On my other blog, I’ve written fairly extensively of the way Russia has used state monopoly, Gazprom, to manipulate and punish former Soviety countries (interestingly, or perhaps expectedly, only in the winter). It had been limited to those countries with a decidedly pro-American and less-than-pro-Moscow bent… until today. Russia has finally started to go after its friends: a year after Belarus and Russia laughed at the cries of freezing people in Ukraine, Moldova, and Georgia after each country refused Gazprom’s arbitrary rate hike for natural gas, Belarus, which has made a name for itself by being the last oppressive dictatorship in Europe and Russia’s least critical ally, is facing the exact same thing. Dig the terms Gazprom is trying to set:
Gazprom, which had been asking for US$200 per 1,000 cubic meters, has offered to reduce that to US$110, of which Belarus would pay US$80 in cash and the rest by handing over 50 percent of its state-controlled gas transport network, he told The Associated Press.
The shares in the pipeline network, Beltransgaz, would help pay for supplies through 2010, he said. Belarus wants to continue paying roughly the amount it is paying now, about US$47, he said.
In the latest hint of a possible supply cutoff, Gazprom chief Alexei Miller said in televised comments that “the responsibility for the situation … lies entirely with the Belarusian side.”
Yes, clearly they are wrong to protest a random quadrupling of their energy prices. And look at how Gazprom is offering a discount if Belarus essentially auctions off its infrastructure. Insidious. Note, too, that after their capitulation last year, both Georgia and Moldova have meekly agreed to further hikes in their gas prices—an unfortunate consequence of an aggressive state corporation using the threat of a heatless winter to enforce its price gouging. With friends like this…
…you won’t have anyone to export to. Azerbaijan is unhappy with Gazprom’s rate hikes as well. President Aliyev is threatening to cut oil exports to Russia if Gazprom doesn’t stop its price bullying.
Further west, Georgie has inked its own gas deal with Turkey, buying up to half its gas from non-Gazprom sources. It is part of a momentous move: Azerbaijan, Turkey, and Georgia recently held a summit over the future status of the Shah Deniz field, which is expected to come up to production next year. Many see it as a coordinated effort to stave off the predatory behavior of Gazprom, which has used gas prices as punishment for rejecting Moscow (though its current behavior toward Belarus is puzzling in this context). The Baku-Tblisi-Ceyhan pipeline, it seems, has paid off political, as well as economic, dividends.
Update: Belarus is threatening to cut off Europe should Gazprom press its luck. Russia says it has stockpiled gas in Germany, which would make sense ever since Gerhard Schroeder sold out the former Eastern Bloc for his new job as President of a Gazprom subsidiary. Is this reaping what one sows?
This post was written by...
Joshua Foust – author of 1771 posts on Registan.net.
Joshua Foust is a Fellow at the American Security Project and the author of Afghanistan Journal: Selections from Registan.net. His research focuses primarily on Central and South Asia. Joshua is a correspondent for The Atlantic and a columnist for PBS Need to Know. Joshua appears regularly on the BBC World News, Aljazeera, and international public radio. Joshua is also a regular contributor to Foreign Policy’s AfPak Channel, and his writing has appeared in the New York Times, Reuters, and the Christian Science Monitor. Follow him on twitter: @joshuafoust
{ 6 comments }
Take a look at how much these ‘oppressed’ ex-Soviet nations pay compared to world market price…
Why should Russia be obligated to give out discounts?
Basics of pricing for gas are actually pretty simple:
1 barrel of oil produces as much energy as 6,000 cubic feet of natural gas
1,000 cubic feet = 28 cubic meters
1 barrel of oil is therefore equivalent to 150 cubic meters of gas, so 1,000 cubic meters of gas is equivalent to approximately 6 barrels of oil. At $60 per barrel, this translates into roughly $360 per 1,000 cubic meters of gas at destination. This calculation is approximate, but it shows that the current price of gas is here to stay – it is not politically driven.
$40 price reflected Russian subsidy for Belorussia. In this world, whoever pays the piper expects to be able to order the tune. If the tune is not forthcoming, the piper’s allowance is cut off.
So Vadim, how much should a kilo of sugar cost with your joke formula?
Saying the price you derived is “real” is meaningless. Russia was using subsidized gas as a form of foreign aid to its former vassal nations. You’re right in that they have the right to ask market prices for something like energy, but the way they have done that is deeply hostile—rather than, say, a phased approach in which each country is given a chance to acquire funds for the eventual full price Gazprom charges everyone else, it has offered an ultimatum, and only after these countries have turned their eyes toward the West: pay, or freeze. That is not the action of a benevolent pied piper of LNG, it is the action of a bully.
Deliberately selling gas (or any other commodity) either under cost or under price (especially as determined by Vadim above) is a subsidy, since the producer is eating the lost profit. This is Econ 101.
Yes, Russia was subsidizing Ukraine before it cut off the gas supply last January. Selling LNG at $50 is a subsidy. And members of the Duma said that if Ukraine wants cheap gas, it shouldn’t look to the US… a not-too-subtle rebuke to the western bent of its embattled President.
In this particular case, the fact that Gazprom is offering a far reduced commodity price in exchange for infrastructure ownership speaks poorly of their pure market impulses, and is eerily similar to the 20th century economic imperialism of the continental Europeans you so lamented in other threads. I guess Russia gets a pass on being a bully?