Running On Half Gas

The big news today I suppose is that Ukraine has just received a mid-winter present: someone turned off the gas. The issue here seems to be not the what but the how. Ukraine has been receiving gas at incredibly subsidised rates from Russia, and there is no good reason why this should continue indefinitely. But for those of us who are worried that Russia – as a wanabee rogue state – could present possibly the most important future threat to EU stability, the way this has been done is surely far from re-assuring.

This most recent development comes hot on the back of the news that Russia wants to severely limit the freedom of movement of NGOs on its territory, and the resignation of economic adviser Andrei Illarionov, who left saying that “It is one thing to work in a partly free country, which Russia was six years ago. It is quite another when the country has ceased to be politically free” .

The big picture background is surely to be found in Russia’s Demographics, and the traumatic economic and cultural consequences that these can lead to. In the immediate term what we have to hope for is that EU ‘enlargement fatigue’ won’t have gone so far that we are unable to recognise that both our longer term strategic interest, and our shorter term political resonsibility, is to come to the aid of a Ukraine who’s ‘orange revolution’ was only yesterday the object of our praise and encouragement.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

14 thoughts on “Running On Half Gas

  1. To me the big picture background is Russia’s chronic need to dominate and control its neighbors to compensate for its weaknesses at home. Combine this with an innate conservatism, mingled with a desperate desire for a “srong leader” after the disruptions of the late Soviet/post-Soviet period, and you get Putin and authoritarianism.

    Obviously this is related to social and cultural forces, but you seem to be slipping into the vulgar demography again.

    You are of course completely correct about the need for an EU response. At least Schroeder is out of office now and is forced to display his blatant philo-Russism in full view.

  2. Edward, you’re right about Ukraine.

    That’s why I think the more immediate question is not why it had to end at some point but why and how it ended now. Seeing how Gazprom is charging a different price in every country in the former Russian direct sphere of influence, allowing for some ancient contracts that will have to be revised for simple commercial/economic reasons, and even discounting whatever deal he has with the Janukovich camp for the upcoming Ukrainian elections in March (which I’m sure Ukrainians won’t appreciate *at all*, I can’t help but sensing that Western European capitals, Brussels, and to some extent, particularly, Berlin, are the real addressees in this row.

    That’s why I think it will turn out to be a truly bad idea in the long run. Still, his muscle flexing will probably lead to more people devoting more time to thinking about what I called an Orange Solution for Putin – true ideas for preferred partnerships between the EU and “Janus states” like Turkey and Ukraine. Angela M. would probably like that since it would really help hit two crows with one stone.

    As for energy dependency in Western Europe, particularly with respect to natural gaz, I think Russia is overestimating its hand, certainly in the long run. I mean, Russia relies on the fact that it’s cold in Kyev to make its point…

    some more background…

    http://www.swp-berlin.org/common/get_document.php?id=1419“>http://www.swp-berlin.org/common/get_document.php?id=1419

  3. “to thinking about what I called an Orange Solution for Putin”

    Maybe, but I am just not very optimistic. It is very fashionable these days in social science to talk about ‘path dependency’, well Russia does seem to be on a very different path to Ukraine. You could get what they call ‘lock-in’, where a minority who are doing very well indeed thank you very much capture the state apparatus, live from exploiting natural resources, and those who don’t like things that way, and aren’t too old, simply leave.

    “you seem to be slipping into the vulgar demography again.”

    Maybe, maybe. In the Russina context we’ve discussed this one a lot. What I would highlight is the fact that there is a general drift Westwards across the whole of the former USSR, with the most westerly Russians migrating into the EU. There are now plenty of young Russians here in Barcelona, indeed I would say that over the last year or so they are the group you notice most as being on the increase.

    What this means for ‘mother Russsia’ is a long term change of religion. Most of the people coming from the East are muslim. The Orthodox Church doesn’t seem especially muslim friendly if Serbia, Bosnia and Kosovo are anything to go by, xenophobic attacks do seem to be on the rise, and I imagine a situation where the religious majority was muslim (and that does seem to be built into the demographics at some stage) would not be easily accepted. A recipe for a big conflict at some point I think. And the EU needs to think about the implications of what might happen there now.

  4. I don’t especially want to re-open the debate which Hektor and I had around the post which I have linked-to, but those who want to read more about the background to what is happening in Russia may find Nicholas Eberstadt on Demographic/Health Problems in the Russian Federation: Trends, Dimensions, Implications useful and for more general background this paper on the implications of demographic change for Russian politics and security by Harley Balzer of Georgetown University is extremely interesting.

  5. The FT are suggesting that what the Russians may want is a participation in the Ukraine landline – in this article:

    http://news.ft.com/cms/s/d6fa2974-7bb6-11da-ab8e-0000779e2340.html

    There may be another reason why Russia is demanding such a high price of Ukraine: so it can force it into a compromise involving agreement to share control over its transit pipeline with Russia – as Belarus does. For a country seeking to increase gas exports to Europe, joint control over the main pipeline would be an important prize.

