EurasiaNet Business & Economics - Russian President Strives for a Breakthrough Moment in Caspian Basin Energy Game

BUSINESS & ECONOMICS

RUSSIAN PRESIDENT STRIVES FOR A BREAKTHROUGH MOMENT IN CASPIAN BASIN ENERGY GAME
Stephen Blank 7/02/08

Russian President Dmitry Medvedev is set to embark on a potentially pivotal diplomatic tour during which he will strive to settle the contest to develop and export Caspian Basin energy in Moscow’s favor.

From July 3-6, Medvedev is scheduled to visit the three largest Caspian Basin energy producers -- Azerbaijan, Turkmenistan and Kazakhstan. Following his swing through the former Soviet republics, Medvedev will go on to Japan, where he will participate in the G-8 summit of leading industrial powers from July 7-9.

The Russian leader will use his tour to try to obtain guarantees and fresh commitment from Caspian Basin producers that would leave the Kremlin as the unrivaled master of regional exports. Russian officials are especially keen to maintain a hammerlock on natural gas supplies to Europe. [For background see the Eurasia Insight archive]. The European Union has expressed a desire to diversify its supply sources, but so far the group has yet to develop a sound strategy for doing so. Some of its members, such as Bulgaria, have even taken steps to tighten their ties to the Kremlin-controlled conglomerate Gazprom. [For background see the Eurasia Insight archive].

Azerbaijan has emerged as a focal point of Moscow’s plan to defeat US-backed efforts to establish alternative exports routes. [For background see the Eurasia Insight archive]. Over the past few weeks, Moscow has pushed for a deal under which Russia would purchase a large share of Azerbaijan’s gas production. Doing so would enable Russian leaders to keep Azerbaijan from independently shipping gas to European markets. [For background see the Eurasia Insight archive]. Azerbaijani officials are talking about either doubling or tripling the country’s production of gas by 2015. Since that gas is produced independently of Russia, it could, if exported via the existing Baku-Erzurum pipeline and planned Nabucco route, dash Moscow’s hopes for European supply dominance.

Essentially, Moscow is aiming to complete a "ring fence," to use its terms, around the European gas supply so that no other state will be able to export gas to Europe without Russian participation. This objective applies both to its deals with other Caspian littoral states like Kazakhstan and Turkmenistan, and to its recent deals or attempted deals with foreign providers like Libya and Algeria.

This ring-fence strategy is a reaction to the recent upsurge of Western and American activity to get the proposed Nabucco and trans-Caspian (TCP) pipeline built. Nabucco and TCP would connect the Caspian Basin to Europe, bypassing Russia in the process. [For background see the Eurasia Insight archive]. If Russia can sway Azerbaijan, along with Turkmenistan, the Nabucco/TCP network might have trouble finding sufficient gas supplies to make the project economically viable. [For background see the Eurasia Insight archive].

Moscow’s proposal to Baku also indicates that the Kremlin remains attached to the idea of neo-imperial integration of all CIS producers. In pursuing this aim, Moscow has shown that it is willing to sacrifice profits for geopolitical gains. Obviously, Russia prefers this imperial or neo-imperial policy to the option of reforming its own system that would increase its domestic production. Thus, Gazprom’s offer to pay market prices for Azerbaijani gas mimics its March 2008 agreements with Turkmenistan and Uzbekistan, under which the Russian conglomerate pledged to pay a European market rate for gas supplies starting in 2009. [For background see the Eurasia Insight archive]. These deals promise to hit Gazprom’s bottom line. But the Kremlin appears to feel that higher costs are worth the geopolitical benefits.

Despite the considerable efforts made by Russia in recent weeks to put its ring-fence strategy into place, there are signs that Azerbaijan and Turkmenistan remain reluctant to go along Statements made by a variety of Azerbaijani officials indicate that Baku will end up rebuffing Gazprom. Likewise, Turkmen leader Gurbanguly Berdymukhamedov, despite numerous overt displays of friendliness toward Russia, seems determined to maintain Turkmenistan’s status as the energy wild card of Central Asia. [For background see the Eurasia Insight archive].

Like Azerbaijan, Turkmenistan has the power to tip the scales in the energy export competition in favor of either the United States/European Union or Russia. Berdymukhamedov, despite vigorous wooing from both sides, has steadfastly declined to make a firm commitment to either side. While Ashgabat has signaled its intention to participate in a Russian-backed export scheme, centering on the expansion of the Prikaspiisky pipeline network, Turkmenistan has not taken substantive action to make that plan a reality. Berdymukhamedov has also repeatedly expressed interest in the US-sponsored TCP project, but has made no specific agreement. [For background see the Eurasia Insight archive].

Gazprom CEO Alexei Miller traveled to Ashgabat on July 1 striving to secure Berdymukhamedov’s agreement to establish a timeline for the Prikaspiisky plan. But all the Gazprom chief got was a vague statement, in which Berdymukhamedov expressed interest in "speeding up the start of construction." The Turkmen leader left himself plenty of wiggle room, as a joint statement did not set any concrete date for the start of the project.

The suspense surrounding the Caspian Basin energy game is certainly building. But in all likelihood, Medvedev’s tour will not produce the breakthrough moment that Russia is ardently trying to achieve.

Editor�s Note: Stephen Blank is a professor at the US Army War College. The views expressed this article do not in any way represent the views of the US Army, Defense Department or the US Government.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

The views expressed in this publication do not necessarily represent the position of the Open Society Institute and are the sole responsibility of the author or authors.