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#32 - JRL 2006-237 - JRL Home
Moscow Times
October 24, 2006
Editorial
No Escaping This Energy Relationship

Much of the discussion between the European Union and Russia this year has been devoted to defining sharply the meaning of energy security -- the issue that Moscow made the main focus of its Group of Eight presidency this year. Friday's meeting between President Vladimir Putin and leaders from EU member countries in Lahti, Finland, showed just how defined these positions have now become.

Russia's basic position has remained relatively consistent over the months. Not interested in playing the role of Europe's raw energy supplier, it is looking to swap stakes in its vast reserves for stakes in European downstream production and distribution networks. In Lahti, Putin said the lack of such offers was a main factor in Gazprom's decision not to work with a foreign partner on the development of the Shtokman natural gas field.

Moscow is only interested in trading value for value.

Statements by EU leaders on Friday indicated an even stronger commitment to talk about energy with Russia as a group, rather than individually. The European leaders made a united call for Russia to liberalize ownership in its pipeline networks, which are now restricted by law to state control.

Brussels is only interested in trading access for access.

These sound a lot like take-it-or-leave it negotiating positions, but the reality is that neither side can afford to walk away from the table. Europe is tied to Russia as the source for one quarter of its energy supply for the foreseeable future, and that share is likely only to rise.

On the other side, Russia's federal budget is so dependant on the export revenues that sales of energy resources to the European market generate, an cut off of supplies to Europe would be fiscal suicide.

The enormous investment required essentially rules out a switch in the flow of gas and oil from West to East -- to China, for instance -- anytime in the near future.

So further interdependency -- swapping value for value and access for access -- looks like the only reasonable option. If both sides are serious about cooperation, the fact that their demands have become so clear should make reaching a deal easier. When it comes down to energy, Moscow and Brussels are stuck with each other either way.