    There are other precedents for handing over control of assets in return for lower gas prices. Following an increase in prices for Georgia, Gazprom is offering to fix the cost for 10 years in return for agreement to form a joint venture to operate and develop Georgia’s natural gas transportation system. Mr Medvedev says Gazprom would consider an asset swap with Ukraine in return for agreeing on a transition period to higher prices – and makes little secret of its favoured option. “We are ready to consider other assets that may be of interest to us,” he says. “But we are particularly interested in the transit pipelines in Ukraine.”

  6. The Sunday Times quoted an “industry source” as saying that “we don’t know what model he [Putin] is following – it’s not quite socialism or capitalism, but it is about increasing the power of the state.”

    We political scientists call that one “fascism”, no?

  7. If the main Russian objective with this one is to tramp on Ukraine it seems as if Putin has got his cost/benefit analysis wrong. He (they, Gazprom? who are really pulling the strings?) must certainly have anticipated some kind of European and essentially “Western” reaction to this.

    As noted by many sources this move migth also constitute Russian geopolitical muscle flexing but do Russia currently have the leverage for that?

  8. “It is no longer Upper Volta with rockets, but Upper Volta with gas.”

    That is not entirely right. It is Upper Volta with gas and rockets. The latter make sure that ownership on the former will stay as it is.

    Gas imports into the EU will rise. This is inevitable. We will do everything we can to not increase the reliance on Russia, but there is very little we can do. Exchanging reliance upon Russia against reliance on North Africa or the Middle East is not an option.
    The concept of the goose with golden eggs is easily within Mr. Putin’s mental grasp.

  9. “We political scientists call that one “fascism”, no?”

    Well, I’m not a political scientist, but I would say what we have here is some kind of unstable authoritarian state.

    The thing is, I think Russia is the one European society where a fascist-type state could be a real possibility. It depends which way the ball rolls next.

    “but do Russia currently have the leverage for that?”

    Obviously they don’t. But I think it may be a mistake to think that they are acting in a “consequentialist” fashion. It is probably wrong to conceptualise Russia as one single monolithic structure. There are obviously various factions/interests battling it out. There is, as you note Gazprom. There is also the military. Ukraine has threatened to retaliate by increasing the rents on the military instalations. All I see is significant instability.

    Remember when Milosevic withdrew from Kosovo, and the Russia military went on a race for Pristina?

    Putin is in charge, but he probably only stays in charge by making concessions now to this one, and now to that.

    There are of course fascists in Russia:

    http://www.mosnews.com/news/2005/12/05/barkashov.shtml

    The wikipedia entry is also quite informative:

    http://en.wikipedia.org/wiki/Russian_Fascism:_Traditions,_Tendencies,_Movements

    The basic question, I suppose, is what happens when Putin’s popularity wanes?

  10. >As noted by many sources this move migth also >constitute Russian geopolitical muscle flexing but >do Russia currently have the leverage for that?

    Thanks Claus, that was my point. I think he/theyn thought he/they had to do something *now*, but did not correctly estimate the fall out, neither in the short term, nor in the long term. The baltic pipeline may make life more difficult for Ukraine and, hopefully, for Lukashenkow, increasing Russia’s clout there slightly, but with respect to demand flexibility, for all the growth in China, Russia’s almost as dependent on her customers as they are depending on Russian gas.

    If you’re trying to play power politicy with natural resources, you better have a backup, otherwise this is just a non credible threat.

    I think Russia got that one wrong.

  11. Edward, interesting link! if Jerome’s right then this would indeed be about Russia exploiting oligarchic distributive quarrels to appear stronger than they are. Which would actually make them even weaker, and, certainly, make Putin weaker internally than most would think…

  12. “make Putin weaker internally than most would think…”

    Well, in a way this is what I’m suggesting. ‘Strong’ men often are, especially ones who need to go to the gym to demonstrate their prowess. Also trying to outlaw ONGs hardly seems to be the action of someone who is confident in his authority (also note what the reaction in Beslan has been of late).

    I think Russia is politically unstable, and I think this is worrying.

  13. To my eyes Putin rather transparently executed his usual game plan. Gazprom people were fully motivated for the dog-fight with their Ukrainian colleages. Aside from the money, I’m sure they share the popular jingoisic sentiment towards Ukraine. That particular colonial withdrawal symptom is depressingly widespread in Russia. I’ve seen no evidence that Putin understands fine details of oligarchial business practice, but he was sending Gazprom consistent signals over the course of the year that he liked the general idea.

    So then in the eleventh hour Mr. President rides in on a high horse:

    “You have created a crisis not only in the energy sector,” Putin said. “This crisis looks more like crisis between two countries.”

    “We are ready to grant a loan directly to Naftogaz to be secured by a leading international bank, either European or American,” President Vladimir Putin told participants in Russian-Ukrainian gas talks.

    If the Ukrainians accept, that’s still a shoddy deal. If they don’t, the world condemns their failure to appreciate this outflowing of mild presidential goodness.

    In fact this played reasonably well inside Russia, but, mysteriously, international TV channels don’t join their Russian counterparts in carrying presidential words at the top of the hour. Much embarrassement ensues and so on. I think Putin should be developing a particular species of Ukrainian dejavu by now.

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