ANALYSIS
Balkans: A crucial aspect of the Grand Game
By Ioannis Michaletos | Blog
March 28, 2008

"Ta panta rei, mhbepote kata t'auto menein"

The return of Russia in the Balkan Peninsula

Over the past 18 months, a dramatic series of developments, centered mostly in the energy field in the Balkans, have grasped the attention of the world’s headlines. The Balkan Peninsula is an integral geopolitical zone on which the issue of world governance is being debated between Washington and Moscow, whilst all other powers, namely the EU countries, the Islamic world and the various transnational interests explore opportunities for advancement.

The latest development concerning the declaration of independence by the Albanians in Kosovo can be viewed also in this context. In the minds of many policy makers in USA, an independent Kosovo could serve as a staging point in a renewed play of the “Cold War” and more specifically as a bulwark against any further Russian advancement in the region and more importantly against the creation of a coalition between EU energy importers and Russian-Eurasian exporters.

What it is interesting to note, is that the “Albanian factor” is not capable by itself to withstand any Russian pressure in the Balkans, thus in effect Washington is calling a bluff. The questions that arises, is the following: Is Russian making a permanent come-back in the Balkans, or it is negotiating its recent gains, for some other theaters such as the Caucasus?

The Russian strategy

Putin’s Russia has proved to be an apt player in the economic game that is being unfolded through the construction of a variety of pipelines transferring hydrocarbon from East-to West. Nowadays at least 25% of the European Union’s energy needs in natural gas & oil are being met by Russia and in some cases such as Slovenia; this percentage reaches 60% (Gas) or even 100% for Romania. Moreover the projection for the next generation is negative for the EU since its energy dependency levels will increase from 76% (Oil) to 93% in 2030 as the European Parliament Report revealed in its research on the EU energy dependency rates.

The Russian exports to Europe operate under the commercial framework of 25 year contracts based on bilateral agreements. The European states have agreed on paying for a standard and minimal amount of natural gas, therefore Gazprom has a long-term steady cash flow.


Russia in the Balkans, "Position of Principle" 

The reach of Gazprom is not related only to its exports to Europe. In 1993 it signed an agreement with the German corporation Wintershall AG, by which the jointly formed WINGAS that currently owns 2,000 km of pipelines and a reservoir bunker for natural gas of 4 billion m3 space. Gazprom has a 35% stake and consequently a portion of the German natural gas pipeline network.

Gazprom has grown to become a corporate emblem of modern day Russia and an eminence of the importance of energy as exercised by the Kremlin. Despite the vast amounts of investments, Russia is still considerably dependent on Europe for its economic renewal through the steady flow of energy exports. Even if Russia fully constructs an export policy with China and Japan, Europe will form a large segment of its revenues and it is a geopolitical unit that is not interested in gaining political advances against Russia. Thus, the role of Europe is integral and could facilitate Russian economic expansion over the long-term.

The prices of oil currently at around 110$ a barrel in comparison with just 13$ just 8 years ago, have played the greatest role in securing Russia’s confidence. Moreover the geostrategic instability in the Middle East due to the Iraq civil warfare, Islamic terrorism, the perennial Israeli-Palestinian conflict and the Iran crisis, have caused an anxiety in the world’s markets and assist in keeping the prices high for the foreseeable future. Elsewhere, in Venezuela “Energy nationalism” is actually a beneficial factor for Russia’s energy policy since it further empowers its position in the international system as one of the few key players of the hydrocarbon market that is not inflicted by internal instability or outside threat. Lastly the all-expanding need for fuels by the gigantic Chinese economy and India increases Russia’s exports thus its role in the energy power structure.

The EU-Russian relations are already under the aura of energy politics and will remain so, despite Putin's withdraw from the Presidency in May 2008, since this Eurasian country has firmly decided to proceed in the global arena by using as a main instrument for its foreign policy oil & natural gas.

From its point of view Moscow relied heavily in taking advantage of its tremendous natural gas infrastructure and deposits. Since 1991 it supplies its neighbors with natural gas, -Cheaper than international prices-, in order to check their foreign policy ambitions and keep them in line. In cases where countries such as Ukraine showed signs of challenging Russian predominance; Moscow proceeded in increasing the prices five-fold, in late 2005.  The pricing policy of Gazprom is strictly political, meaning that friendly states to Russia receive considerably lower prices than others. For instance in spring 2006, Byelorussia paid 45$ per 1,000 cubic meters, whilst Georgia 110$. Over the past few months Gazprom feels confident enough in raising the prices irrespectively of political motives, in order to gain further global financial clout.

