02.03.2015 Author: Eric Draitser

Europe and the Politics of Russian Gas

V4324234342The recent announcement of a lucrative new gas contract between Hungary and Russia is certainly beneficial to both countries. Perhaps more significant however, is the fact that Russian energy supplies, and the political conflict between Europe and Russia, is drawing dividing lines all over the map. By allowing Washington to drive European policy vis-à-vis Ukraine, sanctions, energy infrastructure and investment, and myriad other political and economic issues, Europe has transformed Russia from a partner into an obstacle.

Hungarian Politics and Russian Gas

The new deal between Russia and Hungary will secure reliable, affordable energy for Hungary, while ensuring a continued partnership and market for Russia. While the finer points of the deal will be finalized in the weeks to come, essentially the new contract provides Budapest with more flexibility in terms of its consumption and purchases. By eliminating the “take or pay” principle – the provision that required Hungary to pay for unused gas that it initially contracted – Hungary will be able to reduce its costs by rolling over unused gas supplies into the following year.

The new contract will provide much needed flexibility in terms of gas purchases for the Hungarian government. Additionally, Hungary will now have the ability to expand its storage of unused gas in underground facilities, allowing the country to deal more effectively and efficiently with everything from unexpectedly cold winters, to politically motivated energy shortages.

Even more important for Hungarian Prime Minister Viktor Orban is the cementing of close ties with the Kremlin and Russian President Putin amid a growing climate of political pressure, both internal and external.

Protests against Orban’s government in late 2014 showed some of the divisions within the Hungarian body politic, perhaps best illustrated by a relatively significant decline in the approval ratings of both the ruling Fidesz party, and Orban himself (though it should be noted that the most recent polls have shown a slight increase in popularity). Charges of corruption and cronyism have been made repeatedly by journalists and members of the opposition. However, these charges are not purely a product of domestic politics.

As The Economist reported:

Concern is also growing within Fidesz that a row with the Americans may develop into a full-blown diplomatic crisis. Six Hungarian officials have been banned from entering the United States on suspicions of corruption, a highly unusual sanction against a NATO ally…Yet instead of patching up relations with the Americans, Mr Orban…dismissed the claims of corruption as a “cover story” for American attempts to increase influence in the region. The United States was interfering in the domestic political affairs of central European countries, he added. “They want to draw us into a conflict, which can only have a bad outcome for us.” America was just conveying concerns about democracy and the rule of law to the Hungarian government, retorted a State Department spokesman.

Clearly, Washington has attempted to exert pressure on Budapest to turn away completely from Moscow, and has fired political shots across the bow, a stern warning that Orban should stay in line, rather than pursue an independent foreign policy. While the move by the US is undoubtedly a challenge for Orban, it is more a message to the rest of Eastern Europe not to consider Russia a viable alternative to western economic and political hegemony.

The Geopolitics of Russian Gas

While Hungary, a relatively small Eastern European country, accounts for only a fraction of Russian gas exports (0.04% of total Gazprom supplies to Europe; 17.4% of total Gazprom supplies to Eastern Europe) the new contract is nonetheless critical for Moscow, if only for symbolic reasons.

With the outbreak of the civil war in Ukraine, the European political establishment, at the behest of its US ally, has sought to isolate Russia both politically and economically. This has taken the form of anti-Russian sanctions imposed by Europe which, though perhaps not crippling, have certainly had a negative short term impact on the Russian economy. In addition, Europe and the US effectively pressured numerous European countries, as well as the EU leadership, to thwart Russia’s planned South Stream pipeline, a project that would have supplied Russian gas to Southern and Central Europe while bypassing troubled Ukraine.

Interestingly, it was precisely countries such as Hungary, Serbia, and Bulgaria that had been ardent supporters of the project, with Hungarian Energy Minister Andras Aradszki having said of the project, “In light of the Ukraine situation, we need to act. This is a necessity.” However, increased pressure from the EU and US to halt the project took its toll on Eastern European countries to the point that Russia ultimately scrapped the project, at least in the form it had initially been envisioned. Gazprom CEO Alexey Miller stated, “South Stream is dead. For Europe, there will be no other gas transit options to risky Ukraine other than the new ‘Turkish Stream’ pipeline.”

Naturally, the move has been seen as Russia’s counter-strategy against Europe for its anti-Russian sanctions, as well as its subservience to US interests in Ukraine and beyond. Russia now increases its leverage over Europe by building the pipeline through Turkey, and stopping the delivery infrastructure at the border of Greece, thereby forcing the EU to foot the bill for any additional infrastructure to deliver and distribute the gas in Europe.

Beyond simply making a statement however, Russia is exploiting the clear divisions that exist between EU member states, in particular the ever growing rift between the economic powerhouse Germany, and the weaker, debt-ridden economies of Southern Europe. While countries such as Greece, Italy, Croatia, and Hungary suffer significantly from the loss of South Stream, German industry is humming along smoothly with its Nord Stream pipeline supplying Russian gas to German factories. Although Gazprom recently announced that the planned extension of Nord Stream, which would stretch beyond Germany and all the way to Britain, would be put on hold, the Germans continue to reap the benefits of reliable energy supplies. Of course, who could blame Hungary or Bulgaria for looking upon Berlin and Brussels with ire as Europe’s politics continue to undermine their respective countries’ economic stability and security.

And then of course there’s the economic and political juggernaut China which is increasingly displacing Europe in the long-term thinking of Russian energy executives and policymakers. The recent Russian-Chinese gas deal creates the prospect of pipeline connections that will cement Russia’s place within China’s strategic and economic future. Not only is there likely to be a new pipeline connecting Russia’s Far East with China’s northeast region, but initial preparations are already being made for the construction of the Altai Pipeline, which will bring Russian gas to China’s Xinjiang province in the western portion of the country.

No less important is the fact that Russia and China recently signed a deal to bypass the US dollar in bilateral debt settlements and payments. The “Agreement on Cooperation” signed between Russia’s VTB and the Bank of China is the opening salvo in a burgeoning currency cooperation relationship between the two countries which will ultimately lead to increased economic and financial independence from the West.

These are precisely the sorts of developments that have the political establishment in the West fearful about the future as it pertains to Russia’s place on the geopolitical chessboard. And it further elucidates precisely why Washington and Brussels are so keen to pressure Eastern European countries like Hungary to turn away from Russia and remain firmly within the US-EU-NATO sphere of influence.

Although these issues exist on the level of economic interests, they are in fact part and parcel of a larger geopolitical game that’s being played. The western political establishment would have the world believe that Russia is isolated because of its actions and policies in Ukraine, but western political machinations tell a different story. Hungary has chosen to maintain a productive economic partnership with Russia unlike some of its European neighbors. China, India, Turkey, and others have likewise opted for friendly, mutually beneficial relations with Moscow.

With Europe facing its own existential crisis in Greece (and soon Spain and others), perhaps the day will come, sooner rather than later, when the countries of Europe begin to reassert their independence. And when that day comes, you can bet that they will be looking east.

Eric Draitser is an independent geopolitical analyst based in New York City, he is the founder of StopImperialism.org and OP-ed columnist for RT, exclusively for the online magazine “New Eastern Outlook”.

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