How the Russian oil and gas exports to Europe effect the Europe Russia

Geopolitical and economic relations?

Nadav Avni

Petroleum & Energy: Geopolitics, Economics, Strategy & Security Dr. Amit MorIDC, HerzliyaLauder School of Government

Background

• Russia is very reach in Natural Resources, especially Natural Gas and Oil

• Between the 1960’s and the 1980’s, the pipes infrastructure to supply those resources to Europe was built

• The production of those resources increased since the collapse of the Soviet Union. Boris Yeltsin, the Russian President at that time, privatized the country assets to the Oligarchs that invested money in improving the production technology

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• The increased production and the world energy prices in the 1990’s made the Russian energy market very attractive to European countries and their demand for Russian energy increased and so their dependency on Russia.

Russia from Yeltsin to Putin

In 1999 elections to President took place in Russia. Vladimir Putin, Russia’s 5th Prime Minister and a favored candidate by Boris Yeltsin President of Russia at that time won the elections and took office. Putin in his first term as President, between 1999 to 2003 was very interested to open the Russian energy market to Western energy companies and sign an energy partnership with the USA.

Putin’s reelection and his actions in the Russian energy

sector• In 2003 Putin won the elections again and

remain in office. When he started his second term everything changed regarding foreign expectations in the Russian energy market. Putin ordered to arrest high officials at Yukos, Russia’s largest Oil company due to illegal taxing actions. In the west the thought was that the real reason is a political one

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• After the arrests Putin “Nationalized” Yukos. He took the power in the company from the Oligarchs and now the government holds more than 50% of the company shares, which means the government owns the company

• Vladimir Putin did what he did because he saw Russia’s interests put a side, he saw soaring energy prices and last he thought that Yeltsin’s decision to privatize the country assets was wrong and that government should be the main power, especially when it comes to energy resources.

Russia’s energy market is owned by the government

• After what Putin did to Yukos, the Russian government was now the major player in the Russian energy market. Owner of Gazprom, the Russain largest Natural Gas company in the world and now also Yukos, Russia largest Oil company

• In 2003 Gazprom decided to raise Natural Gas prices because of growing market demand.

Ukraine threaten Russia

• Ukraine which was part of the Soviet Union is a very important junction for the Russian energy that is going to the European countries. The Gas and Oil pipes pass in its territory

• Ukraine threatened Russia that if Gazprom will raise the gas prices, it will shut down the Russian pipes that pass in its territory.

The consequences of Ukraine act

• What the Ukraine did, put a lot of European countries under pressure. It was winter time, and most of their Energy is based on Russia’s Natural Gas. Austria for example is 100% dependent on Russian gas for heating, electricity making etc… and if the gas flow will stop its economy will be hurt badly and a lot of its citizens will freeze to death

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• Russia knows that a lot of European countries including Ukraine is dependent on its Natural Gas and Putin decided to teach the Ukraine a lesson and shut down the gas production pipes

• The result was that the European countries started to use their energy reserves and right before they were about to end a freeze wave came to Europe

• This caused 7 European Head of States to demand the Ukraine to apologize to Russia and they also had to fly to Moscow to beg Putin to open the gas production pipes, in order to avoid disaster and he agreed.

Conclusion

This was an examples among many others which occurred in the last couple of years with Putin’s Russia (until 2008) and now with Medvedev’s Russia (since 2008), when Russia’s energy played a major role in The Russian European Geopolitical and economic relations regarding who says the final word and how the decision would look like.

Personal Remarks

• I tried to show in this presentation how Europe energy dependency on the Russian energy put it in a lot of trouble politically and economically when it needs to face Russia.Russia can use its energy as leverage against Europe and Europe will have to line up or comprise with Russia and sometimes its interests will get hurt badly.

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• I think that Europe needs to find other energy suppliers that it will have the possibility to maneuver if things go wrong with Russia, than it will need less to line up and less comprise on its interests.Also Europe needs to find new energy soultions, e.g. wind and water power in order to produce electricity etc… it will require a lot of investments but it’s worth that.

References• Lucas E., The New Cold War, Putin’s Russia and the

Threat to the West. Palgrave Macmillan: London, England, 2008.

• Olcott B.M., The Energy Dimension In Russian Global Strategy. The James A Baker III Institute For Public Policy Of Rice University: Houston, Texas, US 2004.

• Bloomberg website www.bloomberg.com • European Energy Review website

www.europeanenergyreview.eu• The Institute For National Security Studies website

www.inss.org.il

Questions