The importance of using energy as a political instrument can be found in the dependency levels “Near abroad” countries have from Russia. Ukraine consumes 80 billion cubic of gas meters per year: 25 Billion imported from Russia, 36 Billion imported from Turkmenistan but trespass through Russia and the rest 18 billion produced domestically. As it can be clearly shown almost 4/5ths of Ukraine’s energy needs are essentially controlled by Russia, therefore its past, present and future is inexorably related with the Russian foreign policy and its resolutions for a variety of themes.

Kosovo administrative boundary 

The European Union imports more than 25% of its natural gas from Russia and a significant segment of this flow through the “Brotherhood” pipeline passing from Ukraine on its way to the West. Therefore Kiev is dependent to Russia and is a middleman to the West, being in reality the energy hub for natural gas between Russia and the EU.  That is the most important aspect of Ukraine’s importance to the European states.

USA from its point of view has achieved one of its goals which was the existence of multiple exit routes of the Eurasian oil in order to check the oil prices and being able to diversify oil trade, especially in areas that are strategically aimed towards the West either through NATO the EU and their individual bilateral agreements. That of course doesn’t mean that Washington doesn’t keep a close eye to any future developments concerning Russia’s plan for the “South”. Since the late 18th Century one of the main concerns of all international capitals was the all-timely “Eastern Question”. It meant the advancement by Russia towards the “Hot waters” of the Mediterranean in order to facilitate the exit from its continental isolation, and the subsequent effort by the Maritime powers-UK then-USA now- to obstruct such a move. Over the coming years due to energy considerations the Eastern question will sensationalize headlines in our multipolar global environment that is becoming less predictable, and far more interconnected than any other recorded in human history.

In the current Russian affairs, Zbigniew Brzezinski has categorized the Russian Geopolitical Schools of Thought into three spectrums. Firstly we have the “Zapadnik” or pro-Western one, the “Slavophil” nationalist one and the “Eurasian” one. The West was always friendlier to the Zapadnik supporter, as anyone would assume, that often bring fierce critic from the opposite sides in today’s Russian political life. Vladimir Maksimenko a member of the Russian Academy of Sciences and a Researcher on the Institute of Eastern Studies in Moscow; accuses Brzezinski of Neo-imperialist intentions and confirms Russia’s vital interest in Central Asia, which is viewed as an integral part of the Russian national power sphere.

Moscow by night

Brzezinski from his part argues for an American strategy that would promote the geopolitical pluralism within the area of the Ex Soviet Empire, a prospective viewed with anger by many Russian pundits. For them there could be no question that the West and NATO would like to drive them out from their birth land and the only source of their power in modern world affairs

Russian tactic

The Russian strategy of energy advancement towards Europe has been executed through well-coordinated energy agreements with Balkan states.

The Burgas-Alexandroupoli pipeline agreement on the 15th of March 2007 was a first crucial step towards that aim. With a transport capacity of 30 million tons per annum (Initially) reaching 50 million, this particular pipeline greatly elevates Greece’s natural geoeconomic role in the wider Southeastern European region. Firstly it effectively trespasses the Turkish Bosporus Straights and eases the exports of Eurasian oil to Western Europe. Therefore Greece becomes an important terrain on which European energy security depends on, a factor that translates to political clout to an extent in the modern world. The Russian side which owns 51% shares of the pipeline, through the corporation Lucoil is interested in investing in refinery capabilities in Greece. Already it operates a similar facility in Burgas and the plans as they have been transmitted in the Greek press, state around an interest in either constructing an industry in Alexandroupoli or buying a share in a Greek oil industry.

On the 23rd of June 2007 another important deal was signed between the Russian energy colossus Gazprom and the Italian ENI. The cooperation memorandum relays the construction of a sub water pipeline transferring natural gas of a total distance of some 900 Km from the Russian Black Sea port of Beregovaya, to Burgas in Bulgaria. Afterwards it will be divided into two “Streams”; one Southwest to mainland Greece and reaching to Italy via another subwater pipeline. The other route will trespass Bulgaria, Romania, Serbia, Slovenia and through Hungary it will end in the Central European markets. The total network is estimated to be of 3,200 Km of length, able to transport around 30 billion cubic meters of natural gas per annum and will cost 14-15 billion Euro. The beginning of its constructed according to official press a statement is scheduled for late 2008 and the multiparty negotiations are still developing.

Serbia has also become a partner in this pipeline and sold its national energy company, NIS, to Gazprom.

