Russia: An Energy Superpower?

By Carol R. Saivetz, MIT Center for International Studies. Posted February 1, 2008.

As Vladimir Putin nears the end of his second term as Russian president, it is clear that energy exports have become a major component of a resurgent Russia's foreign policy. According to the conventional wisdom, Russia's vast resources make it a superpower to be reckoned with. Not only is it a major supplier of natural gas to the states of the former Soviet Union, it also sells oil and natural gas to Europe and has made new contract commitments for both oil and gas to China. Additionally, as the January 2006 cutoff of gas to Ukraine, the January 2007 oil and gas cutoff to Belarus, and Gazprom's threat (again) to Ukraine in the wake of the September 2007 parliamentary elections indicate, Russia is willing to use its resources for political purposes.

The conventional wisdom continues that none of this is surprising. Putin acceded to the Russian presidency resolved to restore Russia's superpower status and to use energy to that end. The Russian Federation's Energy Strategy, dated Aug. 28, 2003, formally states that Russia's natural resources should be a fundamental element in Moscow's diplomacy and that Russia's position in global energy markets should be strengthened. In his own dissertation, Putin argued that the energy sector should be guided by the state and used to promote Russia's national interests. And, the rector of the Mining Institute in which Putin wrote his dissertation and currently one of his energy advisors wrote: "In the specific circumstances the world finds itself in today, the most important resources are hydrocarbons ... They're the main instruments in our hands -- particularly Putin's -- and our strongest argument in geopolitics."

Yet, the conventional wisdom is at best only partially accurate. When Putin and other Russian officials refer to Russia as an energy superpower, they seem to mean a country that possesses a bounty of energy and will use its resources to ensure Moscow's influence on the world's stage. In contrast, the true picture of Russia's energy resources and the attempted politicization of their uses is far more nuanced and complex. Russia's energy policies -- resource and infrastructure development and its use of the energy weapon thus far -- raise major questions about Russia's energy superpower status.

Energy blackmail

The January 2006 cutoff of natural gas supplies to Ukraine made headlines. The reporting indicated that Russia was using energy to punish Kyiv for its 2004 Orange Revolution and that Gazprom, the state-owned natural gas company, wanted to gain control of Ukraine's pipeline infrastructure. Energy has been a contentious issue between Moscow and Kyiv since the Soviet collapse, but in December 2005, Gazprom escalated tensions when it demanded that Ukraine pay world market rates for its gas. The government in Kyiv asked for a phased-in rate hike, but Russia instead cut off gas to Ukraine, resulting in serious downstream disruptions. Under intense international pressure, a deal was quickly made: A shadowy intermediary, RusUkrEnergo, would purchase 17 billion cubic meters of gas from Gazprom, at $230 per thousand cubic meters, blend it with cheaper gas from Turkmenistan, and sell it at a guaranteed price of $95 per thousand cubic meters. Steady price increases have occurred since then.

The January 2007 stoppages to Belarus began with Gazprom demanding a steep price increase, with steady rises thereafter to world market rates; in addition, Gazprom demanded 50 percent ownership of Belarus' gas pipeline network. As for oil, Russia initiated export duties on oil sold to Belarus. (Prior to January 2007, Russian oil had been piped to Belarus duty free; however, Belarus garnered huge profits by selling refined products to Europe.) Belarus retaliated by charging Russia an export fee and reducing the amount of oil flowing to Poland. Russia then blocked all oil exports. Again under international pressure, oil flowed freely within days.

In both cases, Russia appeared to have made short-term gains: Most obviously, Gazprom won the price wars. Moreover, many claim that Russia seemingly influenced the outcome of the March 2006 Ukrainian parliamentary elections in which Viktor Yanukovich, the loser during the Orange Revolution, became prime minister. In Belarus, Minsk was forced to recognize Moscow's claim to a large share of the profits from the sale of refined products and to agree to a debt-for-equity swap of part of its pipeline system. What makes the Belarus case so interesting is that Moscow was clearly willing both to risk another disruption of supplies to Western Europe and to endure damage to its prestige in order to gain major control over Belarus.

Beyond the former Soviet states, the two crises highlighted European vulnerabilities to supply disruptions and raised the possibility that Russia might use its resources to influence European policies. Soviet/Russian supply to Europe began in the 1970s and has continued virtually without disruption until two years ago. Currently, 43 percent of European energy consumption is oil, while only 24 percent is gas. Yet, gas utilization will rise as Europe limits it use of coal. Christian Cleutinx, director of the EU-Russia Energy Dialogue, estimates that the European Union's gas requirements will increase by 2020 to approximately 200 million metric tons/year. Of that, 75 percent will be imported, mostly from Russia. Table 1 indicates the current European dependence.

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Carol R. Saivetz is a research associate at Harvard's Davis Center for Russian and Eurasian Studies and a visiting scholar at MIT's Center for International Studies. From 1995 to 2005, she was the executive director of the American Association for the Advancement of Slavic Studies. She has written widely on Soviet and now Russian foreign policy issues and is currently working on a book on Putin's foreign policy.