From Russia to Kazakhstan: the New Energy Nationalism - Case Study Example

From Russia to Kazakhstan: the New Energy Nationalism takes shape The New Energy Nationalism is taking shape in the oil rich former s to secure its political and economic stability. While Russia has adopted various measures to inculcate its locational and military supremacy over neighbouring regions by using oil as a political factor, Kazakhstan has used energy nationalism to protect its economy and human rights and secure its oil fields for the development of the nation. The world is thirsty for imported gas and oil from supplies in Central Asia where energy resources are nationalised. Government controlled or owned petroleum companies control seventy seven percent of world’s total oil reserves. Though the emergence of petrostates has assisted in the diversification of global energy sources there are certain drawbacks in the form of domestic dissidents. Further several petrostates are combining energy and politics to form a new energy nationalism to rewrite the norms of world’s energy markets and limiting the operation of international oil companies. The confrontational energy policy of Russia alarms its neighbours and political analysers view that economically booming China is searching the world to avail gas and oil resources without considering issues like human rights violation or supplier corruption. Analysts also view that the growing competition of depleting oil resources can pave way for more risks of international conflict (Behr, P. 2010). Europe is facing various complex challenges out of which the requirement for affordable and sustainable supply of energy in the long term is an important one. It is a common interest for all European Union members to import uninterrupted energy supply from nearest exporters. The lack of an integrated strategy in Europe increases import dependency for energy that paves way for an economic and political vulnerability in the future. Energy nationalism is a new trend emerging from some of the leading producers of gas and oil. The dispute between Ukraine and Russia over the disagreement of gas price evolved into a conflict based on political factors with the ambition of the Russian government to list energy supplies under privileged interests in the post Soviet region. The effort of Russia, Qatar and Iran is an attempt to formulate a cartel type of arrangement for gas producing countries that will give rise to privileged interests. The desire of authoritarian nations to utilize energy resources for monopolistic or political effect is set to increase in the wake of increasing global demand for oil and gas when supply becomes more restricted. The revised National Security Strategy of Russia clearly indicates that the leadership considers the energy assets as aspects to leverage foreign policy and to envision a future based on resource competition that can be resolved through military process. The hostile response of Moscow towards the initiative of European Union to modernize the gas supply network of Ukraine and Eastern Partnership project indicates a zero-sum mentality towards a collective European energy affair. Russia’s President Dmitry Medvedev has also taken a hard stand towards the Energy Charter Treaty that safeguards the rights of global energy investors to replace the treaty with a non binding, looser conceptual approach. It is clearly evident from this stance that Russia is determined to establish energy relations on the basis of logic of supply dominance and power politics rather than by the norms laid by ECT such as investment and transit protection and other legal rules (Laar, M. 2009). Russian economic growth is driven mainly by energy export with the increase in the price of gas and oil. The economic growth based on energy exports has steered the Russian economy to depend on natural gas and oil exports and face the vulnerability caused by fluctuations in the global oil prices. The status of being a major supplier of energy enables Russia to set prices by withholding supply to affect customer policies of other nations (Gelb, B.A. 2006 CRS-3). The dependence of nations on Russia for energy reveals the same. In 2003, energy from Russia accounted for 97% gas consumption of Bulgaria, 100% consumption of Slovakia, 79% consumption of Czech Republic and 68 % consumption of Hungary. Observers view that Russia is using Gazprom, the largest supplier of energy as the main tool for foreign policy. In an attempt to control the energy supplies, the Russian government has taken over Yukos, a major energy company. The main oil production subsidiary of Yukos was bought by a state oil company called Rosneft. Similarly Russian firms in Central Europe closely associated to the Russian government have used leverage to purchase energy companies to have total control over energy supply. The purchase of a Lithuanian refinery is one such instance when the Yukos slowed supply of oil and then took major control before buying it. The monopoly of Russia’s Transneft pipeline was reinstated by cutting off oil shipments to Ventspils, a port in Latvia by diverting the oil shipments to (Gelb, B.A. 2006 CRS – 5) Primorsk, a Russian port. The move of Transneft was viewed as a tactic to acquire a controlling share of the enterprise that operates the Ventspils terminal. The Energy nationalism of Russia is also clear from its attempt to maximize control of energy supplies by planning and routing export pipelines. For instance, Russia has made a consensus with Germany to supply gas with the support of United Kingdom by building a direct natural gas pipeline through the Baltic Sea by bypassing Poland. Observers argue that Gazprom, the major oil supplier of Russia has overreached its operations in being aggressive. A major part