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Tuesday, June 06, 2006

Russia wields energy weapon from weak position

MOSCOW, June 6 (Reuters) - Russia's G8 presidency is being dominated by foreign fears that President Vladimir Putin is wielding his nation's energy resources to reclaim the superpower status lost with the collapse of the Soviet Union.

A broadside by U.S Vice President Dick Cheney last month highlighted those concerns when he accused Moscow of using energy as a tool of "intimidation and blackmail" against countries that rely on Russia for their oil and gas.

But, as leaders of the world's most powerful nations prepare for the Group of Eight summit in St Petersburg on July 15-17, they might want to consider whether Russia's new assertiveness reflects not menacing strength -- but weakness.

"Russia's attempts to play the big brother are not backed up by sufficient resources," said Viktor Kremenyuk, deputy head of the Institute for USA and Canada Studies, a Moscow think-tank.

Kremenyuk said a row with Ukraine over gas prices in January had proved that Russia can no longer uphold the old "Brezhnev doctrine" of asserting Moscow's hegemony over -- and the right to intervene in -- its strategic backyard.

"It's the end of Russian dominance in the post-Soviet space," he told Reuters. "This is a big foreign policy issue -- what to do?"

Fifteen years after the Soviet Union collapsed, Russia's economy is riding a wave of petrodollars that has lifted gas monopoly Gazprom into the world's top 10 companies by value.

Banking sources say the Kremlin wants to raise up to $13 billion in an international offering of shares in state oil firm Rosneft on the eve of the G8 summit to show the world it is serious about energy partnership.

But that is only half the story: Russia's winner-take-all society has concentrated vast wealth in the hands of a few while leaving tens of millions on the breadline.

Russia's population is shrinking by 700,000 every year and its armed forces, riddled with brutality, are barely able to protect its borders, let alone pose a threat to its neighbours.


Given the Russian state's weakness, political and economic analysts say it should come as no surprise that Putin has resorted to using state-controlled Gazprom, which supplies a quarter of Europe's gas, as a means to project power.

"Gazprom is not a state within a state -- it is the state," said Jonathan Stern of the Oxford Institute for Energy Studies.

But that, said Stern, makes Gazprom little different from the European utilities or U.S. oil majors that have merged to form national champions in the global race for control of scarce energy supplies.

"Gazprom is not bucking a trend; it is reflecting a trend worldwide," Stern told Reuters. "We shouldn't criticise Russia for doing things in energy commerce that others are."

In that light, the New Year bust-up over the price Ukraine should pay for Russian gas looks less like energy blackmail than a vengeful swipe at a country that -- in the pro-Western Orange Revolution of 2004 -- turned its back on Moscow.

Putin's latest explanation of Gazprom's decision to turn down the gas taps in January in the row over prices with Ukraine hinted at frustration with Russia's hopes of dominating the ex-Soviet "near abroad".

"If you want to keep on supporting what is going on there

(in Ukraine), you can pay," Putin told foreign news agency chiefs in Moscow last week, chiding the West for sponsoring the Orange Revolution which swept to power leaders less favourable to Moscow than their predecessors.

Kiev no longer deserves supplies of subsidised Russian gas, Putin said. "Why should we pay?" he asked.


Talks between Putin and European Union leaders in late May cooled tempers. They put the debate on how to open up Russia's energy industry and pipelines, in return for more access to European markets, on a steadier footing.

With Iraq in disarray and fellow oil producer Iran threatening to cut oil exports in a showdown with the West over its nuclear ambitions, consuming nations may prefer in the end to deal with an awkward but still pragmatic Russia.

But the gas row may make it tough to achieve a breakthrough in St Petersburg on Russia's long-standing bid to join the World Trade Organisation -- an issue that has become entangled in the latest bad atmospherics.

Russia's talks with the United States, key to a final WTO entry deal that would unlock billions of dollars in trade and investment, are stalled on opening up its banking sector, video piracy and agriculture.

Even so Andrew Summers, head of the American Chamber of Commerce in Russia, still sees a 60/40 chance of an agreement if President George W. Bush can face down the sceptics in Washington and shake hands on a deal with Putin.

"It's going to take political will from the two presidents to get it done," Summers said.
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