RUSSIA’S ENERGY SECTOR HIDES WEAKNESSES BEHIND POWERFUL FACADE
Stephen Blank
EurasiaNet, NY
May 16 2006
A EurasiaNet Commentary
In late April, representatives of Russia’s Kremlin-controlled gas
conglomerate, Gazprom, threatened to reduce exports to Europe after
the EU blocked the company’s attempts to obtain several European
energy entities. EU officials dismissed the threat, believing that
the Russian energy industry could not survive without generating a
hefty European cash flow. They were right. Behind its mighty facade,
Russia’s energy sector, which the Kremlin has used in recent months to
bully its neighbors and expand its geopolitical reach, suffers from
a decaying infrastructure and a dependence on Western technology and
cheap Central Asian energy.
Russian exporters are able to ship large quantities of energy to Europe
and Asia today only because of its unique relationship to Central
Asian oil and gas producers. And the future of this relationship is
crucial to understanding the global energy game.
The Kremlin has significantly enhanced its control over Central Asian
energy in recent years, book-ended by a 25-year natural gas supply
deal with Turkmenistan in 2003 and a massive oil supply agreement
with Kazakhstan last month. [For background see the Eurasia Insight
archive]. To many outside observers, the Russian energy sector
has assumed an aura of a juggernaut. Statistics seem to support
this impression: Russia has been responsible for fully half of the
increase in global crude oil supplies over the past five years. The
image has also been fueled by the Kremlin’s use of conglomerates as
instruments of geopolitical policy. [For background see the Eurasia
Insight archive].
Appearances can be deceptive, however, at least when it comes to
Russia’s energy sector. There are numerous signs that Russia is in
danger of overextending itself, while dawdling on investing in its
energy infrastructure. The overextension problem is most noticeable in
Moscow’s dealings with Asia. Russia has made an array of commitments to
China and Japan to meet those countries’ voracious energy appetite. For
example, President Vladimir Putin in March indicated that Russia
by 2011 would be in position to deliver upwards of 80 billion cubic
meters of gas annually to China via two pipelines. Meeting that goal
will be difficult, however, as the pipeline linking China and western
Siberia has yet to be built. In general, questions continue to hover
over virtually all of Russia’s oil & gas-related deals with China
and Japan. And even if the energy flows eastward as anticipated,
Asian officials are already expressing doubts about whether the
amounts pledged by Russia are sufficient to meet projected needs.
Beyond the question of Russia trying to export more than it can
pump, the country will have to contend in the coming years with
growing domestic demand, along with the need to repair existing
infrastructure and tap into new energy fields. Both of these latter
tasks are enormously expensive, given the difficulties of working in
Siberia’s uninviting terrain and weather conditions. Experts say that
the significant increase in Russia’s energy production in recent years
would not have been possible without the use of Western technology
and techniques, including hydrofracturing, a process in which steam
is forced into a well to ease the pumping of oil.
Likewise, Western equipment and know-how will be needed to develop
new energy sources in the Arctic, as well as off the country’s
Pacific coast.
Despite the need for outside investment, Russian policies seem
calculated to prop up closed domestic monopolies, and thus repel
foreign capital and technology. In addition, foreign investors
continue to face enormous risks when doing business in Russia:
although foreigners can buy minority stakes in Russian energy firms,
the concept of shareholder rights remains poorly developed, leaving
outsiders vulnerable to the whims of a non-transparent and notoriously
corrupt system.
For now, Central Asian energy is helping Russia mask both current
energy problems and future dilemmas. Until recently every export
pipeline for oil and gas produced in Central Asia was routed through
Russia, enabling the Kremlin to import energy at exceedingly low
cost. Putin sought to maximize Moscow’s leverage by creating a gas
cartel led by Russia. Kremlin control over Central Asian energy reached
the point that in late 2005, Russia felt secure in imposing dramatic
price increases on its CIS neighbors, including Ukraine, Georgia
and Armenia. [For background see the Eurasia Insight archive]. A
subsequent pricing dispute with Ukraine prompted Russia to temporarily
halt the energy flow in early 2006. [For background see the Eurasia
Insight archive].
Central Asian governments are not content with existing arrangements,
however, and are turning to China in order to break Russia’s
pipeline monopoly. A 1,000-kilometer-pipeline linking Kazakhstan
to China, opened last December, became Central Asia’s first export
route not to cross Russian territory. Now the authoritarian-minded
leaders of Turkmenistan and Uzbekistan, along with Kazakhstan, are
exploring the feasibility of building more pipelines that parallel the
Kazakhstani-Chinese route. The possible construction of a trans-Caspian
pipeline, which would enable Central Asian energy to hook up with
Azerbaijani-Turkish routes, could further weaken Russia’s grip on
regional exports.
Much of Russia’s neo-imperial designs in Central Asia are connected
with the fact that the Kremlin’s global economic strategy is dependent
on Moscow’s continued access to cheap Central Asian energy.
Central Asian energy is far cheaper to extract than Russia’s, thus the
Kremlin uses it for Russian domestic consumption, which is heavily
subsidized, while shipping Siberian production abroad. The ensuing
price manipulation is the source of enormous revenues that helps
sustain the government and overall Russian economy.
It is easy to see how the loss of control over Central Asian energy
exports and production would severely damage Russia’s political and
economic interests. If Central Asian states start pumping oil to China
and Azerbaijan, Russia would likely have to use its own production
to meet domestic needs. This, in turn, would dash Moscow’s export
plans for Europe and Asia. At the very least, the availability of
other export options would force Moscow to pay considerably higher
prices for Central Asian oil and gas – a development that could have
ruinous consequences for the Russian economy. Two analysts, Vladimir
Paramonov and Aleksey Strogov wrote in 2004; “should energy prices in
the domestic market reach the world level, it will spell the end for
virtually all Russian enterprises. Even if world fuel prices remain
high, fuel production will become uneconomic in Russia.”
Asian and European governments are becoming increasingly aware of
Central Asia’s importance in the global energy security calculus.
Meanwhile, Washington is exerting pressure on Kazakhstan to make a firm
commitment to a trans-Caspian pipeline. Should Central Asia achieve
energy independence with outside help, Russia would quickly come under
pressure to reform its domestic economy, especially the energy sector,
so that it could better compete in a free trade environment. It follows
that economic liberalization would undermine, if not reverse Putin’s
attempts to re-centralize political power in Russia.
Of course, there is one factor that makes the Central Asian energy
game extremely unpredictable – the brittle nature of the regimes in
Turkmenistan and Uzbekistan. Both countries are ruled by despots –
Saparmurat Niyazov in Turkmenistan and Islam Karimov in Uzbekistan
– reliant on the widespread use of repression to maintain their
authority. Many political observers believe Turkmenistan and Uzbekistan
remain vulnerable to social explosions. In addition, the lack of a
political succession mechanism in both states could spark upheaval
in the event of Niyazov’s and Karimov’s deaths. Disorder in either
country — especially in Uzbekistan, Central Asia’s most populous
state – could engulf the entire region. If such a scenario occurs,
Central Asia’s export ability could be impaired and the major energy
players – the United States, EU, Russia and China – would all stand
to be big losers.
Editor’s Note: Stephen Blank is a professor at the US Army War
College. The views expressed this article do not in any way represent
the views of the US Army, Defense Department or the US Government.

