The Gas Wars – Part 1

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Contrary to widely held beliefs in the west, the Cold War did not end with the collapse of the Soviet Union in 1991, or the fall of the  Berlin Wall in November 1989, at least not for Washington. Seeing the opportunity to expand the reach of American military and political power, the Pentagon began a systematic modernization of its nuclear arsenal and a step-wise extension of NATO membership right to the doorstep of Moscow.

Washington lied, when the Secretary of State, James Baker 111 pledged to Russian President Gorbachev that it would not happen. During the chaos of the Yeltsin years, Russia’s economy collapsed under IMF “mandated” shock therapy and systemic looting by western companies in cahoots with a handful of newly-created oligarchs , who were the nominal front-men for the London Rothschilds, in particular, Jacob Rothschild.

The re-emergence of Russia as a factor in world politics, however weakened from the economic shocks of the past two decades, has been based on a strategy that obviously has drawn from principles of asymmetric warfare, economic as well as military. Russia’s present might is no match for the awesome Pentagon power projection. However, she still maintains the only nuclear strike force on the planet that is capable of posing a mortal threat to the military power of the Pentagon. In cooperation with China and its other Eurasian SCO partners, Russia is clearly using its energy as a geopolitical lever of the first order.

The US debacle in Afghanistan and Iraq have done far more than any Russian military challenge to undermine the global influence of the United States as sole decision maker of a unipolar world.

Today, Russia is clearly pursuing a fascinating , highly-complex multi-pronged energy strategy. Putin’s number two man Prime Minister Dimitry Medvedev, is well suited to the role of overseeing gas pipeline geopolitics. Before becoming Prime Minister, he had been chairman of state-owned Gazprom.  Moscow appears to hold a winning hand in the one important non-military lever it has to tip the global geopolitical balance of power in its direction, and away from Washington’s overwhelming dominance. Oil and natural gas are at the heart of the strategy. For the past few years, Russian production of oil has surpassed Saudi Arabia’s to be the world’s largest, at just over 10 million barrels daily. And in terms of known reserves of natural gas Russia is far away the world leader.

Russian natural gas has increasingly been the foundation for a brilliant series of Russian energy geopolitical initiatives for several years. Gazprom is the centerpiece of this energy strategy.

To counter the eastward march of NATO into countries of the former Warsaw Pact , and the various US attempts to lure Georgia and Ukraine  into NATO, Putin has used the economic lever of Gazprom. With its enormous gas resources Russia seeks to win stronger economic ties in western Europe, thereby neutralizing the potential military strategic threat from the NATO encirclement. No country has been more the focus of this Russian pipeline diplomacy than former wartime foe Germany.

High_stakes Eurasian chess game

In a sense, the Eurasian land area today resembles a geo-political game of three-dimensional chess between Russia, the EU, and Washington. The stakes of the game are a matter of life and death for Russia as a functioning nation, a point that Putin realizes at this point.

US attempts at the military encirclement of Russia included not only the Rose and Orange Revolutions in 2003  (Georgia)and 2004 (Ukraine), but also the highly provocative Pentagon missile ‘defense’ policy of placing US-controlled(not NATO-controlled) missiles key former Warsaw Pact countries on Russia’s direct perimeter.. All of these US moves have attempted to isolate Russia and weaken her potential strategic allies across Eurasia.

The price of oil is tightly controlled by a cartel of Big Oil, and its financial arms on Wall Street, such as JP MorganChase, Goldman Sachs, and a few others. Natural gas is far more difficult for Wall Street to manipulate on a short-term speculative basis as with oil.

Because gas, unlike oil, is dependent on construction of costly pipelines or LNG(liquefied natural gas)tankers and LNG port terminals, it tends to have a price fixed by bilateral long-term agreements between buyer and seller. That gives Moscow a degree of protection against events such as the brazen manipulations of oil prices in 2008-2009 from a record high of $147 a barrel down to below $30 only months later, manipulations which devastated Moscow’s oil earnings at just the time the global financial crisis cut off credit to Russian banks and companies.

In 2004, the CIA launched a political takeover of the Ukraine, through the Orange Revolution, Washington used this to cut off the flow of gas to Europe, not once, but three times; in 2004, 2006, and 2009. Thiis was to show the EU that Moscow is not a reliable supplier. It was also used to demonstrate to Moscow that, :” play ball, or else—“.

Had Ukraine joined NATO after Kiev’s 2004  “Orange Revolution” brought Washington’s man Viktor Yuschenko in as President, then Ukraine would have been in a strategic position to economically strangle Russia on command. Some 80% of all Russian gas exports to EU countries were flowing across Ukrainian territory. Today, some 40% of all state revenues in Russia comes from its oil and gas exports.

