From Russia With Cold

While in the U.S., people speculated about the outcome of the Rose Bowl and the size of Samsung’s new humongous plasma TV at Las Vegas’ Consumer Electronics Show, Europe had a very cold New Year. Flaunting global warming, already freezing temperatures in the Old Continent managed to get colder thanks to Russian President Vladimir Putin.

2006 did not kick off promisingly when Gazprom, Russia’s Kremlin-owned energy monopoly, interrupted Ukraine’s natural gas flow through the ironically named “Brotherhood” pipeline. Ever since the downfall of the USSR, former satellite Soviet republics have benefited from heavily subsidized gas prices. Wanting to update Ukraine’s access to “international standards,” Gazprom raised the price of gas from $50 per thousand cubic meters to $230. The more than 400-percent increase was cleverly couched in the Western language of free trade and open international markets.

The Kremlin, however, failed to foresee the impact on the European countries that feed off the same pipeline and already pay the market price. European Union powers like Germany, Russia’s largest energy importer, and Italy saw their flows reduced by more than a third and, with U.S. backing, pressed Moscow to reach a stabilizing agreement with Ukraine. At a time when thre is reduced oil production in Iraq, and Norway is already pumping oil at full power, there was no excess capacity from which Europe could benefit. Clearly, the pressure was on. Not surprisingly, the involved parties swiftly reached an agreement—featuring gradual price increases and the involvement of third-party dealers—to save Muscovite face. Several lessons and comparisons can be drawn following this New Year’s freeze fiasco.

Moscow often courts thirsty foreign hedge funds with the possibility of making Gazprom public, but the fact remains that it is far from an independent company. In fact, Dmitry Medvedev, a close friend of President Putin and the first deputy prime minister of Russia, chairs the “corporation.” In the last months, this behemoth bought, in a throwback to good ol’ Soviet times, curious assets to “complete its portfolio”: Izvestia, a money-losing newspaper, and NTV, a leading TV network formerly owned by one of Putin’s rapidly vanishing rivals. This cold New Year, the company was used for a 21st-century taste of realpolitik.

The truth about the frigid feelings between Moscow to Kiev lies beneath: retaliation for last year’s Orange Revolution, which was built on the premise to take the country away from the Kremlin’s spheres of influence. Former Soviet republic Belarus, on the other hand, has an authoritarian government keen on close relationships with Moscow and still enjoys cheap energy. Thus, gas from murky companies like Gazprom flows with political scents—and according to Putin’s desires.

The problem with Russian politics is that increasingly, everything flows according to Putin’s cravings. Long gone are the days when Kremlin-watchers thought this sober former KGB officer would copy-cat feeble former President Boris Yeltsin. Damningly, when the Kremlin intervened to rectify most of the shady privatizations of his predecessor, media freedom was severely obstructed. The State took control of most media outlets and kept them, minimizing criticism within its borders.

According to Marshall Goldman, associate director of the Davis Center for Russian and Eurasian Studies at Harvard, when prosecuting oligarchs, Putin went “too far yet not far enough.” He went after the oligarchs that did not support him, like Mikhail Khodorkovsky, yet suspiciously overlooked friendly others such as Roman Abramovich. Furthermore, the increasingly complacent Parliament was cajoled into passing strict controls on civil liberties. In a move almost unnoticed by Western media, Andrei Illarionov, a top economic adviser to Putin, resigned last week, loudly proclaiming Russia to be “no longer a free country.” To our journalists, it seems gas is ultimately more important than testimonies regarding the status of democracy.

Oddly, Russia will chair the Group of Eight this year, at a time when its president behaves like another authoritarian leader sitting on vast fossil fuel reserves—Venezuelan President Hugo Chávez. Furthering his “Bolivarian” revolution and profiting from his oily dollars, Chávez is buying military equipment from Spain and AK-47s (guess where from) for his growing “security forces.” As the Bush administration turns its eyes away from Latin America, Chávez buys influence in the region by aiding Caribbean economies and helping his Argentine “brother” President Néstor Kirchner rid his country of the International Monetary Fund.

As it turns out, few lessons were learned from the oil crises of the past, even when Western Europe reduced its dependency on oil. Instead, Europe turned its reliance to gas—largely from Russia. And today, exorbitant fossil fuel prices give unprecedented power to leaders like Putin and Chávez—leaders that, in many cases, started rightfully defending the interests of their nations after damaging laissez-faire regimes featuring rotten privatization programs. Yet, as the case of Ukraine showed last week, they often go too far.

Catherine the Great once said that because of the size of the country, “the sovereign must be autocratic,” crystallizing the perennial Russian dilemma between authoritarian regimes and revolutions. Putin once deemed the fall of the Soviet Union the greatest political catastrophe of the century; the world hopes he won’t try to emulate what was lost under Mikhail Gorbachev. Gazprom’s New Year surprise, however, shows a future as dark as oil, and as volatile as natural gas.

Pierpaolo Barbieri ’09, a Crimson editorial editor, lives in Thayer Hall.