The Oil and the Glory

Is Putin simply predisposed to vex the West?

Russian leader Vladimir Putin urges an end to absurdist doubt regarding his political longevity, and a focus on reality — such as the triumphant energy deals with which he closed out 2011. Putin is referring to a surprising, double-flanking maneuver in Turkey and Ukraine that gives Russia the apparent advantage in the late stages of ...

Olga Maltseva  AFP/Getty Images
Olga Maltseva AFP/Getty Images

Russian leader Vladimir Putin urges an end to absurdist doubt regarding his political longevity, and a focus on reality — such as the triumphant energy deals with which he closed out 2011. Putin is referring to a surprising, double-flanking maneuver in Turkey and Ukraine that gives Russia the apparent advantage in the late stages of a contest for energy market — and, some fear, geopolitical — domination in Europe. But Putin’s tenor also suggests a decided shift to the past in Russia’s relationship with the world — the "reset" of relations with the U.S. is over, writes the Financial Times’ Charles Clover. Putin — whose administration last week issued a formal report accusing the U.S. of "mass and flagrant abuses of human rights" — is clearly prepared for the type of fisticuffs last seen during the depths of the George W. Bush Administration.

Can one write off this clutch of anti-Western activity to domestic politics — Putin singing a tune that he thinks plays well with Russian voters ahead of the March 4 election, in which he is seeking a return to the Kremlin for a third term? It seems more complicated than that — Putin is playing to the gallery, but events outside Russia also are motivating him to behave at turns opportunistically; other times, they are causing him to lash out apprehensively.

Putin’s energy gambit is an example of him acting on the opportunistic side, specifically in the realm where Russian politics frequently find animation — in the construction, or blockage, of energy pipelines. In the current case, Putin has managed to seriously out-maneuver U.S. and European political leaders by advancing the prospects of South Stream, a proposed $21 billion natural gas pipeline from Russia to Europe, crossing underneath the Black Sea.

First, Putin last Wednesday got Turkey — which since the mid-1990s has played only for the Western team when it comes to pipeline politics — to cross over just this once, and allow South Stream to occupy its territorial waters in the Black Sea. Then on Friday, he followed up the coup with an orchestrated television appearance in which he casually agreed to a suggestion by Alexei Miller, the head of natural gas giant Gazprom, to accelerate South Stream by a year, and begin to build it by the end of 2012. 

If this actually happens, it could mean that South Stream would be ready in 2014, and not 2015 as previously reckoned. That would gravely impact Western proposals for Nabucco, a rival natural gas pipeline intended also to serve Europe, but transport only non-Russian gas. Nabucco’s proponents advocate it as a way to reduce Europe’s reliance on Moscow, and hence a feared danger of gas-fueled Russian political advantage on the continent.

All of this happens while the U.S. and Europe are preoccupied by their own set of financial crises. Here, the Wall Street Journal’s Charles Forelle sums up Europe’s in a highly recommended 23-minute documentary:

Yet, as suggested, this is a big if. When it comes to pipeline politics, little is how it appears on the surface. In this case, there is much speculation that Putin actually has little interest in actually building South Stream. Rather his objective is dual, in this view of events — to thwart Nabucco, and to frighten neighboring Ukraine, through which almost all Russian gas currently travels to Europe, into signing a highly favorable (to Russia) gas deal.

Ukraine certainly perceives Putin’s most recent moves as political hardball. Putin’s aim formerly seemed to be to get a high price for gas. But in the last couple of years, his appetite has grown to owning pipelines and other energy infrastructure in the countries where Gazprom operates. In the case of Ukraine, he wants a large share of the state pipeline company.

Given nationalist Ukrainian politics, such a move could be politically fatal to President Viktor Yanukovich. Putin’s moves so startled Ukraine that Prime Minister Mykola Azarov went onto Facebook and threatened to sue Russia. It is not clear what grounds there would be for a suit, yet the sentiment is notable.

As regards price, the sides are astonishingly far apart. The picture is a mirror into the old era of natural gas — one undergoing an utter transformation because of new supplies of shale gas and the invention of efficient, ocean-going liquefied natural gas supertankers — in which little pockets of the world charge wildly different prices for the same commodity. In this case, Russia is asking Ukraine for roughly $11.42 for 1,000 cubic feet of natural gas, or almost four times the U.S. price of about $3. For its part, Ukraine says it may be willing to do a pipeline deal — if it can pay $7.14 per 1,000 cubic feet, or 2.3 times the U.S. price (in the language the Europeans speak, Russia wishes to charge Ukraine $400 per 1,000 cubic meters; Ukraine wants to pay $250. The conversion of cubic feet to cubic meters is roughly 1:35).

This set of circumstances has to have Putin gloating. Until recently, Russia’s prospects had been clouded by the challenge of shale gas, which Poland, Hungary and other European countries may start producing, and the arrival in Europe of LNG from Qatar. Such new supplies could undermine Russia because Gazprom’s tax payments account for some 20 percent of total state revenue.

But at once Gazprom’s — and thus Russia’s — prospects are reversed. Last year’s nuclear disaster in Japan, by reverberating in Europe in the form of the ordered shut-down of German and other nuclear power plants, increases demand for Russian natural gas. Nabucco — the Western pipeline champion — has badly stumbled by failing to find sufficient gas to transport.

The Obama Administration — as politically preoccupied as the Europeans — has not even managed to get its political opponents in the U.S. Senate to formally confirm its choice as ambassador to critical Azerbaijan, a diplomat named Matthew Bryza. And now Putin has put Russia in the catbird seat with the deal with Turkey.

Yet all is not well for Putin. The Arab Spring makes him nervous. Already, opponents fired up over his sense of political entitlement — Putin and his protege, President Dmitry Medvedev, casually announced in September that they would swap positions; they regarded the nod of Russian voters as a formality. Since then, Russia’s middle and upper-middle classes have been in the streets (pictured above, Moscow street scene on Friday).

The latter is what has most likely caused Putin to lash out at the U.S. The problem is that the Arab Spring is not going away soon, and the street politics it has propagated in Russia may not either.

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