Nord Stream:

After the 2004 Ukraine Orange  Revolution, Moscow’s western pipeline strategy was put into play to bypass both Ukraine and Poland through construction of an underwater gas pipeline, Nord Stream, running from Russia directly to Germany.  Nord Stream was vital for Russia when it looked possible that Washington might succeed in pulling Ukraine into NATO after the Orange Revolution. The Nord Stream gas pipeline from Russia’s port of Vyborg, near St. Petersburg to Greifswald in northern Germany, goes beneath the Baltic Sea in international waters, completely bypassing Ukraine and Poland.

A second pipeline was constructed , and completed in  2013, Nord Stream will have a capacity of 55 billion cubic meters of gas a year, enough to fuel 25 million households in Europe. In addition, in a major geopolitical shift, the UK , in 2010, signed a long-term contract with Gazprom to import gas via Nord Stream to meet more than 4% of UK gas demand, as Britain shifts from being a gas exporter to a gas importer. In addition, Gazprom has contracts to supply Denmark, the Netherlands, Belgium and France, making it a major new factor on the EU energy supply market.

Washington was bitterly opposed to Nord Stream, and attempted to unsuccessfully block it by proxy through back-door support for Poland and other EU opposition.

South Stream versus Nabucco

In a second major front in what could be called the Russia-USA pipeline wars , at the same time Nord stream was coming into play a ferocious geopolitical battle has also been raging over a second planned major Gazprom gas pipeline project to EU countries called South Stream. This pipeline would be laid on the Black Sea floor, pass through Bulgaria, and terminate in Austria, from the southern part of the EU. Moscow created these two pipeline systems to assure the EU of stable supplies.

South Stream would be sister counterpart of Nord Stream.  At a length of 900 kms, it would have an annual capacity of 63 billion cubic meters, even larger than Nord Stream. By late 2011, Gazprom secured partners for its South Stream project. It included Italy’s ENI, Germany’s BASF, and France’s EDF.

Turkey also gave  permission to Gazprom to begin prospecting for the undersea route of South Stream. Turkey is trying to play a new role as an energy crossroads between the EU and its neighbours. Today , Turkey is Russia’s largest market for export of Russian oil and gas combined. Plans are in place to build Turkey’s first nuclear power plant to meet Turkey’s demand for electricity. Today, Russia is Turkey’s  largest trade partner; and plans are afoot to increase this by some 400% in the next few years.

To hit back at Turkey’s growing closeness to Russia, on March 4, 2010, the US Congress passed a resolution calling the World War 1 killing of Armenians a genocide. The vote led to the immediate recall of Turkey’s Ambassador to Washington as a protest.

To counter the growing  Russian energy ties to the EU, the EU Commission with strong Washington backing, propsed an alternative in 2002 called the Nabucco pipeline. It would be a 3,900 km pipeline that would pump 31 billion cubic meters of gas annually, from the Caspian and the Middle East, across Turkey into  Europe. And it was estimated to cost  about $30 billion. Nabucco is an integral part of a US strategy of total energy control over both the EU and all of Eurasia. It explicitly has been conceived to run entirely independent of Russian territory and is aimed at weakening the energy ties between Russia and Western Europe.

These energy ties was the reason why Germany and France refused to back Washington’s push to bring Ukraine and Georgia into NATO.

The central issue for the two competing  pipeline projects, South Stream and Nabucco, is not who will buy their gas, but rather where the gas will come from to fill the pipeline. Here, Moscow holds the trump cards. Moscow would supply South Stream from its own gas fields, in western Siberia.

And Putin played his trump card, when Prime Minister Medvedev went to Turkmenistan, in December 2009, and signed a major agreement to purchase gas.

Until the breakup of the Soviet Union, Turkmenistan was a republic of the Soviet Union. It has the world’s third largest gas reserves (after Russia and Iran). Turkmen gas has been vital for the supply chain of Gazprom, and dates back to the era when Turkmenistan was an integral part of the Soviet Union and Soviet economic infrastructure.

When ‘President for Life’ saparmurat Niyazov, known as “Turkmembashi” , or “leader of the Turkmens” died unexpectedly in December 2006, Washington began entertaining hopes of weaning the new President, Gurbabguly Berdimuhamedow, away from Russia and into the US orbit. To date they have met with little success. Rumours have been floating around that the US had a hand in his death.

