Dear ATCA Colleagues, dear IntentBloggers

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Re: The Latest Chess Move in The Great Game: Russia alarms EU and US in utilising energy pricing again as weapon to punish Georgia

Russia's state-controlled natural gas monopoly Gazprom said on Thursday that it would more than double the gas price for neighbouring Georgia, ratcheting up economic pressure against Moscow's small southern neighbour. This development has alarmed the US and the EU considerably. Gazprom -- which increasingly behaves as a tool of Kremlin foreign policy -- said in a terse, one-line statement that it plans to charge Tbilisi USD 230 (EUR 180) per 1,000 cubic meters of gas, compared with the USD 110 (EUR 86) that it pays at present.

Russian Position

Russia's proposal to double the price of gas to Georgia is in line with its declared policy of putting a halt to energy subsidies for former Soviet Union states. But the policy is applied inconsistently. Relations between Russia and Georgia have been deteriorating for 2 years and Georgia cannot easily afford to pay market prices for gas.

The Background

Georgian Foreign Minister Gela Bezhuashvili said he had received assurances that Russia would not cut off the gas as it did with Ukraine earlier this year, during a particularly harsh winter. That stoppage, amid fierce negotiations over the higher price demanded by Gazprom, briefly interrupted deliveries to Europe and sent lasting shock waves through countries already wary of overdependence on Russian energy supplies.

"They present it as a commercial deal, but there is a big portion of politics," Bezhuashvili said in Moscow, adding that the new rate was "the price we pay for our choice" in setting pro-Western policies. Bezhuashvili said his country had worked to diversify its energy sources away from Russia, which has been virtually the only supplier. It is counting on negotiations with Azerbaijan, Turkey and Iran, which can cover Georgia's 1.5-1.8 billion cubic meter annual demand, he said. He called gas prices the only tool of influence left to Russia, "but we won't be pressured."

Relations took a sharp turn for the worse after Georgia briefly detained four purported Russian spies in late September. Moscow, infuriated, responded with a sweeping transport and postal blockade on Georgia and a crackdown on Georgian migrants living in Russia. The Georgian foreign minister said that Russian officials' top request during his talks in Moscow this week was for assurances that Tbilisi would not use force against the separatist provinces. But he said that it was Moscow, not Tbilisi, that was sabre-rattling by "misleading public opinion" with allegations by President Vladimir Putin and other officials that Georgia was preparing for confrontation.

Subsidies in return for Part Ownership

The importing countries can, and do, haggle to get a price below the supposed market price of between USD 200 and USD 250 per 1,000 cubic metres. Armenia and Ukraine are two recent examples. In April, Armenia signed a three-year contract to buy gas for USD 110 per 1,000 cubic metres, after agreeing to sell part of a gas-fired energy plant and part of a new pipeline to Armenia from Iran to Russia. A fortnight ago, Ukraine negotiated a price of USD 130 per 1,000 cubic metres, but in this case the payback is less clear. Gazprom is always keen to buy up energy infrastructure, but Ukraine is equally keen to hang on to its export pipeline -- the one that carries most of Gazprom's exports to Europe. Comments made by the Russian prime minister after the deal was struck signalled that Ukraine may have paid a political price -- an agreement to co-ordinate with Russia the timing of its entry into the World Trade Organisation.

The Options for Georgia

The lessons from Armenia and Ukraine would appear to be that if Georgia wants cheap gas it either has to give up part of its energy infrastructure, or to make some political concessions. What such concessions might be is unclear, though there has been speculation that the recent deterioration of relations between Georgia and Russia may in some way be linked to its increasingly close ties with NATO.

Georgian Dependence

In spite of Georgian Foreign Minister Bezhuashvili's positive gloss, any dispute leading to cuts for Georgia could hit its struggling economy hard. Tbilisi was left freezing for a week early this year after a pipeline explosion in southern Russia cut supplies. President Mikhail Saakashvili blamed Moscow for the interruption, charges Russian officials angrily denied. The misery was compounded by major electricity outages after the severe winter weather downed power lines and a unit at a power station in Tbilisi went out of action. The energy crisis forced desperate Georgians to line up for kerosene and firewood to heat their homes amid the largest snowfall in years.

World Trade Organisation

Georgia's Foreign Minister Bezhuashvili has said that Georgia would use its right to veto Russia's accession to the World Trade Organization to protest Moscow's blockade and ban on Georgian products.

EU Position

The EU's position is that Russia and its energy partners would be best served by a genuine open market for energy, and a transparent pricing policy. It has put huge efforts into getting Russia to sign the Energy Charter Treaty -- which would, among other things, have allowed foreign energy companies in Russia to export gas and oil via Russian pipelines -- but has now more or less accepted defeat. The current EU strategy is to negotiate a framework for energy sector co-operation in a new strategic partnership agreement. At a summit in Finland last month, President Vladimir Putin said Russia was prepared to have this discussion, though he did not promise any concessions. Talks are due to start soon but they will take months, and unlike the Energy Charter Treaty, the EU-Russia agreement is unlikely to be much help to a non-EU country like Georgia.

[ENDS]

We look forward to your further thoughts, observations and views. Thank you.

Best wishes


For and on behalf of DK Matai
Chairman, Asymmetric Threats Contingency Alliance (ATCA)
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ATCA: The Asymmetric Threats Contingency Alliance is a philanthropic expert initiative founded in 2001 to resolve complex global challenges through collective Socratic dialogue and joint executive action to build a wisdom based global economy. Adhering to the doctrine of non-violence, ATCA addresses opportunities and threats arising from climate chaos, radical poverty, organised crime & extremism, advanced technologies -- bio, info, nano, robo & AI, demographic skews, pandemics and financial systems. Present membership of ATCA is by invitation only and has over 5,000 distinguished members from over 100 countries: including several from the House of Lords, House of Commons, EU Parliament, US Congress & Senate, G10's Senior Government officials and over 1,500 CEOs from financial institutions, scientific corporates and voluntary organisations as well as over 750 Professors from academic centres of excellence worldwide.
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