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GAZPROM and Russian foreign policy-making

Gazprom also has significant financial sector interests. But foreign investors are wary of making big commitments in what might become politically sensitive segments of the economy.

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In the economy as a whole, foreign direct investment is running at around one-tenth of the levels that China has seen in recent years. But without increased foreign investment the pace of Russia's economic modernisation and its ability in particular to exploit more efficiently its vast natural resources base, will be slowed. Gazprom is seen to be technically competent when it comes to finding and exploiting its resource base, but burdened with a vast and decaying Soviet-era pipeline network. Claude Mandil, executive director of the International Energy Agency, warned that Gazprom, "would be unable to meet its obligations to European consumers if it did not focus its investment spending on infrastructure in Russia".

The inability of the Russian government to address the need to reform Gazprom, to introduce competition into its markets, particularly to separate production and distribution and break up its distribution monopoly, are a powerful symbol of Putin's ambiguous attitude to economic reforms. The moves to centralise state control over Russia's energy resources and use them to project Russian power abroad, coupled with the inadequate domestic economic reforms, are hindering not helping Russia achieve the rapid, hi-tech, industrialisation which Putin professes to want and which China, at least up to now, seems better at achieving.

Russian oil is another facet of the EU's energy dependency. Around one-third of EU supplies come from Russia, which is the second largest producer of oil after Saudi Arabia.

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But, according to BP's Statistical Review of World Energy, Russia's proven reserves are only around 72 billion barrels, compared with more than billion for Saudi Arabia and over billion each for Iraq and Iran. So, unless and until new reserves are discovered, perhaps in largely unexplored Eastern Siberia, its long-term impact on the world economy as an oil producer is going to be much less than its role in global gas markets.

Industry experts say that oil companies have been exploiting reserves that are easy and cheap to extract. Foreign investors remain wary. The dismemberment of Mikhail Khodorkovsky's private Yukos oil group and the political witch-hunt that has left him languishing in gaol, have also had a chilling effect on foreign direct investment FDI and not only in the Russian oil sector. Log in to access content and manage your profile. If you do not have a login you can register here. Witch Hunt! The future belongs to patriots. Following that, during the negotiations between Russia and Ukraine on the issue of natural gas prices, Russia officially declared that if Ukraine joined the Eurasian Union, then they could get supplies at the domestic prices as Belarus do this issue, however, has become irrelevant after the Ukrainian Revolution.

On the one hand, Russia heads a new giant energy resource organization; Turkey is in a position of both consuming and transporting energy resources. It seems that Turkey stands between Western, Caspian, and Russian pipeline projects including its own oil pipeline project of the Samsun-Ceyhan which is planned to carry Russian and Kazakh oil from the North to the South of the Turkey coast. Therefore, as the number of players grows every year, the number of organizations grows too. At this point, the aim of this study is to analyze the energy relations between Russia and Turkey by taking into consideration the Eurasian Union and its energy impacts.

Throughout history every nation tried to use its political leverage, economic relations, military capability and other available means in the most effective way to strengthen the nation's position in the international arena, and Russia is no exception. Therefore energy is the biggest tool for the Russian foreign policy. After the collapse of the USSR, although for Russia the first decade was catastrophic in terms of economics and social development, the second decade was a success for the Kremlin as a result of high incomes from energy exports.

As Gazprom Grows, So Does Russia’s Sway

Furthermore, Russia managed to almost double its real GDP during Putin's first and second terms before the global crisis. During the global crisis of —, Russian economy tested well, albeit economy numbers dropped in that period, and then began to improve by 3—6 per cent annually. On the other hand, compared to the economic crisis of the s, Russia managed to control social stability in the country Liuhto Two thirds of Russia's exports consist of oil and gas and a quarter of the country's GDP is generated by the energy sector, 10 per cent by Gazprom alone.

Approximately 40 per cent of the budget revenues originate from hydrocarbons Ibid. In , Russia's oil and gas revenues were approximately billion dollars — 66 per cent of Russia's total export revenues Koyama Smith thinks that Putin has made it clear that Russia intends to use its energy export power to regain Russia's Cold War influence around the world, and particularly in Central Europe, the Caucuses and Central Asia.