GROUP LAUNCHES VIGIL AGAINST ARMENIAN BILL
Dunya, Turkey
May 16 2006
A protest was launched yesterday against an Armenian bill to be
debated on Thursday by the French Parliament.
The committee set up by the Labor Party (IP) against the so-called
Armenian genocide claims will hold demonstrations for three days in
front of the French Embassy in Ankara and the Consulate General in
Izmir under the title “The Turkish-French Friendship Vigil.”
A group called the Armenian Genocide Lie with Armenian Documents Grand
Project 2006 Counseling Board started the same action at Place de la
Concorde in Paris.
Meanwhile, France’s Ambassador to Ankara Paul Poudade yesterday said
that the French government was opposed to the Armenian bill set for
debate at the Parliament on Thursday.

“CHAHARSHANBEH-SURI” FLICKERS IN YEREVAN
Mehr News Agency, Iran
May 16 2006
TEHRAN, May 16 (MNA) — Iranian director Asghar Farhadi’s acclaimed
film “Chaharshanbeh -Suri” was recently screened at the Yerevan Puppet
Theatre in Armenia, the Islamic Culture and Relations Organization
announced on Monday.
Several Iranian and Armenian students along with some of the film’s
cast and crew attended the event.
Starring Iranian superstar Hedyeh Tehrani along with Hamid Farrokhnejad
and Taraneh Alidusti, “Chaharshanbeh-Suri” is about a family in
which the wife doubts her husband’s loyalty. Everything seems to
indicate that the wife suffers from melancholia, but things turn
out differently.
“Chaharshanbeh-Suri” was awarded Crystal Simorghs for best director,
best editing, and best actress at the 24th Fajr International Film
Festival. The film also won the audience favorite award at the
festival, which was held in Tehran in late January.

