Pipe Dream

Rome, Italy

As winter sets over Europe, England, Italy, Germany, and other powers continue investigating the alleged murder of former Russian agent Alexander Litvinenko. From the initial radiation poisoning of Litvinenko, police have found traces of polonium in the British embassy in Moscow and in Hamburg, Germany, possibly from businessman Dmitri V. Kovtun, who met Litvinenko in London before he died. Italian agents have detained a close Litvinenko associate, Mario Scaramella. Police from across the continent have squabbled with Russian authorities, with Moscow refusing to allow British detectives to question witnesses directly or talk to a prisoner who says he has leads about the Litvinenko case, and reportedly providing limited information to German investigators.

The Litvinenko killing, and Moscow's stonewalling, seems to have sparked a broader European reassessment of relations with Russia. The Economist noted that "Russia's already strained relations with Britain are liable to deteriorate." In Germany, some leaders have advocated the opposite approach, with the Social Democrats, one of the parties in the ruling coalition, advocating an Ostpolitik of continued engagement with Moscow. "Russia is, and will remain, a key strategic partner," German Foreign Minister Frank-Walter Steinmeier told the Financial Times in December.

Yet in the uproar over the Litvinenko killing, which might signal a renewed foreign presence by Russia's security forces, European nations may be missing the biggest threat from Russia. As the Putin government has consolidated state control of Russia's mighty oil and gas sector, it has gained vast leverage over Europe.

As I noted last fall, several factors have led to Moscow's growing resource nationalism. The rising price of oil, which has more than tripled in value since 1999, fills Russia's coffers with cash. Skyrocketing demand, partly due to the emergence of China and India, and the absence of new discoveries of oil and gas, have made Russia's gas deposits, the largest in the world, even more valuable. President Vladimir Putin clearly views energy as a weapon Russia can use to claw its way back to global power, and Putin's recentralization of political control in the Kremlin, which has proven popular with the Russian public, has given him the leverage to crush private oil and gas companies. He followed through, destroying private firm Yukos and tossing its head, Mikhail Khodorkovsky, into a Siberian jail, and then retaking other private companies.

Still, until recently, the Russian government seemed wary of dramatically flexing its petroleum muscles outside its borders or with foreign firms. Perhaps it feared it would alienate foreign investment needed to upgrade its oil and gas infrastructure. Perhaps it did not want to ruin its chances to get into the World Trade Organization (WTO), vital to boosting Russian trade. But the Bush administration now backs Russia's entry into the WTO, decreasing Washington's leverage over the Kremlin, and Moscow has begun to wield its petroleum weapon more openly. "Russia since last year has been enjoying some feeling of euphoria, that feeling that we have so much money, so many resources that we can do what we want," Fyodor Lukyanov, editor of the journal Russia in Global Affairs, told The International Herald Tribune.

Indeed, in recent months Moscow has directly threatened foreign oil companies. It has refused to let foreigners acquire a stake in Shtokman, a large northern gas field, and it has declined to let other companies access Russian pipelines. It recently forced Royal Dutch Shell to give up its stake in an exploration project on the eastern island of Sakhalin, the largest single foreign investment in Russia. Shell sold its share to its Russian partner for a below-market price. Perhaps because the West needs Russian oil and gas, Moscow's financial markets barely budged after this appropriation of the Sakhalin project.

At the same time, Moscow has proven increasingly willing to shut off the tap to customers, possibly for political reasons. It previewed this strategy last January, when it briefly stopped supplying pro-Western Ukraine, which has tense relations with Putin's government. Russia has more recently threatened to do the same to Georgia, another pro-Western neighbor dependent on Russian gas. State-controlled gas giant Gazprom also has demanded that Belarus pay four times as much as it has in the past for gas--perhaps because Belarus's leader also has a disintegrating relationship with Putin.

Europe must pay attention. Gazprom now dominates much of the European market, a chilling realization as Russia becomes more and more authoritarian and less and less predictable. As Vladimir Milov of the Institute of Energy Policy told The Economist, Russian state control [of gas] can also mean "irrational behavior and decisions." (State control hurts average Russians, too, who do not benefit from outside investment: The Energy Information Administration noted that "Russia's natural gas sector has been stunted primarily due to aging fields, state regulation, Gazprom's monopolistic control over the industry, and insufficient export pipelines.")

In fact, a recent analysis by the Financial Times revealed that Gazprom signed deals or entered into negotiations with more than twelve European nations in 2006 alone. Gazprom has long-term contracts in France, Germany, Denmark, and Italy, among other nations, and is making plans to expand its operations this year. Russia already supplies nearly two-thirds of the imported gas in Western and Central Europe, and, despite the Continent's emphasis on energy efficiency and renewables, it remains far from reducing demand for gas. By 2010, the FT predicted, Gazprom alone may control 33 percent of the European Union gas market, leaving an entire continent dependent on the Kremlin. Once that happens, the Litvinenko affair, sadly, might look like a minor problem.

By Joshua Kurlantzick