The energy demands of the world and competition over energy resources grow every year. China, India, Europe, and the United States are the biggest consumers of hydrocarbon resources. It is estimated that up to , these countries will require almost doubling of energy imports. Hence, Russia, Central Asia, and the Caspian region are increasingly important sources of energy for other countries, particularly in the West Fredholm For instance, by , gas imports into the EU could rise by another bcm a year, from around bcm today.

At the same time, the most recent forecasts from the Russian experts are for an increase in gas exports of some bcm per year by to all destinations, including the Asian markets Cleutinx and Piper ; Helen The Russian energy strategy aims at strengthening Russia's position in the global energy market and at maximizing the efficiency of the export possibilities of the Russian energy sector with the best prices. In order to implement this strategy, Russia uses its unique geopolitical location.

In other words, the energy factor is a fundamental constituent of the Russian diplomacy Fredholm An important aim of the Russian foreign energy policy is to establish common energy area among the CIS states. Initially, the goal is to strengthen, promote, and improve the integration of the common fuel and energy system for the benefits of its participants Ibid.

According to Kremlin, energy is a natural monopoly to be kept under state control.


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In order to increase control over oil production, the government controls Russia's oil and refined product pipelines, through the state-controlled company Transneft. This monopoly gives the Russian government a leverage against Russian private companies, foreign investors and foreign countries, if needed Woehrel Russian energy diplomacy is becoming increasingly active as the Russian government and Russian companies are seeking to alter the basis of existing relationships and develop new relationships on the basis of protecting relatively vaguely defined Russian national interests Monaghan In prevailing conditions, with the Caspian states becoming increasingly dependent on foreign capital, particularly American capital, and Russia's own financial means remaining limited, Russian goals have been threefold: first, to insist on the priority use by these states of the export infrastructure that Russia already has in place; second, to promote Russian oil and gas companies and help them to obtain the maximum shares possible in available projects; and third, to try to use a variety of instruments to block projects that do not promote Russia's perceived interests Allison The strategic goals of Russia's foreign energy policy described below are based on two assumptions: 1 Russia's inherited desire to regain leverage in the post-Soviet space in order to become a great power; and 2 a possible rise of Russia's neighbor, China, into the world's leading economic power in the forthcoming decades Liuhto Furthermore, Saunders claims that Russia's energy wealth and power will encourage broader assertiveness in Moscow's foreign policy to the detriment of U.

Another argument is that the contemporary Russian energy policy is no longer a choice between staying West or going East; a combination of geo -political-economic considerations has resulted in a multidimensional policy Shadrina A decade ago Hill advocated the idea of Russia as an emerging energy power and even an energy superpower in the next 20 years.

With the third Presidential term of Putin, Russia entered the second decade of Hill's perception. The Economic Union Treaty was signed in to encourage economic integration among the members Obydenkova and the Customs Union initiative started in that would entail free trade between Russia, Kazakhstan, Belarus, and Kyrgyzstan, with Tajikistan joining in Sakwa According to the first agreement signed between the parties, an economic union would be established following the formation of a multilateral free trade association, a customs union, a common market and a currency union Shadikhodjaev The Customs Union of the Republic of Belarus, the Russian Federation and the Republic of Kazakhstan is an integrated customs area that forms a part of the Eurasian Economic Community and came into effect on January 1, Custom barriers were lifted for cross-border trade among the three states in July Since January , the Customs Union turned into a Common Economic Space in which questions over the rules on competition, transportation, agricultural subsidies and visa and migration policy started to be jointly regulated by the member states Halbach In terms of the energy relations between Russia and Belarus, Russia is the main hydrocarbon supplier of Minsk, while Belarus is one of the transit states of Russian hydrocarbon supplies.

Many years, Russia actually supplied natural gas to Belarus at lower prices which helped the Belarus leader to keep his popularity and a reasonable standard of living. In other words, gas from Russia is not only vital for country's economic growth but also for political stability Bruce While a share of Russian gas in energy consumption of Belarus economy is about 75—80 per cent, Belarus has a capacity of 13—15 per cent to fulfill its energy need by its own reserves Manenok And Belarus transits of Russian oil and gas supply to Europe amount about 20 per cent and constitute 30 per cent of all the transits respectively.


