Europe's Failures Make Russia Smile
Vladimir Putin’s irony about Europe and the United States emerged crystal clear in the last weeks. He seemed confident and enthusiastic. And he is right: Moscow reasserted its centrality in its main energy market (Europe), after approaching the brink of being marginalized. Ukraine, with its rich shale gas reserves soon to be tapped, drifted away from Brussels, while Russian companies did not lose time and signed advantageous contracts in Europe.
RUSSIA, EU AND UKRAINE
Russia’s robust approach overshadowed European ambitions and soft powers. The last weeks have demonstrated that Brussels cannot offer many alternatives, while the Kremlin can maintain and reassert its influence in the former Soviet bloc. The European Union even tried to put on the table a new gas pipeline from Slovakia to Ukraine, but this last-ditch effort did not stop Kiev retreating from negotiations for a free trade agreement with the European block.
The reality is that the EU does not have much leeway to attract countries. At the moment, it lacks the political coordination and the economic strength. It is simply not appealing. And it will continue not to be, unless it will take its (energy) issues seriously. A serious approach is required in case of serious problems.
Last hours proved that energy is a burden on European shoulders. Between Wednesday and Thursday of last week, Italian gas prices for delivery the next day rose by 30% over reduced Norwegian gas flows and an increase in demand due to cold weather. Supplies from Algeria and Russia remained steady. Ironically, Moscow is the main certainty.
Considering the European dependence on Russia’s energy a given fact, it is still to be seen when and if Europeans will find a way out. Europeans will not win the battle by taking Gazprom to arbitration. Brussels will have to play other cards.
The initiation of an antitrust proceeding against Gazprom proves that the European Commission is aiming to play an active role in the liberalisation of the gas market in the European Union - that is true - but an eventual loss of Gazprom could immediately create more room for other Russian companies. Legal confrontation is not a solution for Europe.
IF GAZPROM LOSES, OTHER RUSSIANS WIN – RUSSIAN CONTRACTS IN EUROPE
The recent top-level Russian-Italian interstate consultation in Trieste brought to a whirlwind of contracts. Gazprom’s name was hidden behind the curtains, but other gas and oil companies took the lion share at its place.
Rostec State signed a Memorandum of Understanding with Pirelli and Rosneft for joint research and development activities.
“The partnership between Pirelli and Rosneft, in the sphere of development of new materials, allows Rostec to firmly establish itself in the global market segment,” Sergei Chemezov, General Director of Rostec, commented in a note released on Tuesday.
At the presence of Italy’s Prime Minister Enrico Letta and Russian President Vladimir Putin, Rosneft and Eni signed a term sheet on mutual crude supply and a heads of agreement on logistics opportunities.
According to the term sheet, Rosneft will supply crude oil to two refineries participated by Eni – the PCK Schwedt refinery in Germany and Česká Rafinerska refinery in the Czech Republic. At the same time, the signed agreement presupposes that Eni will perform seaborne supplies to Rosneft in its Ruhr Oel refineries in Germany.
“These agreements represent a step which is consistent with tightening Eni and Rosneft’s relationship in the area of trading and logistics following the agreement on developing trading and logistics opportunities which was signed in February 2013,” Rosneft President Igor Sechin commented in a note.
The same day Novatek’s CEO, Leonid Mikhelson, and Eni’s CEO, Paolo Scaroni, signed a Memorandum of Understanding, which will pave the way for future co-operation between the two companies.
The two-day conference in Italy, which is he third gas importer in the world, showed that Russia is the main player in European markets. If Gazprom remained in Moscow, other Russian companies made the most of their trip to Trieste.
In this sense, Putin can smile for the recent decisions in Ukraine, the agreements signed in Italy and Moscow’s position in other European countries.
OTHER SUCCESSES IN THE FORMER SOVIET UNION
Russia’s present influence on the former Soviet Union is indeed clear, as its gas supplies account for 100% of the total usage in Estonia, Lithuania and Latvia.
Moscow is trying to maintain its strategic advantages, with the main effort coming from Gazprom’s management. The company led by Alexey Miller has made clear its intentions to build a LNG terminal off the coast of Kaliningrad and the announcement is clearly intended as a message to Vilnius. As Russia and Lithuania are struggling to agree on a new gas supply contract, the LNG terminal in the Russian Baltic would affect the relevance of the project Vilnius is discussing with Brussels.
Russian strategy is more than a thorn in Europe's side. It is a proof of strength. Putin’s irony and smiles come as no surprise. Ukraine’s retreat from the free trade agreement is just one of the reasons for Russia to smile.
Sergio Matalucci