Federico Bordonaro

L’Outlook 2009, frutto del lavoro dei vari desk di ricerca e analisi del Centro Studi di Equilibri, cerca di individuare, in ciascuna area geografica, i principali fattori di criticità dell’anno appena iniziato. L’obiettivo è quello di fornire alcune semplici chiavi di lettura per interpretare la complessità dell’attuale contesto internazionale a livello politico-diiplomatico, economico e della sicurezza attraverso la lente di ingrandimento dell’analisi geopolitica. Diviso per aree geografiche (Africa, Americhe, Asia e Pacifico, Europa e Medio Oriente), l’Outlook 2009 contiene: un’introduzione, in cui vengono delineati i principali fattori e le dinamiche dell’area in questione; un outlook generale; un focus d’area, contenente un approfondimento su un particolare contesto ritenuto rilevante nel contesto regionale; un’intervista ad un esperto.

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Notwithstanding optimism about a possible positive turn in NATO-Russian relations this year, Moscow seems determined to enhance its military presence in Georgia’s breakaway regions, a move that will not help the setup of a strategic partnership with the West.

From today’s FT.com:

In the latest in a series of announcements causing concern within Nato, Moscow said it wanted to deploy about 20 military aircraft at a former Soviet airfield near Gudauta. The move came just days after the Kremlin suggested it would seek to build a naval base at Ochamchira, giving Russia a fresh port in the Black Sea.

[…] The parliamentary assembly of the Council of Europe (Pace) condemned the Russian military presence and building of new military bases in Georgia’s breakaway regions in a resolution this week. The assembly said Moscow’s recognition of Abkhazian and South Ossetian independence violated international law.
Pierre Morel, the European Commission’s representative in the region, said any military build-up near the conflict zone could create “additional problems”.

South Caucasus, together with Ukraine, will continue to be the focus of Moscow’s geostrategy, as Russia needs to control such regions to be able to project significant military power (and political influence) in its Near Abroad and in Eastern Europe.

In-depth analysis written by Bruce Pannier for RFERL on the political and economic implications of the recent Russo-Ukrainian gas row — the article contains excerpts of my interview on the issue.

There is no quick way for the European Union to penalize Russia and Ukraine for the gas dispute that led to a frosty two-week cutoff in gas supplies this month. So, for the time being, the EU continues to receive one-quarter of its gas supplies from Russia — and four-fifths of that via pipelines in Ukraine — just as it did before the feud began.

But the 27-member bloc has already signaled that it will neither forgive nor forget, with EU officials exploring new energy alternatives that circumvent Ukraine, or Russia altogether.

Excerpt of an interview for RFERL:

Ukraine has spent the past decade resisting attempts by Russia to acquire shares or influence in its gas-transit system.

Federico Bordonaro of the Italy-based energy-risk-assessment group equilibre.net said Putin’s remarks suggest the latest deal might include other concessions by Kyiv.

“We have to find out if Yulia Tymoshenko has promised something more to the Russians,” Bordonaro says. “I suspect that the Russians have linked the deal to something very political, because [the Russians] need to control Ukraine politically to a certain extent if they want to project their power to Eastern Europe and therefore remain a relevant power in Central-Eastern Europe.”

Intervista per il Desk Europa di Equilibri.net.

“The bitter gas dispute between Russia and Ukraine descended into near-chaos on Tuesday, leaving European Union diplomats baffled as promises to restart supplies fully were broken and Moscow suggested that the US had meddled in the affair”, a report by the Financial Times says on Tuesday.

The point is: never before in history had Europe faced such a serious gas security crisis.

A couple of key-issues:

• “The Russians have accused the Ukrainians of taking what is called the ‘technical’ gas out of the pipelines as well, which is the amount of gas needed to sort of get things flowing”;
• Because Ukraine and Russia still haven’t found a new bilateral agreement on supply price and debt, Kiev could be forced to siphon off gas again in a few weeks, once its reserves will inevitably end.

This spells problems for Europe. Immediate diversification is possible only via liquified natural gas (LNG) for countries who have both a coastline and the necessary infrastructures, as Prof. Johathan Stern explained yesterday in an interview with the Financial Times.
On the longer term, Europe should be working on new routes that transport natural gas from Northern Africa, the Middle East, and the southern Caspian Basin to Europe, if it is to avoid new dangerous episodes such as the ongoing crisis.

Notwithstanding the European-Russian-Ukrainian deal on the deployement of EU and Russian monitors to end the gas row, the situation remains critical, as Ukraine apparently blocked the gas destined to Moldova and Balkan countries on January 13. In the while, pro-Russian decision-maker Viktor Yanukovych stepped in and called for a political reversal in Kiev:

“We demand … the immediate dismissal of the government and the start of procedures for the impeachment of the president,” said Regions Party leader Viktor Yanukovych, a former prime minister and presidential candidate.