NA PRESIDENT ARTUR BAGHDASARYAN AWARDED THE PRIZE “THE BEST EUROPEAN OF THE YEAR”
National Assembly of RA, Armenia
May 16 2006
On May 11-18 within the framework of the celebrations dedicated to
the day of Europe in Armenia a prize-giving ceremony was held in
“Armenia-Marriott” hotel, which organized the European Movement of
Armenia. Representatives of the National Assembly, foreign diplomatic
missions, international organizations, NGOs and others attended
the ceremony.
Traditionally, the prizes of the European Movement are given to
the public-political figures or organizations distinguished by their
investment or European way of working as part of general trend towards
following European practice in their states.
NA President Artur Baghdasaryan was awarded the prize “The Best
European of the Year,” and the prizes “The Best European Investment”
in the cultural and economic spheres received the JSC “Kanaka,” “Ayas”
Nautical Research Club and “Parisian Surch” (Paris Coffee) company.
Victor Yengibaryan, Chairman of the European Movement of Armenia
ensured in his opening speech that the strengthening of the relations
with the European Union emanates from the interests of our state,
and it’s the path of the perspective developments of Armenia without
alternative.
NA President Artur Baghdasaryan, congratulating those awarded, noted
that the European integration is a political perspective having no
alternative for Armenia. “Whoever wants to live with that system of
values, should fight for it,” ensured Mr. Baghdasaryan. Welcoming
the initiative of the European Movement of Armenia, the Parliament
President underscored that we should fight for democracy, freedom,
friendship and cooperation, which will lead our country to progress
and development.
Alexis Loiber, representative of the European Commission underscored
that Europe aims at developing the economy and spread European values:
rule of law and human rights. Mr. Loyber highlighted the consolidation
of the European Neighbourhood programme.
Henrik Kroner, General Secretary of the International European
Movement noted that the European values are united around the free
and autonomous governments and people of free will.
From: Emil Lazarian | Ararat NewsPress

FRANCE’S BILL
By Ozdemir Ince
Turkish Press
May 16 2006
HURRIYET- Canadian Prime Minister Stephen Harper labeled the Armenian
Events of 1915 a ‘genocide’. Some deputies in France are preparing
a bill to criminalize denial of the so-called Armenian genocide. I’m
certainly angry about France and the US, both of whom are using the
‘genocide’ as a political tool and can’t get rid of the fixed idea
of genocide. But there are also people in these two countries working
against this shell game.
If this bill is passed, then France will contradict its history of
freedom and make things worse while trying to erase the opprobrium
of colonialism. My wise French friends are saying that comparing the
Jewish Holocaust with the Armenian genocide is absolute nonsense. But
they aren’t the majority among French intellectuals. Moreover they
grow more intense when this issue is debated. The ‘genocide’ is so
deep in their subconscious that many of them can’t get rid of it.
A total of 400,000 Armenian people are integrated into France, and all
of them are French citizens. France is certain about Armenians being
French. This is very important. Armenian society is very influential
in every field of daily life and every profession. It has a strong
middle class.
So it’s natural that a French person supports a French Armenian. Also
it’s almost impossible to publish an article espousing the opposite
view in top newspapers like Le Monde, Liberation and Le Nouvel
Observateur. Le Monde published the views of Orhan Pamuk, Murat Belge,
Halil Berktay and Baskin Oran, but wouldn’t publish my article even
in the readers section. I wrote about the tricky maneuvers of the
French and Armenians in Cukurova between 1919 and 1921. This is one
of France’s most shameful eras, but nobody wants to learn about it
and they even aren’t interested.
Like Elisabeth Badinter, there are historians who say: ‘Turkish and
Armenian historians should study if there was a genocide in Turkey
or another place. But it’s not the business of the French Parliament
to deliver an opinion on this issue. Moreover, legal determination
of discussion about a historical event and making it criminal is
unacceptable.’ But I don’t know if this will be enough to convince
even her husband Robert Badinter, an influential politician, jurist
and writer.
Prime Minister Recep Tayyip Erdogan called representatives of French
firms and warned them to support Turkey’s stance. I don’t think that
this will work. Then France will play its European Union card. As a
matter of fact, their ambassador spoke about this a few days ago.
Turkey has to find another method, but it is difficult with this
government.

