Gas wars - Russia Struggles to Halt US Encirclement

Image - Map 1 - Gas pipelines

In recent months the price of gas has risen dramatically throughout most European countries. In the UK the wholesale price of gas has, according to the main supplier British Gas, risen by 75% in the last year. In February British Gas announced that prices of domestic gas and electricity would rise by 22% from March 2006. Once these increases are implemented prices of gas and electricity will have risen by 70% since 2003. Other suppliers are planning similar increases. These price rises follow in the wake of those for oil which have doubled since the US invaded Iraq in March 2003.

Rises in the price of energy worldwide are the result of the relative decline of energy resources in relation to demand and the vicious struggle to control these resources. The manoeuvring about access to oil and gas supplies and the disputes about pipelines and pipeline routes are the preliminary skirmishes in this struggle, while the oil wars in Iraq, Afghanistan and Chechnya are its final expression. The effects of these struggles literally reverberate around the world. While oil and gas remain the basis of capitalist economies worldwide everyone is affected and has to pay higher prices for energy. Today control of oil and gas resources is a vital means for the stronger capitalist powers to offset the economic crisis, since it allows those who possess these resources to siphon off surplus value produced by the whole of the world’s working class. For the US, control of energy resources has the additional advantage of shoring up the role of the dollar. While the dollar remains the currency of world commodity trade, and in particular of trade in oil and gas, the US is able to create new supplies of dollars to match the increase in volume of traded commodities and the increases in their prices. It is able to do this as the dollar is backed by nothing. This, in effect, provides the US with a massive stream of income to offset its budget and trade deficits. The struggle for control of energy resources has today become the primary focus of imperialist conflict and is a struggle which contains the seeds of new imperialist wars. The struggle is also being used to build new imperialist blocs and the control of these resources is the cement which can hold such blocs together.

Russian Imperialism Flexes its Muscles

Recent disputes over gas supplies to both the Ukraine and Georgia indicate Russian attempts to reassert itself as a regional power by means of its control of energy supplies. The dispute with Ukraine has had a direct effect on Europe since approximately a third of Europe’s gas supplies pass through pipelines running through Ukraine. See Map 1.

Overall at least 50% of Europe’s gas is supplied by Russia and the recent disputes have seen supplies to Europe reduced and supplies to Italy, Hungary and Finland cut. Britain is no longer self sufficient in gas and, although only 3% of Britain’s gas actually comes from Russia, the need to import gas from Europe means it is also affected by these disputes.

The Europeans have demanded that Russia end its gas monopolies and open up gas production and export to European companies, and in particular that it allow its pipelines to be used by other operators. These demands, enshrined in the so-called “Energy Charter Agreement” which Russia is being urged to ratify, are supposed to prevent disputes such as that with Ukraine and guarantee transit of oil and gas across state borders. The Europeans are, in fact, demanding that the Russians allow them to get their snouts in the trough so they can get a share of the spoils. The fact is that in the future the EU will be ever more dependent on Russian gas supplies and consequently Russia is unlikely to give up such leverage over the EU. Whether it likes it or not, the EU’s dependency on Russian energy is tying it more closely to Russia.

The relationship of the EU to Russia is therefore quite different to that of the US. With the collapse of the Soviet Union in 1991 the US moved to replace Russian dominance in the countries of the ex-USSR. The US is particularly interested in securing the oil and gas resources of the Caspian basin and cutting Russia off from these resources. A gradual process of encirclement of Russia with US clients has been underway since 1991. Both Ukraine and Georgia are vital transit routes for oil and gas and pulling them into the US orbit is a key ambition of US imperialism. Of course, it has its eyes on all the oil resources of this region and that includs Kazakhstan. In both Ukraine and Georgia the US has financed opposition movements precipitating apparently popular revolutions, the so-called “orange” and “velvet” revolutions, which brought US placemen to power. Both countries have now oriented themselves towards Washington and expressed a desire to join NATO. US military forces have been in Georgia since 2002, and US president Bush himself visited the country in 2005 and hailed it as a “beacon of liberty.” No matter what the US may claim, both Ukraine are run by venal politicians wallowing in corruption. In Ukraine the government formed after the “orange revolution” was dismissed in September 05 after exposure of a massive corruption scandal and in Georgia the month after Bush had lauded this “beacon of liberty” the finance minister and other officials were dismissed for tanking bribes. Both countries have, in fact, suffered catastrophic economic decline since the collapse of the Soviet Union. In Ukraine there has been a 40% drop in per capita income, while Georgia, once one of the most prosperous regions of the Soviet Union, is exhausted by separatist wars and has 20% unemployment. Both countries are literally open to offers from the highest bidder. Georgia, for example has become the biggest recipient of US aid after Israel since its flirtation with Washington started. Ukraine has already received large amounts of US aid. Its orange revolution was financed by Washington and US grants are still flowing. The prospect of receiving more money via NATO or EU grants, if it joins the EU, are simply too tempting. For the US controlling these countries means securing the pipelines which run through their territories. Control here is another step towards the oil and gas of Kazakhstan and the isolation of Russia.