The latter deal was not welcomed by Washington. According to a report in the Christian Science Monitor, the news agency Reuters obtained a copy of an official and confidential Serbian government briefing note on the outcome of a meeting between American and Serbian officials in which the US apparently warned the Serbians about "…the political influence Moscow would gain by controlling energy resources in Serbia and the region, and expressed a negative assessment about the economic justification of South Stream…"

Moreover the Southeastern European Times have observed a Putin’s speech in Zagreb on June 2007, where he stated that “Russia wants to build underground storage facilities in several Balkan states, which will not only improve energy supplies to the region, but will make it more attractive and more important from the perspective of solving energy problems in Europe as a whole." In reality that means Moscow is willing to invest in the whole spectrum of the Balkan energy infrastructure and control supply to the EU.

After Kosovo momentum

The unilateral declaration of Kosovo is the thorniest issue in current USA-Russia relations. It is unlikely that Russia will back-off from its adamant position of not recognizing Kosovo, and actively pursuing the growth of its influence in the region. Apart from the tremendous investments in energy projects, that as it was mentioned above; are just a tactic of its grander Eurasian strategy, there is a very strong motive of keeping up with its policy of conducting diplomatic relations based on international law & state sovereignty. A classic approach to that is the statement by Vitaly Churkin, Russia's UN ambassador who voiced Moscow's opposition to Kosovo's declaration of independence, on February 2008.

Map of pipelines

The Balkans are bound to become once again a political theater of rivalry between superpowers, on which USA stakes to loose a lot considering the perilous position it maintains in other fronts such as Iraq, Afghanistan-Pakistan, even South America. On the other hand Russia has made a long way since 1999 and its energy exports are deemed as essential by the majority of European countries. Consequently the transnational economic interests will balance the act by siding in many respects with the Russians, for reasons purely related to profit and market access. Diplomatic initiatives that are not backed by economic motivations, sooner or latter become a dangerous blowback and the United States have invested a substantial of political capital in Kosovo without a clear economic end to it.

On another level, certain Balkan capitals will rival other global ones, as “Espionage & agent crossroads”. Sarajevo, Belgrade and Pristina will most certainly rise even more in the world espionage network, while Sofia, Athens and Skopje will follow suit. Expect also a surge of propaganda & counterpropaganda publications that will side on the highest bidder, or in some remote cases for purely ideological reasons.

The only stable parameter nowadays is the continuation of the USA-Russian rivalry that will lead to peripheral shift of balances (i.e. Balkans, Caucasus, Iran) and the diverging interests of the EU member states due to Russian dependency on natural gas mostly. The role of the countries in the midst of the antagonisms, such as Poland, the Baltic States, Turkey, Greece, Bulgaria, Serbia, Georgia and Ukraine will shed light for the mid-long term consequences of Russia’s energy expansion.

SUPPLEMENT

A past failed USA endeavor within the context of the “Grand Game”

James Giffen (1), an American banker and consultant of the Kazakhstan’s President, currently faces justice in USA. He is accused of bribing (2) with some 78 million USD the Kazakhstan leadership in order to secure contracts for the “big oil” corporations of the United States. Giffen is not your ordinary banker. As New York Times point out (3), “His case involves a labyrinthine trail of international financial transfers, suspected money laundering and a dizzying array of domestic and overseas shell corporations. The criminal case names Mr. Nazarbayev as a non indicted co-conspirator”.

In early 2003 Federal Agents arrested (4) Giffen, just the time he was preparing for his trip to Paris. He was accused of systematically bribing officials of the Central Asian state and acting on behalf of Exxon Mobil, BP and Conoco-Philips. Despite the accusations against him, paradoxically the companies were not charged (5) for their practices. Giffen now, after consulting his legal team decided to request the declassification of Government documents (6) in order to prove his innocence, as well as, his patriotic stance as an individual acting under governmental initiative and influence.

The documents made public reveal to an extent the interrelation of the state officials in assisting Griffen’s Asian endeavors. Moreover, Giffen before becoming an international advisor of President Nazarbayev (7), he was the Vice President of Armco (8), an enterprise selling oil drilling equipment to the Soviet Union back in the 70’s. Thereafter he became the Chairman of Mercator, a consulting company that developed strong ties with the last Soviet President, namely Gorbatsov. His road to business success was on its peak when under the Bush Senior Administration he was appointed as the Head of the American-Soviet Commercial and Economic Council (9). Giffen has hinted that his role was not an auxiliary one, but acted as a middle man in American investments in the Soviet Union on a grand scale.

