Russian power play shows danger of oil politics

PUBLISHED : Thursday, 28 December, 2006, 12:00am
UPDATED : Thursday, 28 December, 2006, 12:00am

Japan has achieved more during peace time through industry, imitation and then innovation than it ever did through aggression to obtain resources. From the ashes of military defeat it grew into the world's second-biggest economy.

The contrast with Russia, which emerged from the ruins of the second world war as a nuclear superpower with a European empire, could not be greater. But after the collapse of the communist state 15 years ago, Russia too had to start over again. There, sadly, the similarity with Japan begins and ends.

Unlike Japan, Russia is sitting on abundant reserves of oil and gas. Energy-hungry Europe, China and Japan want them. Former Soviet territories depend on them at cheap rates to sustain old Soviet-style economies still in transition. They have produced a cash flow that has reduced Russia's debt and restored fiscal health. But the Kremlin also uses its pricing power for Soviet-style political ends - for example, to remind the former subjects of its dismantled empire who is still boss of its backyard.

The latest former Soviet-bloc state to feel the mid-winter chill of a steep price rise for Russian gas is Belarus. Moscow has told Minsk that Soviet-era pricing is over. If it wants to avoid a New Year shutdown of its supply, it must pay double next year, even more later, and turn over a half share in its pipeline system. Talks so far have failed to resolve these demands.

The pipeline is a transit route for 30 per cent of Europe's supplies. Russia's gas monopoly, Gazprom, says supplies will not be affected, but its price gouging is bound to cause concern. A year ago a similar dispute resulted in Ukraine's gas being cut off and a brief disruption of supplies to western Europe. Repeated reckless threats to cut off supplies will prompt other nations to look towards alternative sources of oil and gas to reduce risk.

The abrupt, extortionate switch to market pricing smacks of the authoritarian style of Russian President Vladimir Putin, who has centralised power, curbed civil liberties and turned the country into an illiberal democracy. It pressures Belarus to accept integration, as it has punished Ukraine and Georgia for turning towards Europe and the United States.

Nonetheless, Mr Putin remains popular with Russians accustomed to strong government. He has promised them he will respect the constitution, which requires him to step down in 2008, but he would still 'influence our country's life'. For the sake of Russia's stressed democracy, it is to be hoped that he keeps the first pledge and reconsiders the second.

The gas shocks to former Soviet territories are a reminder to an energy-hungry world that conservation of fossil fuels and the development of sustainable alternative sources are not only key to the health of the global environment but important to maintaining international energy security at affordable prices and removing a potential source of dangerous conflict.