The Gazprom-Turkmenistan December 2009 agreements included long-term gas supplies to Gazprom which will fill the South Stream pipeline directly, or by replacing Russian gas to the same – meaning Nabucco is left out in the cold there. Furthemore, Gazprom signed a deal to pay Turkmenistan a price of $350 per 1000 cubic meters, or tcm. This sent shock waves in the west! Why?. Because this was the price that Rissia charged its customers in the EU. Meaning that this was by no means an economic deal, but a political deal!

Barely 5 months earlier, Medvedev and Gazprom CEO Alexi Miller went to Baku and signed a long-term contract to buy all the gas from the Azeri Shah Denitz-2 offshore field, the same field Nabucco hopes to tap for its pipeline. In early January, under persuasion from Moscow, Iran agreed also to buy the remaining portion of  the Shah denitz-2, Azeri gas, thus inflicting another blow to Nabucco’s supply.

Today, the future of Nabucco is in grave doubt. The problem is that gazprom has all but locked up long-term gas contracts with all the potential suppliers of gas for Nabucco, leaving Nabucco high and dry. Thus,  by mid 2010, Iran and Iraq were being touted as potential suppliers to Nabucco!

For Iraqi gas to flow into Nabucco, it would have to go through the Kurdish regions   of both Iraq and Turkey, giving the Kurdish minorities a potential major new revenue source, something not welcome in Istanbul. Iran as a potential gas source is at present not in the Washington calculus because of tensions with Iran, but more because of Iran’s enormous influence over the future of Iraq, where they exercise significant influence on the majority shia population there.

The ongoing battle between Russia’s South Stream and the Washington-backed Nabucco is intensely geopolitical. The winner will hold a major advantage in the future political terrain of Europe. Rainer Steele, chairman of BASF subsidiary, Wintershall, suggested the geopolitical thinking behind the decision to join South Stream  :” In the global race against Asian countries for raw materials, South Stream and Nord Stream, will ensure access to energy resources which are vital to our economy.”

The US has pushed the EU Commission to conduct raids on Gazprom offices across Europe, and harass the company, with various legislations. The EU has come out with a Third Energy Package, which imposes limits on ownership of EU pipeline infrastructure by gas suppliers and calls for the “unbundling” of over-concentrated ownership. Under these rules, Russia could be forced to sell off parts of its pipeline network in the EU, along with its gas-storage hubs, something Moscow is not about to do. It could open a Pandora’s box of geopolitical interference with the potential for anti-Russian companies to sabotage the vital Russian gas trade with the EU, a mainstay  today, of Russian state finances. The Gazprom raids were explicitly political.

Were Moscow to succeed in completing South Stream and retain its integral control over the delivery pipeline infrastructure, it would represent nothing less than a major geopolitical defeat for Washington. Remember, the American’s basic game plan is to ensure that it controls  all the energy and pipelines going into Europe. In this manner it can dictate Europe’s future.

Washington had placed obstacles in Europe to ensure that Gazprom would not be able to succeed in implementing South Stream. Turkey as a ket transit state had already given permission. Gazprom ‘s political problems arose when it negotiated routes through Bulgaria, and Romania. These two countries were under heavy American pressure to block the passage of South Stream through their countries. Even though the financial benefits with South Stream outweighed anything that either the EU or Washington could offer. Financial benefits would have been a guaranteed supply of gas, in addition to transit fees earned when gas was piped to customers beyond their borders.

South Stream was stalled. When the US managed to pull Ukraine into its orbit in December 2014, and when the US began to sanction Russia’s energy industry, a decision had to made. South Stream had already cost Gazprom $3 billion , when Putin pulled the plug. Washington was thrilled. And a short while later, Putin shocked them when he announced a much shorter version of South Stream. That  is Turk Stream. Much of the pipeline infrastructure was already in place. Turk Stream would end at the Turkish-Greek border. Putin said,” If Europe wants this gas  into southern Europe, then it is up to the Europeans to build pipelines to take it from the Greek border, deeper into Europe.”

In short, Washington had successfully stopped Russia in its South Stream “strategy”, in Europe. As we shall see, the battle then expanded into Africa

As Henry Kissinger once said, if you control the oil flows, you control the destinies of nations. Europe is technologically advanced, but lacks access to raw materials. Russia is in dire need for this technology to improve its economy, and it has an over-abundance of the raw materials that Europe needs. It would be a ‘win-win’ for both. Were that to happen then Europe can tell the US “bye-bye”; we don’t need you anymore.  Please leave Europe, and take your troops with you”. America, overnight would become a third-rate power, and the Rockefeller Empire will join the graveyard of empires.

Not letting itself be totally dependent  on EU gas or oil revenues, Moscow is turning East, and focusing on building long-term energy partnerships with China. We shall examine the geopolitical implications of that shift in the next issue.

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