The recent Gazprom-EU altercation, replete with recriminations of double standards and blackmail, show a curious mixture of genuine puzzlement and misunderstanding on both sides. Gazprom, a Russian natural gas monopoly, does not comprehend why its language of overt threats and bullying behavior is considered, unlike in Russia, as something exceptional. The EU officials maintain an entirely rational, albeit unsubstantiated, assumption that since the Kremlin is the dominant shareholder in Gazprom, the latter’s expansionist overtures in Europe are politically motivated. The resolve with which both sides defend their convictions guarantees that Gazprom’s current attempt to force its entry into lucrative but well-protected European energy market will be thwarted at great cost to both sides.
However, as the dust settles down, both sides have to pause and re-assess their troubled relationship. There are serious problems that each side has to confront as recent events in a larger pan-European energy market indicate.
Gazprom has aggressively moved to position itself as a global player at least since November 2005 when it obtained consent of Central Asian countries – Turkmenistan, Uzbekistan and Kazakhstan – to buy up their available stock of natural gas. This move, erroneously attributed to the escalating price dispute with Ukraine, was followed with a similar agreement signed with Sonatrak, an Algerian state-owned petrochemical company. In another signal, ominously addressed to Europe, Gazprom pledged to deliver natural gas to China from its West Siberian fields – traditionally reserved for European export. The active role that the Russian government played promoting Gazprom’s interests abroad prompted speculations that Putin will become its CEO after he steps down in 2008. Putin denied the allegation explaining that he is not interested in business career.
The EU is not enthusiastic to see Gazprom within its borders. It does not want a company mired in murky deals with the likes of RusUkrEnergo and suspects that Gazprom pursues unclear political agenda deviously devised by the Kremlin. Naturally, the eyes are set on energy alternatives. The truth is that Gazprom pursues standard corporate agenda of greater profit and long-term growth. Its management is as much surprised as the Europeans are that their “innocuous” aspiration to grow sends jitters across the EU and lashes out at what it perceives to be “double standards”. To its credit, it should be recognized that Gazprom corporate practices are extraordinary for a company that matured during the “wild capitalism” years of the 1990s when ruthless disregard of partners’ interests if not outright criminality was a norm. Certainly, to grow in Europe, Gazprom needs to bring its corporate practices in line with the OECD standards. There is no reason to believe that it will not happen. By entering in European markets Gazprom submits itself, perhaps willingly, under the EU jurisdiction. If the EU succeeds in enforcing its rules, a “christening” of such a structurally important company will have favorable effect on business culture in Russia.
The tandem Kremlin-Gazprom that many commentators see as a patron-client relationship is more complex than that. The Kremlin expects commercial entities like Gazprom to contribute to its political tasks at home and, occasionally, abroad. Yet, the current Russian leadership realizes that its global agenda is of secondary importance until the standard of living for ordinary Russians improves. This overriding objective depends on the ability of domestic companies to expand abroad, particularly in advanced sectors with high value-added. The Kremlin’s interest in the “Gazprom project” is the first in a series of smaller ventures that it plans promoting abroad – notably, oil company Rosneft and newly established aircraft-making monopoly United Aviation Corporation.
The EU is right that greater competition in energy markets is important. However, it should not shy away from studying Gazprom’s offers either. Perceived “boorishness” and political dependency of this new claimant on European gas wealth is the main obstacle. But the EU has a successful history of “grooming” rough members until they learn appropriate “etiquette” without compromising its integrity. It should not be lost either that the current concurrence of interests between the Kremlin and Gazprom is far from being stable. Mistrust runs deep as not-so-distant state attacks on Russian large corporations demonstrate. As Russian businesses establish their base abroad, they evade direct political pressure from the Kremlin. Then, the current or future Russian leaders may learn – to their surprise – that having succeeded in economic integration they have inadvertently imposed a check on the Kremlin’s political power.
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