Why you shouldn’t care about Nagorno-Karabakh (and why you might one day have to)

A while back I started a series on “frozen conflicts” in the former USSR. The first two (on Transnistria) can be found here and here. I was planning to do them in order from least bad to worst (which would put South Ossetia next) but decided to jump ahead a bit to Nagorno-Karabakh.

What the heck is Nagorno-Karabakh, anyway?

Briefly: it’s a small, mountainous territory in the Caucasus, about the size of a small US state or a large British county. Until the USSR collapsed, it was part of Azerbaijan. But the population was mostly Armenians. So there was a vicious little war in the early 1990s, which the rest of the world pretty much ignored.

The Azeris lost, so today Nagorno is almost entirely Armenian. It claims to be an independent country, but nobody recognizes it.
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Serbia sells its energy company to Russia

“Against stupidity, the Gods themselves contend in vain.” — Schiller

So Serbia’s government has agreed to sell its oil and gas company, NIS, to Russia’s Gazprom.

By itself there’s nothing wrong with this. What’s stupid about it is the price. NIS has a market value of around $2.8 billion. The government is selling it to Gazprom for $400 million, plus the promise of another $500 million in investment over the next five years. In other words, Gazprom — a company not exactly strapped for cash — is getting a windfall of almost $2 billion, at the expense of one of the poorest countries in Europe.

Why is the Serbian government doing this? Several reasons, all of them bad. Continue reading

EU Energy Policy II

Well the new EU energy plan has been released (and here, and you can also find the actual Commission statement here). The final product is pretty much as the leaks suggested.

As was indicated yesterday, Russia related concerns are central. The FT comments:

Russia supplies a quarter of Europe’s gas needs and the Union’s dependence on the country for energy was illustrated in January when a dispute between Moscow and Kiev disrupted gas deliveries to the EU.

All of this was I think anticipated on this blog back in January when the Gazprom/Ukraine dispute first really broke into the public arena. What wasn’t anticipated was this, and especially the gas related dimension of the Suez/Gaz de France merger.

The major changes taking shape in Europe’s energy sector at present undercut the arguments of those who have long been predicting a gradual break-up of monopolies and the disappearance of the industry’s biggest players. The planned merger of Suez and Gaz de France to counter an offensive by Enel and Veolia and the fight between Gas Natural and E.On for the hand of Endesa make it abundantly clear that concentration remains very much a watchword in the branch and that even powerful old public monopolies like Electricite de France could be forced into marriages with others in future.

None of the reasons trotted out to justify the merger between Suez and Gaz de France, to cite but that operation, dwelled on the future role of Russia in Europe’s energy landscape. True, the Russians aren’t directly involved in any of the operations underway in Western Europe. On further examination, however, Gazprom’s moves in recent months could be seen as justification for the consolidation.

The future Suez/Gaz de France grouping will become the leading buyer and the top supplier of gas in Europe. As such, it will rank as one of Gazprom’s prime customers in the world. That, however, isn’t necessarily good news for Gazprom. In its dealings with such a powerful client the Russian monopoly won’t be able to exert as much pressure upon it as upon a smaller entity, let alone bully it.

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Did Russia come out ahead in the gas crisis?

Expanding on (and slightly copying) my comments in Edward’s post below, I was really shocked to see the spin in the western coverage of the Ukrainian gas crisis. The part that didn’t shock me – just made me groan – is the spin of a western press that seems to have decided in advance that Russia must be the bad guy, so Ukraine must be the good guy. Russia may be the bad guy, but I don’t think is Ukraine is the good guy. From what I can tell from the press, Russian claims that Ukraine was siphoning off gas seem well founded – Russia had been complaining since summer about siphoning, Gazprom was willing to let third parties audit the difference between what was going into Ukraine and what was coming out, while Ukraine refused. Also, it seems that the Russians weren’t the only ones making allegations about siphoning. Yes, Russia’s intentions towards Ukraine are not honorable, nor is this some purely commercial conflict free of political meaning. But, that does not exclude the prospect that Ukraine was screwing Russia.

But what really surprised me was the claim that Russia was the loser here.
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Bulgaria Says “Thanks, But No Thanks”

Over at TYR, I argued that the explanation of the Ukraine-Russia gas dispute was an effort by the Russian side to break up the European gas customers as a negotiating block by exploiting the conflict between the transit states (like the Ukraine) and the customers (like Germany). This gave rise to further discussion down-blog right here on AFOE, in the comments to this post of Tobias’s, where this was said…

I think he was trying to play off the customer states against the pipeline states, in order not to deal with a European monopsony. Unfortunately, the pipeliners and customers were rather induced to hang together rather than swing separately, and he backed down in order to prevent the point of payment being moved to the Russian-Ukrainian border, which would have effectively put the Ukraine in the EU for gas purposes.
Posted by Alex at January 5, 2006 10:50 AM

“I think he was trying to play off the customer states against the pipeline states”

Interesting theory, but how do Moldova and Armenia fit into this. The former was cut off and the latter has been badly threatened?
Posted by Edward at January 5, 2006 11:02 AM

Armenia – rather different case. The pipeline/customer thing doesn’t apply (AFAIK), but as Armenia is a small customer relative to Russian gas production, the relationship is very different. No need for anything complicated, just a shakedown for more cash.

Moldova – interesting question. It’s not on the way to anywhere is it?
Posted by Alex at January 5, 2006 03:32 PM

“It’s not on the way to anywhere is it?”

Not that I know of. It just seems to have been……forgotten.
Posted by Edward at January 5, 2006 03:43 PM

It seems Moldova is sitting on the pipeline to Romania and Bulgaria.
Posted by Oliver at January 5, 2006 03:53 PM

That’s it, then: a power grab for control of (or at least cheaper rates on) two export lines, by trying to play off the customers against the pipelines. Armenia was pure opportunism.
Posted by Alex at January 5, 2006 04:43 PM

“It seems Moldova is sitting on the pipeline”

“That’s it, then: a power grab”

Fascinating! This certainly gives plausibility to the idea that they were going for control of the landline installation. The issue now is how will the customers respond.
Posted by Edward at January 5, 2006 09:28 PM

Now, though, we may be about to find out. Bulgaria has been faced with a demand from Gazprom very similar to the one to the Ukrainians, and it seems they’ve given them the brushoff in much the same way. A very similar logic applies, as Bulgaria is both a transit provider (it’s odd how this Internetworking terminology creeps into what is after all a discussion of networks) and a fair-sized gas customer. The Russians seem to have been of a mind to use the latter fact to force changes on the former, and the Bulgarians have adopted an identical strategy.

Which would predict a settlement in double quick time, if we’re right.

All Gas Or Just Hot Air?

This is a kind of bits-and-bobs post without a lot of coherence, as I am trying to make sense of something which is hard to make sense of, so anyone with more specialist knowledge, please chip-in.

Now I think what we have here is a highly complex situation, and if individual actors behave strangely in a complex situation, this should not in fact surprise us. The big picture scenario is the economic take-off of what are going to be two enormous energy consumers – India and China – and a growing per-capita consumption of energy in the rest of the OECD towards the previous US ‘highs’. This has lead to a large and significant increase in oil prices, and the rest of what is happening can be seen as the scrum which has assembled in the wake.

Now what else do we know?
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