How Russia strives to dominate oil

By | Sunday, July 20, 2008

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PUTIN, POWER, AND THE NEW RUSSIA

By Marshall I. Goldman

Oxford University Press, $27.95, 256 pages

REVIEWED BY JOSEPH C. GOULDEN

For anyone with knowledge of economic warfare, the opening scene in Marshall I. Goldman's new book evokes a shudder. Russian hosts take him into a darkened room that is the "brain center" of Gazprom, the world's largest producer of natural gas, in an office building high above Moscow.

"In front of me," Mr. Goldman writes, "covering the whole 100-foot wall of the room, was a map with a spiderweblike maze of natural gas pipelines reaching from East Siberia west to the Atlantic Ocean and from the Arctic Ocean south to the Caspian and Black seas. Manipulating this display were Gazprom dispatchers, three men controlling the flow of Gazprom's gas to East and West European consumers of this Russian natural gas monopoly . . . . "

With a flick of switch, these dispatchers sitting in this Moscow room could freeze - and have frozen - entire countries. At the very least, they could send their citizens off in a panic in search of sweaters, scarves and gloves. What an empowering feeling. Should they choose to, these Gazprom functionaries could not only cut off natural gas from the furnaces and stoves of Germany's houses but also the natural gas that many German factories need for manufacturing a range of products from ammonia fertilizer to plastics.

Now, to be sure, as Gazprom officers told Mr. Goldman for his book, "Petrostate: Putin, Power, and the New Russia," "politics never, ever affect their calculations." Sure, and your check is in the mail. The first week in July, Russia sharply curtailed oil exports to the Czech Republic in apparent retaliation for that country's agreement to host a radar facility associated with a U.S. anti-missile system.

Mr. Goldman, professor emeritus at Wellesley College, and long associated with the Davis Center for Russian Studies at Harvard, speaks with authority. He has advised U.S. presidents and the CIA on Soviet and Russian affairs. "Petrostate" documents how President Vladimir Putin used petroleum riches to bring Russia back from near-bankruptcy in 1998 to its current strength in world economic affairs.

As he summarizes, the book "is a tale of discovery, intrigue, corruption, wealth, misguidance, greed, patronage, nepotism, and power . . . a little something for everyone." As I read of how Mr. Putin's cronies muscled aside competitors to take control of formerly state-owned oil companies, the thought flickered through my mind, "John D. Rockefeller meet Tony Soprano."

As Mr. Goldman notes, Russia has not hesitated in the past to cut off the flow of both petroleum and gas to strengthen its side of a political dispute. Because of this control over gas, he writes, "Gazprom and, by extension, the Russian government are already beginning to enjoy a power over their European neighbors far beyond the dreams of the former Romanov czars or the Communist Party general secretaries." Further, the Russian government owns more than 50 percent of Gazprom, and Mr. Putin "takes a very personal and intense interest in Gazprom's operations."

Further, Russian influence over the energy industry is expanding far beyond its bounds. An immediate example: For years, the service station down the hill from my home in Georgetown carried the logo of Getty Petroleum. The sign out front now says "Lukoil," for another Russian-owned oil company - one of 2,000 former Getty stations it owns on the Eastern seaboard, along with another 1,000 purchased from Mobil. As Mr. Goldman writes, Lukoil now commands 24 percent of the market in New Jersey and Pennsylvania, and is rapidly expanding elsewhere.

One person who foresaw - and feared - this petroleum dominance was William J. Casey, director of central intelligence during the Reagan years. Mr. Casey was a very shrewd economic warrior. Realizing that the USSR relied on oil money to pay its international bills, Mr. Casey met with Saudi Arabian leaders to persuade them to increase their production, with the aim of lessening the demand for Soviet oil.

Soviet oil income did plummet, one of the factors that led to troop withdrawals from Afghanistan, and a free fall into economic chaos. But by Mr. Goldman's analysis (and he is going to draw some return fire from Casey chums) the Saudis did not increase production until after the beginning of the Soviet drop, and hence the CIA's strategy does not deserve full credit.

Be that as it may, the Reagan administration expended considerable political energy in trying to dissuade Western Europe from becoming dependent on oil and gas imports from the USSR, for the reasons so eloquently described by Mr. Goldman. The drive ultimately failed, and so we now see the Reagan prophecies becoming reality.

The Putin government cut off gas supplies to Ukraine in the dead of winter toward the end of 2007 in a contract dispute. Other states once part of the dismantled USSR are feeling similar pressures. And, as I write, Russian oil moguls are trying to muscle BP out of a joint venture with TNK-BP (part of the ploy is withholding visas for British managers). And Gazprom just concluded a deal to buy the entire gas output of Libya, what one financial observer termed the first step towards creation of a "gas OPEC."

For we hard-liners who eye the newly powerful Russia with alarm, Mr. Goldman's book is a sobering read. Foreign investors such as BP (the old British Petroleum) are increasingly wary of "partnerships" with Russian concerns that turn out to be controlled by the government.

One ominous sign is that many of the jokes formerly told about Soviet leaders now target Mr. Putin. In one, Stalin comes to Mr. Putin in a dream and says, "Vladimir, I have two bits of advice for you: kill your opponents, and paint the Kremlin blue."

Mr. Putin ponders a moment, then asks, "Why blue?"

Joseph C. Goulden is writing a book on Cold War intelligence. His e-mail address is JosephG894@ aol.com.

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