January 2006

January 30, 2006: Kremlin Ready To Move On Next Targets: The re-nationalization of Russia's energy sector is set to steam ahead this year, with up to 60 percent of oil production under government control by year end. The next targets on the list are Surgutneftegas, Slavneft, half of TNK-BP and what little remains of YUKOS. The vehicles for the consolidation will once again be state giants Rosneft and Gazprom, which already jointly control nearly 30% of crude output and more than 85% of gas production. Rosneft is the main contender for the remaining assets of YUKOS, in lieu of a debt of over $15 billion that Rosneft claims YUKOS owes to Yuganskneftegas, the unit taken over by Rosneft last year. In 2005, Russia’s oil output was 9.44 million barrels per day and gas production was 640.63 billion cubic meters. There is a political imperative to complete the consolidation process this year to ensure the government's program of re-nationalization before the next parliamentary elections and presidential race. (Source: Petroleum Intelligence Weekly.) Learn more about Russia's Bilateral Investment Treaties »

January 16, 2005: The Man With The Razor: The Ukraine Crisis is a Post-Soviet Tale of Jekyll and Hyde: Newsweek International reports Vladimir Putin once told Newsweek, "Power is a double-edged weapon." Likening it to a razor in the hands of a drunk, he said, "Wield it clumsily and you'll be hurt." "Lately, Putin himself has played the drunk. And he's bleeding. The gas crisis in Ukraine is only the latest in a series of self-inflicted wounds, ranging from the bungled takedown of YUKOS to last year's disastrous meddling in Kiev's Orange Revolution. With Moscow assuming leadership of the G8-a long-sought validation of Russia's standing in the Western world-the Kremlin might have been on best behavior. But no. By cutting Europe's gas supplies, only to see the tactic backfire, Putin & Co. once again showed themselves to be "the gang that can't shoot straight," as Stephen Sestanovich, a former U.S. ambassador to Russia, bluntly puts it." Cliff Kupchan at the Eurasia Group in Washington describes Putin's regime as a sort of post-Soviet tale of Jekyll and Hyde. "By day, the good Dr. Putin seeks to remake Russia as a modern European country. Hence, he intends to clean up Gazprom and open it to foreign investors. (Never mind that, along the way, he'll enrich Kremlin cronies who'll get stakes cheap and later sell out for big money.) He promises that Russia can be counted on as a secure, reliable energy supplier, in contrast to the uncertain Middle East. But then night falls. Almost despite himself, Putin succumbs to dark inner urgings." (Source: Newsweek International.) Learn more about Russia's bid in the G-8 »

January 9, 2006: Kiev Gas Dispute Revives Debate Over Moscow's Support For Free Trade: Financial Times published an analysis piece by Raphael Minder claiming the recent gas dispute between Russia and Ukraine is reviving the debate about Russia's commitment to free trade as both countries are nearing WTO ascension. One trade negotiator has claimed the recent dispute constituted "a clear breach of the spirit if not the letter of the WTO." John Audley, a senior transatlantic fellow at the German Marshall Fund who advised the Clinton administration on trade issues said, "Half of the problem with the negotiations with the Russians is that we have never really been sure that Russia wanted to endorse the kind of disciplines that WTO membership requires. The gas problem is evidence of that." (Source: Financial Times.) Learn more about Russia's accession to the WTO »

January 8, 2005: OPINION: Uneasy Truce in Gas Attack: The Washington Times published an op-ed by Ariel Cohen of the Heritage Foundation in which he asserts, "[Russia's] attack [on Ukraine] may have been a misstep: Russia's willingness to excessively politicize its energy supplies damaged its image as a reliable energy producer. Tens of billions of dollars in future foreign investments and contracts may be now at risk - much more than the value of Ukraine's gas imports." "Ironically, Russia, which just assumed chairmanship of the G-8, has proclaimed energy and energy security as a central focus of its term." "The United States should clarify to Russia that its heavy-handed energy geopolitics will backfire. The U.S. Department of Energy should explain this to its Russian counterparts while promising serious U.S. energy investment if Russia returns to privatization of its oil and gas companies and pipeline consortia. The Bush administration should insist that Russia's World Trade Organization accession negotiations include full separation of Gazprom's production and transportation (pipeline) assets and that both Russian and Western private investors' representatives on the Gazprom board of directors be fully involved in strategic decision making. Such participation would mitigate abuse of Gazprom as a tool of foreign policy by politicians and the federal bureaucracy." (Source: The Washington Times.) Learn more about the Energy Charter Treaty »

January 6, 2005: Gas Dispute Leaves Cloud Over Russia's Chairmanship of G-8: The Washington Post published an analysis piece claiming Russia's gas dispute with Ukraine raises the question of whether Russia is fit to chair the G8. US Secretary of State Condoleezza Rice criticized the cutoff and said it raised serious questions about Russia's presidency of the G-8, calling it "ironic and not good" that Russia pressured Ukraine on the day it assumed the G-8 presidency. European Union governments had similar responses. "In many capitals, officials were quite surprised, to put it mildly," said an E.U. diplomat who was not authorized to speak on the record. "People were expecting, on the first day of its chairmanship, another attitude regarding relations with its neighbors and the West, particularly with regards to this commodity, energy, that's making Russia a world power." Margot Light, a Russia specialist at the London School of Economics claims: "Putin has shot himself in the foot. It has tarnished Russia's reputation both as chair of the G-8 and as a reliable energy supplier." Meanwhile, complaints about democratic rollback under Putin have led to calls that Russia be tossed out of the G-8. (Source: Washington Post.) Learn more about Russia's bid in the G-8 »

January 5, 2006: OPINION: Barbarian at the G8: The National Post published an editorial calling Russia the "Barbarian at the G8." The west has already criticized Russia for shortcomings in democracy and human rights, and the recent gas dispute with Ukraine will deservedly increase western calls to exclude Russia from the G8. Moreover, Gazprom's blunder will hurt Russia's strategic position as a reliable energy supplier to continental Europe. It has already led to a Europe-wide call for diversification away from Russian natural gas. The gas dispute will dent the prospects for Russian exports of liquefied natural gas, and finally it will further tarnish Russia's attractiveness as a destination for foreign investment. (Source: National Post.) Learn more about Russia's bid in the G-8 »

January 3, 2006: OPINION: Putin's Mafia Politics: The Wall Street Journal published an editorial claiming Russia is using Mafioso tactics and extortion in its energy fight against Ukraine. When Ukraine refused to cave to Russia's demands, state-owned company Gazprom simply shut off supplies to Ukraine on January 1. This dispute is not about pricing or market economics, but instead it appears Moscow is attempting to increase pressure ahead of parliamentary elections in Ukraine. US State Department spokesman Sean McCormack asserted Moscow's actions "raise serious questions about the use of energy to exert political pressure." Meanwhile, Putin isn't getting much support in Europe. Germany's new government put the blame where it belongs - on Moscow. (Source: The Wall Street Journal Europe.)