Energy Politics Round-Up

Two big events: Turmenistan "President" Niyazov dies and Gazprom gains control over the Sakhalin-II project. Niyazov is a relic of the Soviet era, an absolute dictator whose reign makes Kim Jong-Il look like Thomas Jefferson. He completely closed his country and created a cult of personality that extended to renaming months and meteorites after himself and his family. He wrote a book, the 'Rukhnama', which was made required reading in schools. He had a huge gold statue made of himself in the capital Ashgabat which rotated to face the Sun. He renamed himself 'Turkembashi', which means "the artist formerly known as Niyazov". Well, actually it means "Father/Head of the Turkmen people", but he's so wacky that I would believe just about anything. But this Daffy Duck Dictator did have one thing going for him. His country happens to be sitting on top of a smörgåsbord of natural resources, especially natural gas. Which is unfortunately why his death is so important.

Right now Turkmenistan only supplies gas directly to Russia (through Gazprom) and its southern neighbor Iran. The US tried to get Turkmenistan to sell its very cheap gas to them through two routes - one south through Afghanistan and Pakistan to the Indian Ocean, and the other across the Caspian Sea to Azerbaijan where there is now a pipeline running through Georgia and Turkey to the Mediterranean (the BTC pipeline). However it seems Gazprom channeled its inner Nancy Reagan to convince Niyazov to 'just say no' to the American offers. Russia sees Central Asia, especially any part of it with oil or gas, as part of its 'sphere of influence'. They don't seem particularly worried about the power vacuum left in Turmenistan, and I'm sure the new president Gurbanguly Berdymukhammedov (anagrams anyone?) will be making a trip to Moscow in the near future. However no one really knows what is going on inside Turkmenistan. The lack of foreign media presence makes it hard to know if there are any problems. Any instability or civil conflict could draw the US and Russia into direct confrontation.
The presence of radical Islamic groups in the region only complicates matters further. If Turkmenistan does enter a chaotic period, gas supplies to all of Europe could be seriously interrupted.

The Sakhalin-II project, located at the eastern edge of Russia (just north of Japan), was the last major energy project without Russian representation. There are now none, as Gazprom bought fifty percent plus one share from the consortium of Shell, Mitsui, and Mitsubishi for 7.45 billion dollars. This was after the Kremlin threatened to sue the foreign majors for up to 30 billion dollars for environmental damages. Gazprom is the Russian state gas company which has become a behemoth corporation in the past few years. Its chairman of the board, Dmitri Medvedev, is also Putin's first deputy prime minister. Alexei Miller, the deputy chairman, is also an old ally of Putin. The signal the Kremlin sends with these strong-arm tactics is this: we welcome foreign companies to invest in Russia, but you are not to make big profits by selling our natural resources.

Both of these events are part of rising tensions between the US and Russia. Points of agreement are rapidly vanishing. I would be surprised if Russia votes for any sanctions on Iran, no matter how much the Europeans water down the resolution. I am worried that we are entering a stage similar to the one preceding World War I in Europe, with the US playing England and Russia playing Germany. And who benefits from US-Russian conflict? China.