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Russian Energy Monopolies as Political Tools?

(Washington, DC--April 24, 2006) The needs of Russia's energy monopolies drive that country's foreign policy at least as much as they are used as instruments of that foreign policy, according to three experts. Daniel Kimmage, Edward C. Chow and Richard Giragosian told an RFE/RL audience last week that state-controlled energy companies, such as Russia's natural gas supplier, Gazprom, allow the Russian government to project power in neighboring states and reassert global influence -- but at the expense of sound economic and energy policy.

Daniel Kimmage, Regional Analyst for Central Asia for RFE/RL, focused on the role of Gazprom, which supplies 90 percent of Russia's natural gas and enjoys the "ultimate political connections" via its board chairman, Dmitri Medvedev -- who also serves as First Deputy Prime Minister in President Vladimir Putin's government and is a former chief of staff to Putin. At the same time, Gazprom is currently experiencing "flat " production levels because of falling yields at three of its main fields, Kimmage said, and its failure to invest in the development of new gas fields. "Some experts have warned of a supply crunch in the next few years," Kimmage said, because domestic consumption of natural gas is rising, while Russia needs to maintain gas exports to Europe in order "to bring money into the Russian government's budget." Europe is projected to purchase up to 160 billion cubic meters (bcm) of natural gas in 2008. Gazprom's "solution" to this problem, Kimmage said, is a plan to purchase "up to 100 bcm from Central Asia through 2008-2009." Therefore, the primary task for both Gazprom and Russia is "to ensure supply while securing delivery and guaranteeing no competition," said Kimmage.

Edward Chow, an energy consultant for major U.S. and international energy companies, dispelled "the Russian oil and gas myth" by saying, "there was never a Russian oil production surge," rather there has been an "export boom" as a result of the "collapse of the economy and domestic consumption." Since 1999, the oil industry has enjoyed a recovery as infrastructure investment returned because of the "political bargain" made that year that, Chow said, allowed "the oligarchs to keep their assets as long as they supported [Yeltsin's] political successor." But that recovery has stopped, said Chow, "because of the challenge to property rights" represented by the Yukos affair. Chow agreed with Kimmage that, in the natural gas sector, Gazprom is seeking to control fields in Central Asia. But, he noted, that for a "politically driven monopoly" like Gazprom, its "function is not to increase supply, but to increase the monopoly's rent; the margin is important, not the volume. And it must control access to pipelines as well."

Richard Giragosian, an independent security analyst, who writes extensively on economic, security and political developments in the former Soviet Union, agreed that the Russian government is "regaining its Great Power status and geo-political relevance" by wielding energy as an instrument of "soft power." He noted that "sustained economic growth gives political legitimacy" to the less-than-democratic governments in Russia and Central Asia, and that "energy is crucial for growth and political stability" in these states. However, Giragosian said, the development problems found in these Eurasian countries are "local" and "political," rather than geo-political and strategic.

Archived audio of this briefing can be heard in RealAudio and Windows Media formats.