The Politics of Pipelines; Yes, the Hoary Great Game Is Back, Pitting Russia, the United States and Europe in a Tug-of-War over Energy

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Byline: Owen Matthews

Half a century ago, Hungarians learned the price of defying Moscow. So when George W. Bush recently chose Budapest to send a message to today's masters of the Kremlin, marking the 50th anniversary of the 1956 uprising that was crushed by Soviet tanks, the event was heavy with symbolism. "The sacrifice of the Hungarian people inspires all who love liberty," said Bush as he laid flowers at a memorial to the uprising's victims. "We resolve that when people stand up for their freedom, America will stand with them."

Why the cold war rhetoric? In Budapest, there wasn't much doubt that the "freedom-loving" people Bush had in mind were citizens of former Soviet Union countries, like Ukraine and Georgia, still struggling to break free of Moscow's influence. But beyond all this lies a bigger geopolitical game being waged every bit as aggressively as the old cold war. Today's tug of war features energy, not tanks, and will be very much in evidence at next month's G8 conference in St. Petersburg. The West is wary of becoming excessively dependent on Russian fuel supplies. For its part, Russia wants to lock in European markets. This means more than controlling the pipelines that carry its oil and gas. It also involves pushing forcefully into such downstream energy businesses as refining and retail gasoline sales--and blocking emerging energy-rich rivals in Central Asia and around the Caspian Sea from entering the picture.

Washington wants to promote these new suppliers--and Europe has good reason to do so. Yet spooked by Moscow's move last January to cut gas shipments to Ukraine, European governments are also reluctant to follow Bush into confrontation. "Europe has no alternative to Russia as an energy partner," says former German chancellor Gerhard Schroder, who now works for the Gazprom led Baltic pipeline consortium. Individual European countries and corporations have already been cutting deals. In Moscow in late June, Italy's new Prime Minister Romano Prodi and Paolo Scaroni, CEO of Eni, Italy's state-owned oil major, worked out a telling quid pro quo with Russian President Vladimir Putin. Under it, Russia's gas monopoly, Gazprom, will be able to invest in Italy's domestic energy markets, while Italian companies will join in oil exploration projects in Russia. There were other sweeteners, too. UniCredit, Italy's biggest bank, was given Putin's blessing to buy a 26 percent stake in the International Moscow Bank. The message to other Europeans was clear: give us what we want, and you'll get yours.

This worries Washington. Deals done now will shape political realities on the Eurasian continent for decades to come. "Are you going to be able to pick a fight with the guy who supplies all your energy?" asks one Western diplomat in Moscow. So far, though, Moscow's way ahead in this game. "Russia is extending its roots into Western economies much faster than the West can find alternative supplies of energy," says analyst Nikolai Petrov from Moscow's Carnegie Center. A case in point is Hungary. The day before Bush's visit, the country's oil and gas company signed yet another agreement with Gazprom to extend the Russian conglomerate's Bluestream gas pipeline (linking Russia and Turkey) into Eastern Europe. That's a major blow to a U.S.-backed pipeline project called Nabucco, which would connect gas producers in the Caspian to Central Europe via Turkey, Bulgaria, Romania, Hungary and Austria, bypassing Russia. …