Each year, European governments struggle to meet energy demands in a region dominated by Russian energy suppliers, and this year the difficulties are likely to continue with Russia pursuing two new pipeline projects, a €14 billion endeavour that could cripple European competition.

Last winter, following a pricing dispute, Russia halted gas exports to Ukraine, which serves as the primary conduit through which Russian gas shipments arrive in Europe. Though there are additional piping intermediaries, the decision to freeze transportation through Ukraine left millions of eastern European homes and businesses without heating. The political dispute was cause for concern throughout Europe, as anxious Europeans questioned their own energy security. Dragomir Simeonov, a popular Bulgarian radio host, told the BCC in June 2009, “It was a huge shock. We thought we had good relations with Russia and that we’d be supplied at all times regardless of what happened between Moscow and Ukraine. We thought Russia would protect us.”

By politicising the distribution of oil and gas, Russia has often deprived much of Europe of adequate energy supplies. During winter, such posturing is more than a mere economic issue; the consequences of these political manoeuvres by the Kremlin can be precarious for millions of Europeans. Romania, Bulgaria, Greece, Croatia, and Turkey all experienced major shortages of gas last January resulting in unheated homes, reduced factory output, and business closures. Even more independent economies, including France, Germany, Italy, and Belgium, faced major reductions – up to 80 per cent – in Russian gas imports.

Energy monopoly

Russia controls the world’s largest natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves. Over a quarter of the energy consumption of the European Union stems from Russian imports, and several European nations, like Georgia and Finland, rely completely on Russia for their individual gas consumption. The European Union alone provides Russia with a massive single market for over half of its energy exports.

This lack of competition allows Russia to use energy as diplomatic leverage across Europe. In 2007, Sweden’s Defence Research Agency published a report citing 55 incidents since 1991, such as energy cut-offs, pricing schemes, and industry takeovers, that had “both political and economic underpinnings.” Russia’s unbridled ability to use access to energy as a diplomatic tool, evident in the severed flow of gas to Ukraine and Georgia in 2006, or to Belarus in 2007, or again to Ukraine early in 2009, highlights the dependency of Europe on Russia as a provider of essential energy resources. Amid these shortages, European heads of state scrambled to draw on strategic reserves while harsh criticism of Russia abounded from prominent European leaders. German Chancellor Angela Merkel was quoted in La Repubblica in January 2007 stating that Russia’s pipeline cut-off “destroyed the trust of Russia as a supplier.”

Though many within Europe hope to reduce energy dependency on Russia, with Russian state-owned gas provider Gazprom steadily buying out domestic European companies, there is a growing Russian monopoly. Russia wields Gazprom as a foreign-policy extension of the Kremlin according to Alexandros Petersen of the Atlantic Council of the United States, who referred to it as “an arm of the Russian government” in a Washington Times editorial published on 31 July 2009.

While the current supply system is imbalanced, it is based upon the legitimate and sovereign rights of Russia, whose ownership over vast natural energy resources is indisputable. EU officials have therefore called for a more transparent system whereby the market involvement of Russian corporations and their subsidiaries throughout Europe is clear, and the sovereignty of domestic industries does not become subservient to Russian energy expansion. In other words, EU officials are debating whether to enact protectionist policies to counter an emerging Russian monopoly.

Alternatively, European officials have called for a more global partnership with Russia, seeking a merger of European technological prowess and Russia’s vast resources. Kenneth Medlock of the Baker Institute of Public Policy has argued that negotiations over pipeline projects and pricing standards have yielded little security for Europe. He contends that the United States and Europe should instead focus more on transparency and the liberalisation of Russia’s energy sector since “pipeline diplomacy has not managed to significantly reduce the dependence of Central Asian [and European] states on Russia to transport their energy supplies.” Possible endeavours include the integration of western European business models to increase the production capacity of the Russian energy sector, thus linking European expertise with Russian supply to meet regional demands.

“Solidarités de faits”

Jean Monnet, head of France’s General Planning Commission in the post-war construction era, was a leading proponent of such supranational bodies as the European Coal and Steel Community and the European Economic Community, both precursors to the European Union. Monnet’s vision of European integration was based on the principle of “solidaritiés de faits” – the binding of nations through collaboration on common interests.