of Russia’s gas export to West European nations pass through Ukraine for which they withdraw a particular amount of gas for its consumption at nominal prices as a payment for permitting the gas pipelines. Gazprom wanted the price paid by Ukraine to be increased to market level. When negotiations on the issue became a failure, Gazprom decreased the gas pressure for those that flowed through Ukraine and blamed it for theft. Ukraine denied the allegations and bought gas from other suppliers. With this event, West Europe received little gas and a joint complaint from West European nations questioning the reputation of Russia as reliable energy supplier forced Gazprom to restore normal supply of gas immediately (Gelb, B.A. 2006 CRS-6). Russia has adopted a protectionism approach for its economy which is clearly visible in the new increased rates of import duty. The objective behind increased import rates is to boost the growth of domestic industries that has been suffering from financial problems and declining demand. With regard to foreign trade, domestic enterprises are given more advantage compared to foreign companies to give a competitive position to domestic companies (Simola, H. 2009). Energy nationalism of Russia has reached a stage where it consolidating issues at home and is set to re-establish cordial ties with former Soviet Union nations. Bilateral and multilateral ties are revamped to establish its ambitions for imperial designs and expansion; a step towards national security and to secure its geographically vulnerable landscape that does not have natural features of protection. The attempt to strengthen multilateral relations is also to bring back the old Soviet nations from its better relations with the United States. Russia has prioritized its relations with Ukraine, Belarus, Kazakhstan and Georgia that are crucial for Moscow to resurge as an Eurasian power. These countries are prioritized because they provide easy access to the Caspian and Black seas and act as a buffer between Asia and Russia, Europe and the Islamic world. Ukraine is the most important neighbour for Russia for its defence and survival. It is closely integrated with Russia for agricultural and industrial reasons and has the largest international Russian population. Eight percent of natural gas sent from Russia to Europe utilizes Ukraine as the transit point. Ukraine is also the connection point for several infrastructures that include road, pipeline, rail and power that move between the West and Russia. The Energy nationalism of Russia is clearly an attempt to secure itself economically and politically. Therefore, the association of Ukraine with West Europe is considered as a threat and has taken deliberate steps to keep Ukraine in its hold by using the various leverages to influence its political decisions (Russias Expanding Influence 2010). There is a constant competition among central Asian nations to make the most of the energy economy through production, refining and by allowing pipeline in the energy rich regions. The energy resources are important for these nations to integrate with the world economy and for economic development. The energy economy is set to determine the destiny of nations and Russia is determined to control the energy resources and control the destiny of Central Asian states and influence the decision of its rivals. Energy nationalism has created an ambition in Moscow to reintegrate the nations of Central Asia into a political, economic and military union with Russia. Russia is attempting to dominate the economies of neighbouring nations towards its direction by blocking the activity of foreign enterprises in Central Asia, hindering energy production, implementing currency policies that result in inflation and obstruct their exports. Russia is also forcing Central Asian nations to offer dual citizenship to Russians living in these nations. Energy nationalism has taken a new turn in Russian economic objectives to impose a military political hegemony in the region and develop a colonial dependence on Moscow (Blank, S.1995 p.v). Russia desires to earn the lucrative benefits out of crucial players in the global energy business. It redirects energy trade shipments to Russia and Russian transport network and restricts the exports of Central Asian countries. Russia also has an official interest in OPEC and increase its oil cooperation with Iran. Russia had desire to ease its relation with Iraq and invited Arab investment in Russian oil to avoid a Western takeover. Russian also urged Arab states to purchase its weapons (Blank, S.1995 p.3). Though Russia has several ambitions related to its energy sources, the energy industry is facing a collapse with decreasing production, massive state arrears and underinvestment. The worst for the energy industry is the competition emerging from Western supported companies in its non-paying customer regions. The coercion of Russia towards Central Asia is receiving only a kind reply even though there is a considerable distance from crucial world trade routes because energy trade in foreign nations without the support of Russia requires massive investment in infrastructure and transportation. The sums required for investment is beyond their affordability and all prevailing transportation modes pass through Russia because Soviet planners envisaged a regional dependence. Only revenue from oil is set to finance the investment required to diversify and modernise local economies. Therefore Central Asia has to depend on Russian refineries and transport for oil. It is then implied that the nation that controls pipeline routes and trades also decides the destiny of the region. The energy policy of Russia specifically endangers Azerbaidzhan and Central Asia. Russia also blackmails Turkmenistan