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  • Due to Gazprom's ambition to buy the Belarus gas distribution company Beltransgaz, Russia attempted to buy assets of Beltransgaz in September The Russian side offered to double its gas deliveries to Belarus by and in return transfer Beltransgaz to Gazprom control for 99 years Bruce Although the agreement was signed between Beltransgaz and Gazprom, the agreement was not ratified by the Belarusian parliament. Afterwards, as a result of the swelling debt of Minsk, Gazprom increased pressure on Belarus to pay its overdue payments that Belarus refused to pay.

    Lukashenko refused to privatize Beltransgaz, because he was heavily dependent on profits from the gas sector for his political livelihood Zaitseva During Putin's second term, at the end of March , right after the presidential elections that confirmed Lukashenko in office for another 5 years, Gazprom announced that it would raise the gas prices starting from according to the market prices PONTIS Still, Belarus insisted that this would be a violation of the Customs Union Agreement, according to which Belarus should receive gas at Russian domestic prices Yafimava and Stern Table 1.

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    Another crisis between Russia and Belarus in June once again revealed the subject of the debt payments Yafimava Finally, in July , Beltransgaz and Gazprom agreed on the prices and payment schedules. While stepping towards the integration with Russia and Kazakhstan, Minsk began to get rewards from Moscow. The deal also included the increase of Gazprom's stake in Beltransgaz from 50 to per cent. As a result, Belarus won the cheap price for its budget and gave up its income from Belarus gas market. Kazakhstan is a landlocked country and has common borders with Russia, China, Uzbekistan, Kyrgyzstan, and Turkmenistan.

    Ebook Gazprom And The Russian State Russian Foreign Energy Policy

    Since independence Russia has remained Kazakhstan's most important economic partner, especially for Kazakh energy export, which is still heavily dependent on Russian controlled pipelines constructed during the Soviet period Weitz Few years later, during the Second Astana Forum in March , Nazarbayev said that the integration process should continue under the aegis of the Customs Union Vinokurov Kazakhstan has the Caspian Sea region's largest recoverable crude oil reserves and its production reached to Kazakhstan's growing petroleum industry accounts for roughly 30 per cent of the country's GDP and over half of its export revenues Barry Although Kazakhstan consumes slightly more than it produces, domestic consumption has been increasing at 9.

    Natural gas production of Kazakhstan was According to EIA, Kazakhstan is shifting from being a net natural gas importer to becoming a net exporter within the next few years EIA KazRosGaz will actually determine the energy relations between Russia and Kazakhstan. As a result of the process of the Customs Union, Kazakhstan expects large Russian investments into Kazakh gas fields and an increase in gas production. For that reason, Russia and Kazakhstan signed an intergovernmental agreement on the joint geological survey and exploration of the Imoslevsky gas condensate field.

    In terms of political expansion, the Eurasian Union will increase Russia's weight in the world political arena in order to become a superpower again or at least manage to voice multipolar system.


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    In this respect, according to Putin's first proposal, target countries are Kyrgyzstan and Tajikistan which are small and economically weak countries of the CIS. Esengul thinks that they will support the scheme not only because their societies are loyal toward Russia and Russians, but also because their economy and security depend on Russia. For that reason, it was announced that the preparations to sign the agreement on the Eurasian Economic Union, composed of Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan, must be completed by January 1, Within this context, the intention of Russia, Kazakhstan and Belarus to move to the next stage of economic integration and to establish a full-scale economic union by constitutes an important part of this process Chufrin In this context, Ukraine, Moldova, Azerbaijan, Armenia, Turkmenistan, Uzbekistan, and Georgia will be the target countries for the second wave of expansion of the Russian influence.