Russia is, of course, desperate to thwart the US encirclement, though as a weaker imperialism it has limited options. However, Russia remains the main energy supplier for Belarus, Ukraine, Moldova and Georgia as well as the Baltic republics. Russia supplies these countries with gas at well below market prices.

State Price in $ per 1000 m3
Belarus 45
Ukraine 50 (Price increased to $ 95 after January dispute)
Moldova 110
Georgia 110
Free market price 230
The prices of gas measured in $ per 1000 m3

In addition countries such as Ukraine, Belarus and Poland are paid transit fees for export of gas through pipelines crossing their territory. In the case of Ukraine this is 13% of the final price of the gas.

Russia has tried to institute a kind of economic union with Belarus, Ukraine, Moldova and Kazakhstan, the so-called “United Economic Space” which is essentially a free trade zone. Ukraine had actually ratified the treaty to establish this trade zone in April 2004. However, Yushchenko, who was then in opposition pledged himself to kill the union if he got to power. After the “orange revolution”, Ukrainian participation in the union was ended.

In January Russia tried to reassert its power over both Ukraine and Georgia by cutting their gas supplies. In the case of Ukraine Russia, through the energy company Gazprom, demanded market prices should be paid for gas. This amounted to a 500% increase in price, and when the Ukrainian government refused Gazprom cut off the supply. In the case of Georgia supplies of both gas and electricity were cut off during a period of freezing weather by a series of mysterious explosions. Georgia blamed the Russians themselves for the explosions while the Russians blamed the Chechen rebels. The cutting of energy supplies created turmoil in both countries. A new supply deal for Ukraine was agreed fairly rapidly. The price was to be doubled to $95 per

1000 m3 but the gas was to be sold by a mysterious Swiss company and the deal was only to last for 6 months. This deal provoked outcry amongst the Ukrainian bourgeoisie, and a parliamentary no confidence vote in the government and a constitutional crisis as the president refused to sack the government. All this had been timed to discredit the Yeshchenko presidency and the government ahead of the March general election. The cutting of energy to Georgia created chaos. In freezing temperatures people had to resort to wood fires. To try and make up for the shortage of Russian gas the government imported gas from Iran. It soon found, however, that it was forced to pay market prices for the gas, that is $230 per 1000 m3, and to pay cash in advance! As soon as the Russians had repaired the pipeline Georgia rapidly reverted to the Russian supply.

Both disputes illustrate the economic power Russia still exercises over these countries. However, they also illustrate a reluctance to use this power to its full effect indicating that Russia is still hoping for some regional economic bloc which it can dominate. An indication of this is the $3.6m loan which Russia offered to Ukraine to help pay for the increased gas prices. In the event the conflict with the Ukraine had 2 unwelcome consequences for Russia. The first was that the status of Crimea was again raised and the second was that Russia’s European customers were outraged to find their gas supplies reduced by the dispute.

Struggle for the Crimea

Russia’s main naval base for its Black Sea fleet is in the Crimea at Sevastopol. In 1954 this region, which had for several centuries been Russian territory, was transferred to “the Soviet Republic of Ukraine” by Krushchev. This base is now in Ukrainian territory and Russia is leasing it under a 20year lease agreement which is only due to expire in 2017. During the dispute over gas prices, Ukraine politicians suggested raising the rent by a factor of 4 or kicking the Russians out. There was also talk of giving the base to the US fleet. This was a further escalation of the conflict since the loss of this base to the US would be a significant advance in the US encirclement of Russia. Russia’s defence minister Ivanov responded saying that any revision of the letting treaty would give Russia carte blanche to review Ukraine’s borders (1). A challenge to Russia on this scale would become a military one and Ukraine is not prepared to undertake this without the support of the US. Since the US is not prepared to support such a challenge at this stage Ukraine backed off. However, these events indicate the seriousness of the dispute and the direction it could lead.

Friendship with the EU, Opposition to the US

Russia does not wish to alienate the EU; rather it aims to tie it more tightly to Russian energy supplies and so use it as an ally against the US. Hence the fact that the dispute with Ukraine cut supplies to Europe was an embarrassment to Russia. In fact Russia has been making long term plans to supply Germany and north western Europe with gas without using the pipelines through Ukraine and Poland. The study phase for a new pipeline called the North European Gas Pipeline (NEGP) was financed by Rhurgas and EON of Germany in 2003. This pipeline will run under the Baltic Sea from Vyborg in Russia to Greifswald in north east Germany (see Map 2 below).