“In the middle of a political and economic crisis, the authorities have left Ukraine without gas and without prospects. Ukraine is in the process of losing its status as a transit country,” he added.

[…] Analysts said that supplies to Europe would continue to be threatened as long as the two countries did not resolve their bilateral dispute.

“Until they resolve the bilateral dispute there’s zero chance of supplies not being disrupted,” said Andrew Neff, an energy analyst at IHS Global Insight.

Interview with Radio Free Europe on the developments of the Russo-Ukrainian gas row, quoted in an analysis written by Bruce Pannier:

This latest Ukrainian-Russian row has been a sobering reminder to the EU of the pitfalls of relying on gas from Russia. Bordonaro says Ukrainian President Viktor Yushchenko may be the one to bear much of the blame due to his hard-line stance on negotiating with Russia, which “has not paid off.”

But Bordonaro adds that the EU can easily spread the blame around.

“In the industry market, in the Ukrainian energy market, I think that Naftohaz has not emerged as a particularly reliable player for Europe,” he says. “Even so, Europeans tend to accuse Gazprom, and they have good reasons for doing that, because we should not forget that the Europeans have already paid for that gas and that the Russians must respect their contractual duties.”

Not only Eastern and Central Europe. Central Asia is also facing energy security risks linked to natural gas.
John C. Daly writes about a possible intensification of gas rows in the former Soviet republics of Tajikistan, Kyrgyzstan, and Uzbekistan.

Interesting article written by Thom Shanker in today’s IHT:

As Russia pinches natural-gas supplies bound for Europe, senior American officials acknowledge they have little power to persuade the Kremlin to change course.

But natural-gas shortages this winter may prompt the Europeans to listen more intently to a case Washington has made for years: that relying on Russian hydrocarbons is risky, and that finding alternative supplies would limit Kremlin opportunities for coercion.

“We can’t force Russia to turn the spigot on,” David Merkel, deputy assistant secretary of state for European affairs, said in an interview. He said the United States had been “trying to get Europe to focus on this for a long time — that dependency is something they should not be comfortable with, especially if it is dependency on Russia, which is willing to use its energy as a political tool.”

Even though an agreement between Russians and Ukrainians looks nearer today, the question of European energy security still waits to be answered properly…

Analisi di Vukasin Ostojic per il Desk Europa di Equilibri.net

L’obiettivo di accesso all’Unione Europea è stata la priorità verso la quale la Croazia ha rivolto dagli anni 2000 un complesso piano di riforme volto a cambiare radicalmente il paese. Sono invece venticinque chilometri di frontiera marittima contesa con la confinante Slovenia a portare Lubiana al veto sui negoziati tra UE e Zagabria. Il 2009 sarà un anno cruciale per sbloccare e portare a compimento i negoziati di adesione all’Unione, ma anche per fronteggiare la crisi economica globale. Le prospettive di crescita sono state drasticamente tagliate e la Croazia, come il resto dei paesi europei, si prepara a un anno difficilissimo.

Interview with Radio Free Europe, quoted in an article written by Brian Whitmore:

The EU weathered a similar dispute between Russia and Ukraine in 2006, and another threatened cutoff last year. But Federico Bordonaro, a Rome-based analyst with the “Power and Interests News Report,” says that this time Moscow and Kyiv have crossed a line.

“They are [both] certainly discrediting themselves,” Bordonaro said. “We can quote Karl Marx here and say that when history repeats itself, it ends up being a farce. It is hard to believe that almost every New Year’s since 2006, Europe is faced with the possibility of a severe cutoff in gas supplies because Russia and Ukraine aren’t able to find a market agreement.”

A quarter of Europe’s natural-gas supplies come from Russia, and 80 percent of them are pumped through a network of Soviet-era pipelines in Ukraine. The same network also supplies Ukraine’s domestic customers.
[…] Analysts say European officials understand that Russia is using its energy wealth to pressure Ukraine politically, but they also fault Ukraine for allowing itself to become vulnerable to such pressure.

The gas dispute is all the more fractious because it exploits existing rifts within the EU itself. EU stalwarts like Germany, France and Italy are more eager to maintain good relations with Russia. By contrast, former communist states like Poland, the Czech Republic, and the Baltic countries are historically more sympathetic to Ukraine.

Moscow is once again cutting natural gas supplies to Ukraine. As the Financial Times points out,

Russia in 2005 signalled its intentions to stop subsidising gas to former Soviet neighbours and to start charging market prices. It is time Kiev and Moscow ended annual price wrangles and signed a long-term contract similar to Russia’s agreements with western Europe, where a formula links gas prices, with a six- to nine-month lag, to oil prices. Their failure to do so results partly from politics. It suits Gazprom’s Kremlin masters to put Ukraine in a position where it can be portrayed as a flaky partner for the European Union. Supply disruptions in half a dozen European countries resulting from the dispute with Ukraine bolster arguments for a controversial alternative pipeline Gazprom is building under the Baltic Sea to Germany. Kiev, meanwhile, likes to depict Gazprom as a bully, but has been hampered in negotiations by chronic bickering among one-time Orange Revolution allies.

