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Russia’s Westpolitik By: Ariel Cohen
FrontPageMagazine.com | Tuesday, October 17, 2006

Vladimir Putin’s visit to his old stumping ground, Germany, after he hosted Chancellor Angela Merkel in Siberia earlier this year, was delightful. Putin dropped by the old haunt, Dresden, where he used to run agents, then attended meetings with Bavarian officials and a dinner in Munich. The Green Party leaders boycotted the affair because of the journalist Anna Politkovskaya murder. Still, the Greens in the past gave hand to the massive German energy partnership with Russia – so that the Vaterland can shut down the much-hated nuclear reactors.

Better be Red than dead; better be Green and pro-Russian than anti-environment.


Russia has no such scruples. As a nouveau riche trying to purchase a once-elegant, but now rundown chateau from nobility, cash-rich Russia is eyeing German industries. How times have changed. In the 1990s, after the collapse of communism, it was the Germans who were treated in Russia as rich uncles, coming to rescue the decrepit Soviet industries.


Most ironically, it is the German consumers who are funding these purchases out of their own pockets by paying record prices for Russian oil, gas and other natural resources. To paraphrase Lenin, who has promised that the bourgeoisie will sell communists a rope on which they will hang it, the West is paying for a natural gas “rope” – or rather, pipe. This may become its geopolitical leash.


Putin, a superb strategist, has a massive carrot to offer to Frau Dr. Merkel: an energy partnership with Gazprom, of which he is -- informally for now – the real chairman of the board (things might change in 2008). “Germany”, said Putin, “could turn from a simple consumer of Russian gas and oil to a large center for the European distribution of these products.”


What Russia is really after is ownership of Europe’s energy distribution networks: oil, petrol, gas, electricity, telecoms – you name it. With that, Russia is in no hurry to cede ownership of its “strategic assets” – oil and gas fields and raw material deposits – to Western partners.  Ministry of Natural Resources is making sure that’s the case.


Senior Russian officials call it “interdependence”: you depend on us. Some Europeans, especially Germans, are buying it. For example, Klaus Manglod, Chairman of the Eastern Committee of the German Economy said that Germany “welcomes Russian investment and is absolutely open for it.” He suggests to bypass the current US objections to Russia’s WTO membership by developing separate EU-Russian trade ties, including a Free Trade Zone.


There is a massive payoff in such an approach for the members of the Russian Bear Fan Club: Chancellor Gerhardt Schroeder is chairman of the Board of Nord Stream gas pipeline. Another champion of these transactions is the current German Social Democrat Foreign Minister Frank-Walter Steinmeier, former Chief of Staff for Schroeder. He believes in a new iteration of Ostpolitik, called “rapprochement through integration”. Steinmeier wants to see Europe “irreversibly tied to Russia” – and presumably, “untied” from America. One hopes Germany will not be tied the way its own Eastern Lander were linked to Moscow, together with the countries to its east, until 1989.


Even the Northern Pipeline deal does not look like an equitable partnership: Gazprom will retain 51 percent control in the Nord Stream pipeline, while German partners BASF and E.ON keep 20 percent each. 9 percent will go to the Dutch Gasunie. Putin showed no enthusiasm to Frau Merkel’s calls to engage Poland and the Baltic States in Nord Stream.


Moreover, Russia is pursuing old Soviet-style policies of “divide and rule”. It is driving the wedge between the U.S., to whom Gazprom promised natural gas from the giant Shtokman field in the Barents Sea, and Germany. Now, as U.S. insists on its objections to Russian membership in WTO, Russia made a surprise decision. Gazprom will develop Shtokman without Western (especially American) equity partners. Gas will go to Nord Stream by pipe and will be sold in Europe. Germany will get a boon: a secure supply of 55 billion cubic meters of blue fuel a year. However, the risks of the Shtokman project just skyrocketed.


Things don’t have to be this way. By reviving the nuclear industry to modest 20 percent of the total electricity generation; by building a liquid natural gas terminal in the Baltic (which Poland could also use); and by connecting to the Nabucco gas pipeline project from Turkey to Austria, Germany could have diversified its sources of energy. It chose not to.


A precedent has been set earlier this year. Gazprom offered E.ON a stake in the Yuzhno Russkoye gas field in Siberia in exchange for 25 percent in Ruhrgas. E.ON refused. Gazprom then successfully negotiated an equity stake in BASF subsidiary Wintershall, giving the German company 25 in the field. In the end, E.ON provided Gazprom a significant stake in its Hungarian electric and gas utilities, raising questions about the return of Russian influence to the heart of Europe. 


But Moscow is not about to stop. State-owned Vneshtorgbank has recently acquired five percent of European Aeronautic Defense and Space Company (EADS). This may be necessary to give EADS a shot in the arm after bungling the A-380 super-jumbo project. Russia also made some deft moves trying to corner the titanium market. But as Russia is planning to expand its interest in EADS, it is likely that its U.S. military business will wither quickly, as the Pentagon will recoil from doing business with a company owned by the Russian state.


In fact, Western concerns about the Russian business expansion, including in Germany, are based on state ownership, pervasive corruption, and using business as a tool of state policy. If Russian companies were truly private and transparent, without government interference, things would be different. But the examples of YUKOS evisceration, mistreatment of Western oil companies in the Sakhalin projects, consolidation of the aluminum industry in the hands of Oleg Deripaska, RosAtom’s dealings in Iran – all this indicates that Russia, Inc. is on the roll, and Germany is just the first stop.


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Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security at the Sarah and Douglas Allison Center of the Davis Institute for International Studies at the Heritage Foundation.

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