The NEGP, which will have feeder pipelines to Sweden, Finland and Kaliningrad, will completely bypass Ukraine and Poland and so allow Russia to supply gas directly to Germany. It is expected to supply half of Germany’s needs by 2013. By bypassing Ukraine and Poland, Russia will avoid the large transit fees these countries now charge and it is estimated gas sales from the pipeline will earn $4bn annually. The pipeline project was officially launched by Schroeder and Putin at a ceremony in Berlin in September 2005, and construction actually started in December. Part of the construction costs of $5bn is being financed by the German energy companies EON and BASF and part by Russian gas company Gazprom. Construction is expected to be complete by 2010.

The NEGP has been greeted with suspicion by the US, which argues it is unnecessary and technically dangerous, and outrage by the US’s allies Ukraine, Poland and the Baltic states. The Polish president has described the pipeline deal as the gas version of the Molotov/Ribbentrop pact! (2) Although the comparison is somewhat hysterical it does point to a growing political cooperation between Russia and Germany and hence the EU. This cooperation springs from a common opposition to the US which was first manifested in joint attempts to frustrate the US in its invasion of Iraq. Russia’s moves against Ukraine and Georgia need to be understood within this general context. They come at a time when Russia feels able to exploit US difficulties in its oil wars in Iraq and Afghanistan and follow other manifestations of opposition to the US advances in central Europe and central Asia. (3)

Map 2 - Baltic Sea gas pipeline
Map 2 - Baltic Sea gas pipeline

Imperialist Rivalry and New Imperialist Blocs

The moves by Russia, the EU and the US described above are dictated by the demands of capitalism. States or groups of states must protect their independent capitals by all means at their disposal or lose them. This means more overt opposition to the US domination is not only likely but inevitable. For this to have any effect coherent blocs of nations opposing the US must necessarily arise. It is this which we are witnessing in the tentative steps Russia is making towards the EU as the US closes in on its former satellites. Russia wishes to ram home to the Europeans the realisation that the US attempts to dominate the oil resources of central Asia are a threat to Europe no less than Russia.

The present period is one of instability and the reformation of alliances and blocs. The desperate demand for profitability is driving imperialist rivalry forward. It is a rivalry which can only lead to a new imperialist war if the operation of the capitalist system continues. Imperialism arises from the capitalist demand for profit and the problems of capital accumulation. These problems are becoming ever more acute. The present disputes over energy in central Europe and the Caspian Basin, no less than the wars in the Middle East, are the direct outcome of the capitalist system. They can only be ended by the replacement of capitalism by a higher social organisation in which production is for need and the means of production become social property and no longer functions a capital. Human society faces the choice of communism (4) or barbarism.

The Folly of Capitalism

The utter stupidity of capitalism is demonstrated by the proposed Northern European Gas Pipeline. Simply because of conflicting capitalist interests and the search for higher profits it is necessary to build a pipeline for 1200 km in the middle of the sea to get gas to where people need it. It is necessary to do this, at vast expenditure of resources and human labour, rather than use existing pipelines running on land! For anyone who had not had the logic of profit drummed into them from the cradle onwards this would appear as raving madness. For capitalism it is an expression of rationality, of common sense, since the new pipeline will bring in greater profits. Under communism there would be production for need and global cooperation to satisfy needs. Development would be decided on the basis of global needs and an agreed global plan. There would be no national states with separate interests and gas would be transported to where it was needed by common agreement.

Capitalist relations of production are today, as Marx predicted, chaining down and stifling the enormous forces of production which this society has generated. Under capitalism we see vast wastage of human resources and labour even where projects, such as the NEGP, have an obvious social use. This is because the pipeline’s purpose is to function as capital, namely to exploit labour power, and the satisfaction of needs a secondary issue. The pipeline will therefore have to attract surplus value to those who own the capital and it will become part of the mass of capital exploiting the working class worldwide. The logic of capitalism is, however, driving states towards imperialism and war. The ultimate expressions of this logic are the world wars of the 19th century but the same logic is at work in the wars in Iraq and Afghanistan.


(1) See Independent 9th January 2006

(2) The Molotov/Ribbentrop pact was a non aggression pact signed in 1939 Germany was to have western Poland and Lithuania as its sphere of influence while Russia was to have eastern Poland, Estonia, Latvia and Finland. In the event this meant the division of Poland and annexation of the Baltic states.

(3) In September 05 Russia and China held joint military exercises and issued a joint call for the US to abandon its bases in central Asia and stop stirring up trouble there.

(4) As we have explained many times in RP communism has nothing whatsoever to do with the system which existed in Russia before 1991. This was a system of state capitalism which experienced all the problems of capitalism and led to Russian imperialism.

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