    Although it is known that most of the CIS countries have certain limits of interest to become a member of the Eurasian Economic Union Hoffmann , Ukraine is a significant target country for Russia. In the Ukrainian case, Russia employs the gas prices in order to convince Kiev to become a member of the Customs Union. Gas prices are significant for Ukrainian problematic economy and before the Revolution Ukraine even considered joining the Eurasian Economic Union rather than the Eurasian Union in a short term this resembles the Turkish case in the European Union at some points.

    On the other hand, Uzbekistan and Turkmenistan do not display an interest in the idea of the Eurasian Union. Turkmenistan also aims to be the Switzerland of Central Asia and attempts to stay away from a regional organization that required strict loyalty. And Azerbaijan is the only country that has access to western markets and that has broken the monopoly of Russian pipeline system.

    Therefore, it is likely that Azerbaijan will resist the political expansion of the Eurasian Union. South Ossetia and Abkhazia might consider joining such an organization in order to gain international recognition that would divide Georgia and redraw the Caucasian map. Moreover, Armenia is highly dependent on Russian energy resources and geographically isolated.

    Instead, Russia might be unwilling to disrupt Azerbaijan-Russian relations with the early membership of Armenia. And finally Moldova that is an important country for the transmission of Russian energy supplies has domestic problems with its Transnistria region. If Moldova resists Russian foreign policy or energy policy interests, the Kremlin might provoke Transnistria to join the Customs Union or the Eurasian Union afterwards.

    Still, the range of expansion is not clear, because so far there are no criteria or obligations for membership modified by the founders of the Customs Union. Most probably, President Putin will determine expansion according to the Russian national interests.

    After the end of the Cold War, Turkey has improved its geopolitical importance in terms of energy politics as a result of new pipelines either constructed for Turkish demand or passing through Turkish lands to reach world markets Tekin and Walterova Therefore, particularly after the construction of the Blue Stream natural gas pipeline, Turkish demand for natural gas increased, and as a result Turkish economy revealed as a consumer, transporter and producer in terms of hydrocarbon supplies.

    According to the EIA results, Turkey is one of the fastest growing energy economies of the world and it is expected by the Turkish Ministry of Energy and Natural Resources that energy demand of Turkey will double in 15 years Turkish Ministry of Foreign Affairs 1. The gas security situation in Central and Eastern European countries is probably better than it is generally thought to be, even if a few countries face serious challenges.

    But markets vary considerably across the 10 new member states, and there is a need for in-depth economic analysis in each of them. Such analysis would inform market-specific policies that could be implemented to improve the security of gas supply in each country. Six of these 10 states import more than 80 percent of their gas supply from Russia. But as figure 13 shows, on average, the level of energy dependence on Russian gas — the share of total primary energy covered by imports of Russian gas — is about 15 percent the figure for the 15 Western European members is about 5 percent.

    Russian gas supplies a particularly high share of total energy in only four countries — Lithuania, Latvia, Hungary, and Slovakia — each of which is reliant on Russian gas for around a third of its energy use. Specific attention should be paid to these four countries. Diversity of supply does not tell the whole story; the structure of gas consumption is another important determinant of gas security. Lithuania, Estonia, Bulgaria, and Latvia consume virtually no gas for home heating; in Hungary, the Czech Republic, Slovakia, and Poland, however, this sector represents between 25 percent and 35 percent of gas consumption, suggesting a greater need for storage capacity in these countries.

    Finally, it is worth noting that, in absolute terms, gas imports from Russia amount to relatively small amounts of energy even in the four highly exposed countries, especially Latvia and Lithuania. This suggests that it may be possible for these countries to implement policies of partial substitution away from natural gas, in favour of oil products and imported electricity, given the relatively small volumes involved.

    In the post-Georgian-war environment, with the union divided over what approach to take in its political engagement with Russia — and with talks on a new EU-Russia cooperation agreement due to start in a few days — it is of critical importance that Europe deals with its Russian gas problem. The Czech government has made clear that energy security will be one of the priorities of its presidency of the European Council, which runs for the first half of There are several steps the EU can take toward resolving this situation.

    First, the bloc can make gas market integration a high priority. A single competitive gas market would help de-politicize gas, with major foreign policy benefits for Europe. It would also improve the security of supply for all European gas consumers, wherever they are.