Russian gas giant Gazprom has signed a deal with Belarus to sell gas for $100 per 1000 cubic meters (up from $45). The deal was signed right before 2007 hit and also sees Gazprom get a 50% stake in Belarus’ gas pipeline Beltransgaz.

Already one of the largest producers of gas in the world, Gazprom is seeking more command by securing control of the Belarussian pipeline, which is strategically important in delivering gas to Europe.

While there is widespread criticism of Russia for using gas prices to dictate foreign policy, there is also a counter-critique. State owned or not (Russia has a controlling package in the company), Gazprom is in the business of making money. The high profile cases of price hikes come from the Soviet past, with Ukraine, Georgia and others benefiting from friendly prices.

Did Belarus truly deserve to pay $45 when Europe pays over $200? Shouldn’t the market decide the price?

That’s precisely the lesson Georgia learned when it had to cave in to a new price of $235.

Friendly prices are usually artificial. And require friendship, not constant finger-pointing.

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Georgian President Mikhail Saakashvili has said that Georgia will not buy Russian gas at $230 per 1,000 cubic metres. Georgian officials have said alternative partners will be sought, like Azerbaijan and Iran. But it remains unclear whether that will be a cheaper alternative to Gazprom (Russia’s gas company).

Georgia is upset that it is receiving an elevated price compared to some of its neighbors, who buy the gas at friendly Russian rates. In fact, Georgia is so desperate for cheaper Russian gas that it has begun scaring European leaders about potential politically-motivated Russian gas hikes. The Georgian President spoke about normalizing relations with Russia and avoiding irreparable damage between the two states. This is yet another signal by the Georgian side, that it needs Russia’s cooperation and that the economic sanctions against the country have indeed been effective. At the same time that Georgia seeks a rapprochement, it continues a provocative discourse regarding South Ossetia, claiming that the referendum held in the breakaway region is illegitimate. This Sunday, residents of South Ossetia voted in favor

Russia announced the gas hike following a Georgian-insinuated diplomatic scandal, which had four Russian officers arrested by Georgian officials.

Italy’s PM Prodi has suggested that Europe needs a central power authority for the continent.

The suggestion comes after the recent blackouts across Europe.

While Prodi may find it absurd that Europe has no central power authority, it also makes sense in a free market world. No one would want one country or one entity to control an asset as essential as energy.

This is precisely the problem that Europe currently has with Russia, which controls a major part of gas exports into Russia.

Gas as Foreign Policy

November 5, 2006

Armenia has confirmed that Gazprom will freeze its prices for the country until January 1, 2009 in return for Armenia transferring control of an electricity plant.

The price freeze doesn’t only have to do with the transfer of the electricity plant, but also with the friendly relations between Armenia and Russia. Unlike Georgia, Armenia does not take unnecessary stabs at its neighbor. Georgia’s President Saakashvili is very well known for his anti-Russian stance.

That’s why this year Georgia will be paying double price for its gas. Unless Saakashvili changes his rhetoric.

That’s gas as foreign policy.

Gazprom, Russia’s state-controlled energy giant has announced plans to double the price of gas for neighboring Georgia.

Russia has been having a tough time with its neighbor of late, following the Georgian arrest of four alleged Russian spies. Without a doubt, the price hike is meant to chastise the former Soviet republic for its anti-Russian attitudes. This tactic is not new — the same strategy was used in the Ukraine last winter. Since, the Ukraine, has been more aligned with Russia; this summer, the Ukranian government settled on pro-Russian Yanukovich, as its Prime Minister.

In turn, Yanukovich has negotiated a friendly gas price with Russia.

Energy as Foreign Policy

Because Russia has used its energy resources as a foreign policy tool in the past — and no one has been able to stop it, due to its great market share — European countries tried to reverse this imbalance earlier this fall. European ministers wanted European companies to have access to the Russian market and have these companies export energy back into Europe. For obvious reasons, Russia didn’t commit.

Ukraine In With Russia

October 25, 2006

Ukraine’s new PM, Victor Yanukovich, who was heavily favored by Russia in Ukraine’s presidential elections (and ultimately lost to Victor Yuschenko), has reportedly secured a deal for Russian gas exports to Ukraine. The deal was negotiated with Russian PM Mikhail Fradkov.

This year, Ukraine will pay $130 per 1000 cubic metres, a price that is lower than what most former Soviet republics will be paying Russia, Kommersant reports.

The progressive daily mentions potential political trade-offs which were denied by both parties. But it seems that no trade-off is necessary today: with Yanukovich now PM, relations with Russia are surely to improve. The PM is also notorious for his allignment with Russia, so cooperation should not surprise anyone.