It’s virtually impossible that Moscow - and Gazprom - will ever admit that Russia has also political-strategic, and not only economic, stakes in the gas row. However, it is certain that the Kremlin’s goal of avoiding Kiev’s integration into NATO is playing an important role in the current crisis. Presumably, Moscow is trying to weaken Yushchenko’s leadership and to shape a new Ukrainian political landscape, in which a “post-orange” élite would look more favourably at a “strategic partnership” with Russia, and would stop to seeking NATO accession.

However, the current gas row risks discrediting both Ukraine and Russia as reliable commercial partners in the eyes of the Europeans. This represents a threat for both Moscow and Kiev. On one hand, if the two contendants perceive such discredit as a significant risk, the ongoing situation may pave the way for a promising commercial agreement. On the other hand, Russia may try to drastically reduce Ukraine’s importance as a transit country. As Antonella Scott suggested (Il Sole-24 Ore, 4 January), Gazprom could attempt to use the controversial Nord Stream (via the Baltic Sea) and South Stream (via Turkey and the Western Balkan region) projects in order to supply more gas toward western Europe while at the same time bypassing the territories of Ukraine, Belarus, the Baltic republics, and Poland.

As of today, it is far from clear whether the two projects will serve such purposes. Moreover, the South Stream could be endangered by the Nabucco gas pipeline project, should the Europeans chose to boost their support for the latter. At any rate, Kiev may soon face an even more dramatic situation than the one it confronts today: the permanence of its dependency upon Moscow for gas supplies, and the contemporary loss of its influential role as key transit route… Now a big question for the next months: Will the West throw its full diplomatic weight behind Kiev to protect Ukraine?

Political instability may soon surface in Russia, according to Anatoly Chubais, “one of the savviest Russian politicians”, a Washington Post’s analysis reports today. Having based his political strategy on energy exports and centralization, Vladimir Putin has been able to boost the Kremlin’s economic and political power both domestically and internationally in the last years. However, with oil and gas prices dropping dramatically since last Summer, Moscow may now face unexpected problems.

The price of oil is now about a quarter of what it was only a few months ago, and economic problems are building within Russia. Investors are gone; the stock market barely exists. After nine years of surpluses, Russia will have a budget deficit in 2009, and the solid economic growth of recent years may give way to a contraction. An increasing number of enterprises are shifting to two- or three-day workweeks, sending their employees on unpaid vacations or laying them off. Unemployment, which had been very low in recent years, is rising, and the country lacks an adequate social infrastructure to help those who are losing their jobs. The situation is especially grave in the numerous company towns where new jobs are almost impossible to find. Meanwhile, geographic mobility is strongly limited by Russia’s underdeveloped housing market.
It is commonly believed that we haven’t yet seen the worst. Economists expect Russia to be hit much harder in February and March.

[…] The looming economic troubles pose a dilemma for Russian leaders. Putin believes in “vertical” governance built on secretiveness, subordination and control. This system keeps decision making confined to the innermost circle and is deeply resistant to sharing authority. Such a rigid system of governance is inherently inefficient. But to Putin, a firm grip on power has always been a priority, and oil prices surpassing $140 a barrel made up for the poor quality of governance. Today, though, such inefficiency is unaffordable. The logic of Putin’s governance pushes for tighter controls while the logic of the crisis demands flexibility, effective feedback with business and others in the elite, and broad dialogue with the nation.

As Yegor Gaidar, Russia’s first post-communist prime minister, and a brilliant economist, has noted, a crackdown may be successful in the short run, but “in the long run this policy can only pave the way to new turmoil.”

Quote from an “Intelligence Guidance” published by Stratfor:

[…] Ukraine, Europe and the Russian natural gas cutoff: Russia and Ukraine are locked into their annual dispute over natural gas pricing and supplies, and gas shipments to Europe again have been disrupted. In a departure from previous episodes — when influence over Europe was part of Moscow’s rationale for the cutoff – the Russians now are focused on directly shaping the Ukrainian government in a direction more to their liking. They want Ukrainian President Viktor Yushchenko gone. But now that the shutoff has been declared, every issue in the region — Russia’s resurgence, European energy diversification, Western interests versus those of Central Europe, U.S. penetration into the former Soviet space and so forth— is squarely on the table.

Oxford Analytica thinks that:

The previous dispute in 2006 ended quickly; this time, it could last longer, because both Ukraine and EU states have stockpiled in advance, and the depressed state of Ukrainian manufacturing has reduced demand. Moscow and Kiev are both in a position to exert pressure, in the absence of a permanent solution to the annual conflict over gas, and amid growing geopolitical estrangement.