During the 90’s the American Administration kept a blind eye to the human rights violations of Kazakhstan’s regime, because of its abundant reserves of hydrocarbon fuels. The last decade saw also, Phillip Zelikow (10) current aide of the State Department; as a scientific advisor for Mr. Griffen’s conducts with Kazakhstan, in issues of economic development of the state.  The American banker was the culprit of important deals in Central Asia such as the buyout of 25% of the Tengiz oil (11) field by Mobil in 1996. This particular field produces 285,000 barrels of oil per day, a third of total Kazakhstan production currently. For this deal, a 51 million payoff was needed. Half of that amount went into Griffen’s pocket, whilst the rest was sent to Swiss bank accounts that apparently are owned by members of the Nazarbayev family. Furthermore during that period numerous gifts were handed out by Giffen to the head of the Kazakh state. Those include furs worth 30,000 USD-For the first Lady and the First Daughter-, and an expensive speedboat that was consequently given by the President to his Prime Minister, Balgimbayev (12).

Corridors of power

The above story is a typical paradigm of “Kleptocracy” (13) a newly coined term that points out to the enormous state of corruption the modern business & political world has come into. The existence of brutal regimes all over the oil rich states is being facilitated by the ongoing corruption practices of the oil industry –regardless nationality- and the outcome quite predictably is social unrest and violence on a global scale. Dick Cheney (14) once the head of Halliburton (15) noted that “It’s not our fault that oil isn’t produced in democracies…”

To that one has to point also the dependence of the Western consumer states by oil that is greatly assisted by corruption and easy-going deals between business executives and dictators over the world. In an era where the world should be moving to a fossil fuel free economy, the oil industry clings to its practices and holds governments and their respective administrations liable of political misdemeanors. It is easy to assume that large foreign investments by USA corporations would have a political back-up, by which corrupted business practices interrelate with the mainstream politics. The effect quite naturally is the degradation of political life and Democracy itself.  Finally the result in a global scale is quite the contrary than Cheney’s quote. It is the oil that creates dictatorships so as to facilitate agreements not acceptable in a state governed by the rule of law.

On overall, the Giffen’s case reveals yet once more the hypocrisy of the international community when dealing with oppressive regimes, as well as, the influence of the colossal transnational corporations in world politics. An interesting fact for the aforementioned is the 2 billion USD that has given from the World Bank alone from 1992 to 2006 as an aid (16) to Kazakhstan. 130 million of these were handed in 2006, after the exposure of the Giffen scandal, and under Paul Wolfowitz (17) a long lasting member of the “World elite”.
An element of optimism at least, is the existence of Kazakhstan as a worldwide business centre, quite a different approach by the recent “Bhorat” film that surely didn’t grasp the complexity of kleptocracy, dictatorship and Swiss bank accounts, in a land that apart from rare species of wolves (18) has plenty of oil to share!
 

On overall the American involvement in Central Asia concluded on an almost total control by Moscow in the end. The Balkans are a different story, but the latest American initiatives may have disastrous effects for the overall American strategy.
 

References:

(1) http://kazakhstan.neweurasia.net/?p=250
(2) Oil consultant is charged
(3) Oil Cas and Corruption
(4) http://www.gasandoil.com/GOC/news/ntc31694.htm
(5) http://www.corpwatch.org/article.php?id=12656
(6) http://ifn.org.uk/article.php?sid=6
(7) http://www.akorda.kz/page.php?page_id=429&lang=2
(8) http://www.britannica.com/eb/article-9009509/Armco-Inc
(9) Joint Communique, Moscow, July 3,1974
(10) http://en.wikipedia.org/wiki/Philip_D._Zelikow
(11) http://www.hydrocarbons-technology.com/projects/tengiz/
(12) http://en.wikipedia.org/wiki/Nurlan_Balgimbayev
(13) President's Statement on Kleptocracy
(14) http://www.whitehouse.gov/vicepresident/
(15) http://www.halliburtonwatch.org/
(16) http://www.ncsj.org/Kazakhstan.shtml
(17) World Bank
(18) http://www.caspianenvironment.org/biodiversity2.htm
 

Bibliography:

Zbigniw Brzezinski,"The Great Chessboard-American Primacy and its Geostrategic Imperatives", Basic Books, N.Y, 1997.

V. Maksimenko, Central Asia and the Caucasus: Geopolitical Entity Explained
 

Further readings on energy projects in S.E Europe:

1) Balkan Energy Future

2) Greek Energy Diplomacy and Future Balkan Oil Pipelines

3) MACEDONIA, ALBANIA AND BULGARIA SIGN BALKAN PIPELINE AGREEMENT

4) Oil pipelines fuel Balkan’s dreams of overnight riches

5) New Trans-Balkan Oil Pipelines

6) Russia Looks to Overtake the Traffic Jam at Bosporus

7) Burgas-Alexandroupolis pipeline important

8) Agreement reached on Burgas-Alexandroupolis oil pipeline project

9) Oil Pipelines Fuel Balkan Dreams Over Overnight Riches