Member News
By David Clark - 28th December 2009
Over the festive season ePolitix.com is publishing some of the best articles and interviews of 2009 from our sister publication The House Magazine.
In February Russia specialist David Clark explained what the EU must do to head off a crisis in the domestic energy market.
In 1999, when Vladimir Putin was director of Russia's domestic intelligence service, the FSB, he wrote an article for an obscure academic journal published by the St Petersburg Mining Institute.
Largely unnoticed at the time, the article advocated a radical shift in the focus of Russian energy policy.
Whereas oil and gas had hitherto been regarded primarily as revenue-generating assets, even in the Soviet era, they would in future need to assume a wider function as part of "the strategy for Russia's exit from its deep crisis and restoration of its former might on a qualitatively new basis".
Quite specifically, energy policy must be "aimed at furthering the geopolitical interests and maintaining the national security of Russia".
This was to be achieved by creating large, multi-branch energy companies supervised, although not necessarily owned, by the state.
Not much about Russia's recent behaviour as one of the world's most important energy producers makes sense unless the implications of this unashamedly political vision are fully grasped.
It explains the aggressive steps the Russian government has taken to restore state control over the energy sector by expropriating domestic and foreign investments, often by plainly illegal means.
It explains the use of energy supplies, including their denial, to reward or punish foreign countries according to the Kremlin’s perceived interests.
Above all, it explains why the Russian government has been willing to pay a heavy price in terms of its reputation and the declining productivity and efficiency of its energy sector to achieve these aims.
This represents a significant, yet often ignored, challenge to the European Union, whose member states, with one exception, are now net energy importers.
EU countries share a common interest in conducting the trade in energy according to transparent and legally enforceable commercial principles.
That aim was also accepted by Russia when it joined most of Europe in signing the Energy Charter Treaty in 1994.
By enshrining property and transit rights, and providing a strong disputes-settlement mechanism, the treaty was intended to give Russia the investment it needed in exchange for the security of supply Europe needed.
Putin's determination to politicise energy and turn it into a geopolitical instrument has left that bargain in ruins.
Russia may not have ratified the ECT, but it is legally bound to apply it on a provisional basis under Article 45, a point acknowledged by the Russian ambassador to the UK when he appeared before a House of Lords committee last year.
Yet there is almost no sense in which Russia can be said to be living up to its treaty commitments.
Instead of creating an efficient and open energy market, Russian policy is aimed at increasing its leverage over energy-importing countries through transit denial, the marginalisation of foreign investors, the takeover of downstream supply infrastructure, and efforts to develop a cartel-type arrangement with other gas exporters.
The question facing the UK and its EU partners is what, if anything, can be done about this?
The answer is, much more than we often appear to realise. Europe certainly depends on Russia for a significant proportion of its energy, gas supply in particular.
But Russia depends on Europe for a much bigger proportion of the gas it exports. The infrastructure to send it to alternative markets does not yet exist, whatever Gazprom and the Kremlin may want us to think.
The condition for converting this reality into meaningful influence is something that has so far been sadly lacking – a credible measure of European unity.
With real political will and a more hard-nosed attitude, the EU could change the dynamic of energy relations with Russia in a number of ways.
It could build a proper single energy market with separation of supply and transmission networks and new interconnectors to switch energy resources efficiently.
It could use existing competition powers more aggressively to tackle market abuses by Russian companies.
It could build the infrastructure needed to open a direct energy corridor to the Caspian and beyond.
And it could insist on strict reciprocity, with no access to the European energy market for Russian companies until Russia opens its own energy market on the same terms.
The UK government has generally been ahead of others in recognising the need for the EU to act in this area, but even it has made mistakes, such as watering down the Commission’s proposal for a new reciprocity clause on erroneous commercial grounds.
Russia is using its energy assets in pursuit of clear political goals. Until Europe is able to respond with similar clarity of purpose, it will continue to be outmanoeuvred.
David Clark is chairman of the Russia Foundation and served as a special adviser at the Foreign and Commonwealth Office 1997-2001.
Dods Parliamentary Communications Ltd