market prices will create hardships for some of Russia’s neighbors, but Moscow is ready to work with them “to study the possibility of providing them support in the search for financial resources” they will need to pay Russia in the future.
Putin’s comments are disingenuous in at least three ways. First, Moscow has kept prices for its neighbors below world levels not to subsidize them but rather to reward and punish these states depending on Russia’s attitudes toward them and their willingness or unwillingness to cooperate with Moscow.
Second, the Russian prime minister’s remarks suggest that he and his government plan to continue what has been Moscow’s policy and use energy as a weapon by demanding that Russia’s neighbors offer Moscow ownership of their energy infrastructure as a way of paying their energy debts to Russia.
And third, Putin’s remarks come at a time when Moscow is increasingly angry about the eastward expansion in the influence of the European Union through its common neighborhood policies and of NATO via military cooperation with and exercises in countries, like Georgia, that are not yet members.
By once again invoking “market relations,” Putin clearly hopes to win plaudits from some in the West by obscuring the way in which Moscow has been using and will continue to use markets for political purposes against Russia’s neighbors -- rather than representing an affirmation that he and his government believe in markets in the same way others do.

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