The Guardian: Coming in from the cold

EXTRACT: Just before Christmas, when Moscow strong-armed Shell and its partners into selling their majority stake in the $20bn Sakhalin-2 project, the business world howled about disrespect for the sanctity of contract.

THE ARTICLE 

Leader
Wednesday January 10, 2007

David Cameron lit the pilot light on a row about high energy charges this week just as the news came through that Russia had halted oil exports to Europe through Belarus. Energy firms would no doubt like to be able to blame exorbitant household bills on events in eastern Europe – but wholesale prices have been falling for months. So does Russia’s behaviour matter here? The answer is yes, since the country will increasingly shape the future price and security of energy supplies. It dominates the landscape against which today’s EU strategic energy review will be set out.

As President Putin’s Russia has grown more authoritarian domestically, it has also become more assertive internationally, repeatedly using its vast energy reserves to secure leverage over both other states and big business. The west is grappling with the problems that this new confidence presents. But the Russian perspective matters too. The country’s energy nationalism needs to be understood in the light of the 1990s, when Russians not only saw their empire collapse but also suffered a collapse in average income that compares with what Americans experienced during the great depression. If Russians now want to advance their economic interests, they can hardly be blamed.

What matters is the way in which the country goes about it, and the extent to which it benefits ordinary Russians. Just before Christmas, when Moscow strong-armed Shell and its partners into selling their majority stake in the $20bn Sakhalin-2 project, the business world howled about disrespect for the sanctity of contract. There is no doubt that there will be a cost in terms of Russia’s reputation as a place to invest. But the original deal was struck in the early 1990s, when a weak state agreed to let the multinationals recover all costs before the Russian people got a rouble. As both the costs and energy prices rose, resentment was bound to grow. The British government, after all, felt entitled to double the levy on North Sea oil when profits there started to look excessive.

Cutting off gas to Ukraine in midwinter last year amounted to bullying, and there is an element of that again with Belarus, even if the Minsk regime is even less democratic than that in Moscow. Underlying the crisis is Belarus’s reluctance to give up the subsidised energy that it has long enjoyed. That may be understandable, but so too is the Russian desire to move from political to world-rates pricing.

Gazprom is no ordinary energy company, as its recent purchase of a tabloid newspaper showed, and its benefits for ordinary Russians are restricted. But doing business with Russia is necessary. Both sides have legitimate interests; an imbalanced relationship helps nobody.

http://business.guardian.co.uk/story/0,,1986614,00.html

This website and sisters royaldutchshellgroup.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, and shellnews.net, are owned by John Donovan. There is also a Wikipedia segment.