and Kazakhstan over transhipment and energy exploration. Russia prevents Western investors under the British Petroleum initiative from operating in these nations and informed London that explorations can be conducted in the Caspian Sea only with the approval of Russia (Blank, S.1995 p.4). After, independence in 1991, Kazakhstan has overcome its decade long economic weakness by negotiation a number of agreements with global energy consortia constituting world class western corporations that are principal shareholder by revising the agreement through various means. The revision in agreement is is aimed to reclaim its national influence in crucial economic sectors that started when global prices for hydrocarbon energy sources started to recover from lower prices prevalent in the 1990. The influence of Kazakhstan over the price of hydrocarbon energy sources has since been accelerated substantially and it has been explicit in recent times. Kazakhstan also continues to strategically implement design to reclaim its influence over decision that deals with the pace and scale of industrial expansion in important natural resource development projects. Similar to Russia, Kazakhstan has invoked a requirement to set up international standards in the accounting process of the foreign firm TCO (TengizChevrOil) which is developing the vast Tengiz oil deposit to impose greater tax rates and prevent the firm from availing specific legal methods that would decrease the tax burden and not to let the company from delaying investments to protect against such measures. KazMunaiGaz, the national company of Kazakhstan also played a crucial role to block the plans of TCO. TCO was put under juridical pressure for violation of environmental laws and then the original investment was agreed upon (Cutler, R.M. 2010). Kazakhstani government has registered a great change in its negotiation power in the 21st century and has signed a large number of PSA’s (production sharing agreements). These agreements are designed to ensure the profit of companies in a highly unstable industrial atmosphere when low prices led the development process to be less attractive. The increase in price for oil and the image of the Kazakhstani government being provd as a durable one, the PSA’s have become outdated and the government has adopted new measures to preserve the economy. Some of methods are increase in revenue share from subsoil sector by changing tax codes, levy of new royalties from extraction companies, raising export duties, increasing penalties for transfer pricing and restricting the use of tax stabilization agreements. The government has substantially broadened the role of state owned oil company by reserving a right of refusal for the sale of assets. The government has also enhanced regulation of the industry specifically related to the environment, transfer pricing and the hiring of Kazakhstani workers. The government of Kazakhstan has been taking assertive steps to strengthen the state by reconsidering earlier contracts to strengthen the value of oil. It is also to correct the popular perception that the agreements of the 1990’s were unfair and that they offered too much benefit to international oil corporations (Kennedy, R. & Nurmakov, A 2010 p.3). Kazakhstan has renegotiated its previous oil contracts with western oil companies to secure its oil wealth for the economic good of the nation. This acts as a check on the freedom given to oil companies to operate in its oil fields. State ownership of oil companies with control is designed to protect the economy of the nation. Further it increases the transparency of the foreign oil companies, contributes to domestic business development and involves local communities for the evaluation and determination of socioeconomic development projects (Luong , P.J. 2010). The new energy nationalism in former soviet nations such as Kazakhstan and Russia may appear similar. But on in-depth analysis it can be found that the energy nationalism has a different character and the emergence of such a trend is driven by varying circumstances in each nation. Recently both these countries have intervened into its respective resource sectors. The reason for Russia’s intervention into gas and oil pipeline networks is promulgated by political goals, while the emergence of Kazakhstan in energy resource nationalism is basically promoted by economic goals. To be specific, Russia utilizes its energy sector to obtain domestic political stability and geopolitical objectives while Kazakhstan aims to extensively disperse economic development (Domjan, P. & Stone, M 2010). Reference Behr, P. 2010 CQ Global Researcher Energy Nationalism v.1-7 Available: http://www.cqpress.com/product/CQ-Global-Researcher-Energy-Nationalism.html Retrieved on June 12, 2010 Blank, S.1995 Energy, economics and security in central asia: russia and its rivals Cutler, R.M. 2010 Kazakhstan continues resource nationalism in Karachaganak http://www.cacianalyst.org/?q=node/5295 Retrieved on June 12, 2010 Domjan, P. & Stone, M 2010 A Comparative Study of Resource Nationalism in Russia and Kazakhstan 2004-2008 Europe-Asia Studies, Vol.62, Iss.1, p: 35 - 62 Gelb, B.A. 2006 Russian Oil and Gas Challenges CRS Report for Congress Kennedy, R. & Nurmakov, A 2010 Resource Nationalism Trends in Kazakhstan, 2004–2009 Laar, M. 2009 Time for a New Energy Policy Wall Street Journal Available: http://online.wsj.com/article/SB124691216285002017.html Retrieved on June 12, 2010 Luong , P.J. 2010 Beyond “Resource Nationalism” PONARS Eurasia Policy Memo No. 98 Available: http://www.gwu.edu/~ieresgwu/assets/docs/pepm_098.pdf Retrieved on June 12, 2010 Russias Expanding Influence (Part 1): The Necessities March 9, 2010 Simola, H. 2009 Protectionist pressures growing also in Russia Read More