In the spirit of solidaritiés de faits many EU officials hope to reconcile Russian energy expansion with European sovereignty through the synergy of common energy policies. Europe is dependent on Russian energy resources. However, Russia, too, needs European consumers to ensure its own economic vitality. The creation of an honest global partnership between the European Union, Eastern Europe, and Russia is therefore in the interest of all parties.

Since 2000, officials have debated the framework for an Energy Dialogue between the European Union and Russia in the hope of attaining an EU-Russian Energy Partnership based upon enhanced European energy security and the integration of energy markets. With the goals of improving Russia’s energy sector, expanding transit routes, lessening the environmental impact, and increasing energy efficiency across Europe, the Dialogue serves as an ideal model for improved EU-Russian relations.

However, fractures have emerged out of a reluctance of private corporations and self-interested national governments to succumb to the will of supranationalism, the principle upon which the European Union was created. It provides for individual states to relinquish some sovereignty in exchange for an integrated and mutual decision-making union, but national identities and cultural differences are a major obstacle for full integration. The lack of a united Europe allows Russia to isolate interests and pursue unilateral endeavours that simultaneously expand its own market shares in European industries and subvert the common demands of European consumers.

The balance of sovereignty and energy reliance

Russia’s rebirth following the fall of the Soviet Union helped a decaying economy transform itself into one the world’s few economic superpowers of the 21st century. Russia’s subtle integration with the West has enabled Europe to benefit from such a huge economic partner, and by now the single most beneficial result of this relationship has been seen in the energy markets.

Russia is the European Union’s fifth largest trading partner. Sixty per cent of Russia’s exports to the European Union are energy products, packages totaling more than €60 billion annually. In addition, 60 per cent of Russia’s oil exports and 50 per cent of its natural gas exports are to the European Union, constituting over a quarter of EU consumption.

The vital importance of Russian resources is well known; however, the extent to which Gazprom and other Russian corporations, such as the national pipeline provider Transneft, operate as agents of Russian foreign policy is disconcerting. According to Dimitri K. Simes, President of the US-based Nixon Center, “It is beyond doubt that Russia’s new energy leverage represents a challenge to European energy security, European unity, and indeed Europe’s unique relationship with the United States. Yet it is also beyond doubt that Europe needs and will continue to need Russian energy.”

Mr Peterson has posited that with every attempt by Europe to reduce its dependency on Russia for energy, the Kremlin has responded with intervention in domestic markets, cut-offs, and other “PR tricks.” In May, Russia announced that it would double the capacity of the South Stream, a pipeline project that is designed to carry gas on the seabed of the Black Sea, to counter the output of the EU’s planned Nabucco pipeline, which would bring gas directly from the Caspian Sea through Turkey.

Despite these frustrations, many leaders within the European Union recognise the need to assist Russia in its development of efficient energy production and transportation. Investment opportunities in Russia’s energy sector are vital to EU officials seeking a more active role in their own energy affairs. With the goal of improving Russian-European relations and gaining priority access to Russia’s huge energy resources, Andris Piebalgs, the European Commissioner for Energy, has stressed that “the EU should encourage investment in Russia’s economy so as to accelerate the implementation of state-of-the-art technologies and provide for the reform of its energy sector.” He envisions cooperation whereby Russia and the European Union act in unison, with shared interests. The solution, according to Mr Piebalgs, should be focused on balancing Europe’s sovereignty with its need for Russian resources, thus implementing a partnership that favours both economies, with one counterbalancing the other.

Others, though, see little common ground between the interests of European consumers and Russian suppliers, as Gazprom has greatly hindered foreign investments, essentially stalling on reform. Pierre Noël, an energy specialist at the European Council on Foreign Relations, suggested that rather than pursue fruitless investing and reform efforts, Europe “should maximise competition in [its] market, between fuels, between suppliers and between technologies.” European capital should be spent, he argued, on securing and diversifying its own industries, rather than on improving Russia’s energy sector.

However, in a November 17 interview with Moskovskie Novosti, Romanian President Traian Basescu said that Russia’s control over the gas reserves in Eastern Europe and its lack of transparency suggests it “aims to reduce Europe’s supply-diversification chances to a minimum.”

