Energy and Russia’s New Cold War

By Gustavo Coronel | December 28, 2008
Prime Minister Vladimir Putin President Dmitry Medvedev

In two recent articles we have described how Russian foreign policy is being built around its energy resources. Moscow has been able to obtain substantial geopolitical leverage over neighbors and Europe due to its considerable oil and gas export capacity as well as its control over pipeline infrastructure, at a moment in which hydrocarbons have become a very valuable and desired commodity around the globe.

The fact that hydrocarbon prices have recently declined represents only a temporary setback for oil and gas producers. This decline is due to the current economic crisis in the industrialized countries but will be again reversed, as the crisis subsides. Kremlin political leadership understands this and seems to have prepared for the economic downturn. In addition to a stabilization fund of some $180 billion, Russia has another $450 billion in its Treasury and Central Bank, one of the three largest national savings accounts in the world. It has enjoyed for several years a healthy balance of payments with a 2-to-1 ratio of exports versus imports. Although well positioned to face the immediate crisis, Russia is primarily looking at the long term.

President Dmitry Medvedev advanced in August 2008 the main guidelines of Russia’s foreign policy: “(A) the recognition of international law; (B) the promotion of a politically multipolar world; (C) A desire for peace; (D) The protection of the lives and interests of our citizens, no matter where they might be, and (E) the existence of privileged interests in our ‘near abroad’, our neighbors.”

In Munich, also during 2008, Vladimir Putin stated, “The U.S. has clearly overstepped its national borders….We consider a unipolar world unacceptable… Russia has always been a superpower and is now returning to this status.” These declarations by the two highest-level political leaders easily explain Russia’s current efforts to assert its hegemony in the Caucasus and its political leverage over Europe. It also explains the hyperactive Russian courting of African and Latin American countries, as well as Russian efforts to claim rights over the potential mineral resources that might exist in the Arctic region.

Russia’s recent claims of mineral resources in the Arctic may be due to a reliance on the body of international law created under the 1994 UN Law of the Sea Treaty. Although Russia’s President Medvedev has expressed the country’s commitment to abide by international law and to seek peaceful relations with other countries, Russian actions in the Artic do not conform to his words. In August 2007 Russian explorer Artur Chillingarov planted a Russian flag directly beneath the North Pole, claiming property rights over the mineral resources of the region. There are frequent patrols by Russian nuclear icebreakers and a strong Russian military presence in the area. President Medvedev said in September 2008, “We must finalize a federal law related to the southern border of Russia’s Arctic zone…to secure our interests.” Although the legal basis for such actions is questionable other countries with interests in the region, especially the U.S., Canada and Denmark have been slow in protesting those claims.

The United Nations Law of the Sea Treaty, of which the U.S. is not a party, would transfer oil, gas and mineral resources to the UN and has already created the International Tribunal for the Law of the Sea, a global judicial bureaucracy. Russia, having become a signatory in 1997, is one of 149 member countries and clearly seeks to secure its perceived interests in the Arctic region. Russia also has received drilling concessions from Cuba within miles of the Florida Gulf Coast through Havana’s ‘Exclusive Economic Zone’ due to a treaty negotiated by the State Department during the administration of President Jimmy Carter, although the treaty has not been approved by the U.S. Senate.

The presence of Russia in all recent Arab League and African Union meetings has become quite apparent. Visits to African countries by members of the Russian parliament have been constant. A report by the Russian Embassy in Ghana for 2005 lists Russian involvement in mineral and energy projects in Gabon, Nigeria, Guinea, Congo, Angola and South Africa, as well as debt relief efforts.

Overall, the Russian presence in Latin America has been dramatically increased due to the request of Venezuelan President Hugo Chavez for Russian aircraft and naval ships in Venezuelan territory to conduct joint military maneuvers in November 2008. Chavez’s chronic desire to irritate the United States has combined with Putin’s determination to retaliate against the U.S. sending ships to the Baltic Sea during the Russian-Georgian crisis in mid-2008. President Medvedev stated, “It is time to restore the powerful relations we once had with Cuba and Venezuela” and he described the Russian presence in Venezuela as “counterweight to U.S. influence” in other parts of the world.

The Russian-Venezuelan connection goes much deeper than joint military exercises. Besides the creation of a $4 billion joint bank, there were agreements for a joint gold mining venture, Russian investments in the bauxite, alumina and aluminum sectors and even an agreement to develop “peaceful” nuclear energy in Venezuela. Russia also extended Venezuela a one billion dollar line of credit to be used in the acquisition of weapons. The most important interaction with Venezuela took place in the oil sector, where Russian companies will be receiving special treatment to develop heavy oil reservoirs in the Orinoco River area and are already starting to explore for natural gas offshore. President Chavez told Medvedev that Venezuela was considering changing from dollars to rubles for its oil sales.

Medvedev has recently visited Peru, Brazil and Cuba, in an effort to re-establish ties that had been almost nonexistent since the 1960’s and, especially, to try to establish a presence in the oil and gas sectors of Brazil and Cuba, in line with its strategy to become a global energy superpower.

The battleground for this new chapter of the Cold War will be the global energy sector.

Gustavo Coronel, who served on the board of directors of Petróleos de Venezuela (PdVSA), has had a long and distinguished career in the international petroleum industry, including in the USA, Europe, Venezuela and Indonesia. He is an author, public policy expert and contributor to

SFPPR News & Analysis.