PREMIER OF “THE DA VINCI CODE” TO TAKE PLACE IN YEREVAN
Yerevan, May 16. ArmInfo. “The Da Vinci Code” blockbuster shot on the
notorious novel by Dan Brown, will be shown at the movie theatres
of Yerevan, after the world premier of the film in the Cannes Film
Festival, on May 17.
Tamara Movsisian, manager of “Moscow” movie theatre, informed ArmInfo
that the film will be shown at “Nariri” movie theatre from May 18
and from June 1 at “Moscow” cinema. She added that the Moscow based
“Cascade” copyright company assisted the movie theatres in getting
the right for show of the film. The film is shot by Ronn Hovard in
2006. The novel of Dan Brown was translated into 40 languages and has
sold more than 40 million copies. It’s worth mentioning that the book
aroused the indignation of the Christian confessions who condemn the
author for mockery of human values.
Besides, world known Armenian musician Jivan Gasparian plays doudouk
in the soundtrack of the film.

WEATHER CONDITIONS HAMPER LIFTING THE A-320 FLIGHT RECORDERS
Moscow, May 16. ArmInfo. Because of bad weather conditions the lifting
operation of A-320 blackbox flight recorders is temporarily stopped.
Russian sources report that the crosswind strengthened and ‘Navigator’
watercraft, from which the PT-1000 apparatus is controlled, started
drifting sideward. ITAR-TASS report that nothing has been yet found
by PT-1000.

OPPOSITIONIST POLITICIAN DOES NOT DRAW PARALLELS BETWEEN ARMENIAN SPEAKER AND GEORGIAN PRESIDENT
Yerevan, May 16. ArmInfo. “The speaker of the Armenian Parliament,
Arthur Baghdasaryan, and the symbol of the rose revolution Mikhail
Sahakashvili have similar height, however, I cannot speak of other
parameters,” Vazgen Manukyan, Chairman of National Democratic Union
opposition party, said at a press conference, Tuesday.
He said M. Sahakashvili differs from his forerunner Eduard Shevardnadze
only by “more successful management of the Central Committee,” but no
real progress has been observed in democratic processes. The upcoming
days will become a strength test for “Orinats Yerkir” party led by
the speaker as “it is one thing having 60,000 party men when in power,
and it is quite another thing when in the opposition.” As regards the
refusal of the ministers representing “OY” from fulfilling the party
Board’s demand to resign, V. Manukyan said “there are so many materials
compromising Education Minister Sergo Yeritsyan and other ministers
representing ‘OY’ that they have become easy governed.” Whereas,
“Athur Baghdasaryan is a young politicians who has not received
serious blows so far, the time will show if he will become stronger
under blows or he will fail,” V. Manukyan said.
On the whole, NDU leader thinks the party’s withdrawal will stop the
activity of the political coalition as when formed, the coalition
did not envisage a two- party format. He assured journalists that
the opposition should not welcome the speaker’s resignation like
“white-emigrants” should not have welcomed the settling of political
scores with Zinovyev and Bukharin under Stalin.

OWNER OF ARMAVIA EXPECTS THE FINAL RESULTS OF THE INVESTIGATION OF THE A-320 CRASH TO BE PUBLISHED IN 3 DAYS
Yerevan, May 16. ArmInfo.Mika Baghdasarov, owner of “ArmAvia” company,
denied the rumors of a supposed quarrel on the board of the crashed
A-320 airbus. He said that it was impossible to take weapons on the
board of the plane. Besides, no excitement was fixed in the record of
the pilot’s voice by the air traffic controller. And these factors
testify to the fact that stable and peaceful situation was on the
board of the plane. As for the harm that the air crash made to the
image of the company, Mr. Baghdasarov said that there have been many
cases of such tragedies in the history of aviation. He emphasized
that though an awful tragedy took place and many people died, the
life goes on and people need to live and work.
From: Emil Lazarian | Ararat NewsPress

AZERI EMBASSY CHALLENGES GARABAGH PART IN MOSCOW TOURISM SHOW
Assa-Irada, Azerbaijan
May 16 2006
The Azeri embassy in Moscow has sent a diplomatic note to the Russian
Foreign Ministry expressing protest at the invitation of an Upper
(Nagorno) Garabagh delegation to a tourism exhibition in Moscow on
May 11-14. There has been no reply from the ministry yet.
Earlier the embassy sent a protest note to the organizer of the show,
the Moscow City Tourism Committee, describing as a fake the exponents
presented as being of Armenian origin. The committee left the letter
unheeded.
On Saturday, the day of official opening, a group of young ethnic
Azeris living in Russia came to the exhibition venue draped in the
Azerbaijan national flags and encircled the exhibition pavilions in
protest. The young people said the exhibits described as Armenian
were actually Azerbaijani.
From: Emil Lazarian | Ararat NewsPress