- - Wednesday, March 5, 2014

ANALYSIS:

In a memo to the White House in July 1981, advisers in the Ronald Reagan administration urged opposition to a new pipeline from Russia’s oil- and gas-rich regions to Europe, warning that it would weaken the West’s bargaining hand.

“Our strategy is aimed at limiting Soviet economic leverage over the West,” Pentagon aides told the White House in the memo.


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The Trans-Siberian Pipeline, which crosses modern-day Ukraine, was built nonetheless, and it helped transform Russia into an energy superpower that nurtures the European Union’s dependence on its fossil fuels.

Nearly 33 years later, the warning from Reagan’s defense advisers stands prescient, as President Vladimir Putin, the KGB-bred successor to the Soviet empire, has muted the West’s response to his military incursion in Ukraine by relying on Europe’s addiction to Russian resources.

“President Reagan clearly understood at the time that Russia was not interested in being part of the family of nations,” said Larry Eastland, a State Department official in the Reagan administration. “Anytime you allow someone to have their hand on the spigot, you’ve not only given them economic power, you’ve given them military power as well.”


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Since Mr. Putin came to power as prime minister in 1999, Russia has become the largest exporter of oil and natural gas to the European Union. According to a 2007 European Commission on Energy Issues report, Russia supplies one-third of Europe’s oil imports and nearly 40 percent of its gas imports.

In November, Forbes magazine summarized today’s reality in an article titled “Pipelines of Empire”: “At this juncture of history, the fate of Europe is wound up not in ideas, but in geopolitics. Armies are not marching; rather, hydrocarbons are flowing. For that is the modern face of Russian influence in Europe. To understand the current pressures upon Europe from the east, it is necessary to draw a map of energy pipelines.”

Russia’s energy superpower status is rooted in the state-owned Gazprom, the world’s largest extractor of natural gas, which accounted for 8 percent of the country’s gross domestic product in 2011.

In addition to providing the Russian Federation with steady income, Gazprom’s monopoly over former Soviet republics and much of Europe has enabled Mr. Putin to use energy to hold opponents hostage.

In 2006 and 2009, Russia turned off its gas supply to Ukraine. In 2011, Mr. Putin built a pipeline to Europe that bypassed Ukraine as a transit route.

On Monday, pro-Russian authorities in the Crimean peninsula threatened to turn off water and power to Ukrainian troops. On Tuesday, Gazprom announced that it would scrap Ukraine’s discounted rate for gas until Kiev pays $1.5 billion it already owes for fuel.

“I think President Reagan clearly understood that only strength can stop bullies on the playground. Bullies only pick on weak people, not strong people,” said Mr. Eastland, now a consultant and author.

Mr. Putin’s exploitation of energy distribution to harness political power began in 2003, when he announced a policy of “national champions” that called for Russian companies to advance the interests of the federation.

Shortly thereafter, Mr. Putin went to war with Itera, a rival Russian corporation that he accused of stealing state assets. Mr. Putin denied Itera access to gas pipelines, forcing it nearly into bankruptcy until the company sold assets to Gazprom.

In 2006, Moscow enacted a law granting Gazprom exclusive rights to export natural gas inside Russia. In 2007, Moscow persuaded BP oil company to sell its stake in its Siberian-owned subsidiary after Russia questioned BP’s rights to sell the gas outside of its borders.

Gazprom’s power throughout Europe is so dominant that the European Commission in 2012 filed an antitrust case against the company. The Brussels-based competition monitor opened proceedings based on “concerns that Gazprom may be abusing its dominant market position in upstream gas supply markets.”

In the ongoing probe, the European Commission is looking into whether Gazprom:

Divided gas markets “by hindering the free flow of gas across [EU] member states.”

Prevented gas supply diversification.

Imposed unfair prices by linking the price of gas to oil prices.

Russia’s energy dominance has made it virtually impossible for some U.S. allies in Western Europe to operate without some level of approval from the Kremlin.

As of 2009, Europe receives natural gas via 12 Russian pipelines, and many importers are key members of NATO including Austria, France, Germany, Hungary, Italy, Poland and the Czech Republic.

In a 2009 European Commission report on the security of gas supplies, several pages are dedicated to setting national emergency measures in case of an energy interruption or gas shortage. Those measures are mostly preventive efforts that would not do much to resolve an immediate crisis if Mr. Putin cuts Russia’s supplies to Europe as he did to Ukraine in 2006 and 2009.

The Kremlin’s power over Europe’s energy supply places the White House in a weakened position at a time when President Obama is reversing Reagan achievements with sweeping military cutbacks and canceling European missile shields.

“This president opened the door to Putin, and Putin knew he had the power when this president made the decision not to follow on his red line on Syria. Putin knew he had him then,” Mr. Eastland said.

Jeffrey Scott Shapiro is a lawyer and investigative journalist currently reporting on the Russian Federation.