The relationship between Russia and Europe in the energy sector is marked by conflicting negotiations between Russia and individual European governments, a lack of traditional market norms for conglomerates such as Gazprom, and the general politicisation of Russia’s energy market. According to a 2008 report by Keith Smith published by the Centre for Strategic and International Studies, “The greater danger is that this dependency is making a significant portion of Europe’s political and economic elite reliant on nontransparent financial payments that erode national sovereignty and distort national decision-making.”

Continental cooperation or trans-Atlanticism?

According to a New York Times article published on October 12, former US national security advisor Zbigniew Brzezinski argued that Russia’s new pipeline projects serve to “separate Central Europe from Western Europe insofar as dependence on Russian energy is concerned.” The Nord Stream and South Stream pipelines will bypass eastern European nations and directly supply Western Europe. According to the Times, this will “insulate Western Europe” from the economic repercussions of Russia’s feuds with its former Soviet satellites, increasing Eastern Europe’s vulnerability to Russian demands. Without the diplomatic pressure from Western Europe, whose supplies will be secured via the new pipelines, Russia is undeterred in its pursuit of greater interference and monopolisation over Eastern affairs.

The European Union is therefore faced with a difficult decision. It can ensure its own unimpeded supply of gas and oil by acceding to the new Russian pipelines; however in doing so Russia’s expansion into Eastern Europe will be unopposed. The greater the influence Russia wields over the continent’s energy resources, the greater Europe’s ultimate dependence on Russia.

However, a united European Union dedicated to cooperation not only with Russia, but Eastern European states as well, can offset Russia’s growing regional supremacy and assuage Eastern Europe’s impending isolation. Cooperative measures will ensure a more transparent European energy sector and prevent political manipulation of energy supplies. The current system of free-market capitalism has been exploited by Russia to divide Europe into singular interests, thus contravening the intended integration of the European Union. Without fidelity to the principles of a shared economic interest, the European Union and its eastern neighbours are vulnerable to the national interests of Russia.

If European unity cannot be realised, trans-Atlantic agreements may be the key to maintaining energy security. According to a study by Rice University’s Baker Institute of Public Policy, the positive advances in the Canadian-American production of shale gas over the past several years can provide potential stability for European consumers. Naturally produced in shale rock, shale gas is a growing “alternative” energy commodity. The study suggests that investments and favourable tax-incentives for shale production in North America can create a competitive international market to offset Russia’s growing hegemony over gas markets.

Mr Medlock of the Baker Institute further explained, “Our scenario analysis shows that there are several supply sources that can serve as viable alternatives to heavy future global reliance on Russian natural gas.” With Russia seeking a gas troika with Iran and Qatar, Medlock argued that alternative suppliers in North America, Africa, Australia, and Iraq should be solicited by European consumers as a counterbalance to Russia’s growing European monopoly. He argues that as Russia acts in understandable self-interest, Europe, too, should seek to secure its future energy independence from an ever-assertive Russian superpower.

Despite a plethora of commercial interests within Europe, there is common agreement that Europe is in a vulnerable position of dependence on external energy resources. France and Germany both compete for economic supremacy within the European Union, and as such, they often pursue unilateral agreements with Russia, combining domestic technological expertise with Russia’s vast resources to boost their economic security. Italy, too, has aligned its energy sector with that of Russia in pursuit of joint endeavours, such as the South Stream pipeline project. Concurrently, Gazprom has been buying the rights from Italian oil corporations E.N.I and E.N.E.L to distribute in Italy, as well as shares of the Italian energy sector, slowly extending its dominant grip to direct distribution to consumers.

Less influential European states, especially in Central Europe, are increasingly alarmed at their declining independence and economic sustainability. In an increasingly divided Europe, sovereign interests supersede continental unity. Russia’s energy expansion has therefore led some states to increasingly pursue energy supplies outside the region. The nuances of European divisions thus have the potential to create a more globally diversified gas market within Europe, as fractured pursuit of suppliers could both break the monopoly of the Russian energy regime and ensure a Russian reformation that will strengthen its long-term sustainability.