#74 Chavez’ vs. Putin’s Freedom of Speech Crackdowns

The events of the recent weeks surrounding the scandalous closure (and the reopening of its unfortunately less far-reaching and accessible cable/satellite version) of an opposition-leaning Venezuelan TV channel, RCTV have revealed that, in addition to Mr. Chavez showing alliance propensity gyrating around controversial nuclear ambitions, weapons, oil and even gas arrangements with the aspirant “outsiders” such as China, Iran and Russia, lately he also proved to employ, even though in a somewhat maladroit approach, some of those countries’ leaders’ “tried-and-proved” censorship maneuvers.

In the midst of the RCTV crisis, hardly anybody seemed to recall a similar - though more perversely masked as compared to Chavez’ frankness - scandal that revolved in 2000-2001 around a privately held Russian TV channel, NTV.

The evolvement of the Russian, much more craftily performed analogue, started in June 2000 with the controversially executed arrest ordered by the prosecutor-general of Vladimir Gusinsky - charged with embezzlement - head of the Media-Most group that owned NTV (Russia’s first independent TV station), a newspaper and an openly opposition-leaning radio “Echo Moskvy,” which even President Bill Clinton favored during his visit to Moscow earlier that month, ignoring any Russian state-run radio or television during his visit. Media-Most publications, especially through its most widely accessible and highly popular TV channel NTV, had at the time openly refused to be loyal to the Kremlin. NTV, through its daily news, political programs, and a satirical puppet show, has broadly criticized the policies of the Kremlin and president Vladimir Putin, brought to light alleged atrocities during the Chechen war and other social issues in Russian life often ignored by state-owned channels.

A month later, in an informal deal, the charges against Gusinsky were dropped after signing an agreement with the minister of media, under which Gusinsky was to sell Media-Most to a state-dominated Gazprom, which already possessed a 30% share in NTV since 1996, for a price forced by Gazprom, in return for a guarantee that Gusinsky would not be prosecuted. After Media-Most itself refused to comply with the agreement, Gazprom publicly announced its acquisition of a controlling stake in NTV and the voting rights of a minority stake held by Media Most were frozen by a court decision.

Almost a year later, in April 2001 Gazprom took over NTV's old board of directors by force in a boardroom coup and replaced its director. Fearing that the Gazprom takeover would lead to government censorship, demonstrations of several thousand people in Moscow and St. Petersburg showed their support for NTV staff. Although the protests were weak when compared to the recent Caracas’ demonstration, they were incredibly brave by the practically non-existent Russian protest standards. Nevertheless, the majority of the prominent journalists have since left the channel, while the rest were been fired soon afterwards. Furthermore, rather conspicuously, two other independent channels were shut down in the next several years.

These events, which were critically commented on by former German Chancellor Gerhard Schroeder, the Council of Europe, and by former White House spokesman Joe Lockhart, for some reason have been swiftly forgiven of Putin.

How damaging are such freedom of speech crackdowns for the future of these countries?

The answer most likely lies in the countries’ past. A principle difference between the two is that since 1958 Venezuela has been evolving under an incessant period of democratic government; whilst Russia, except for a short period of Yeltsin’s laissez-faire unprecedented freedom (which was most likely due not to his proclaimed democratic aspirations, but to his inability to adequately manage the Russian chaos of the 1990’s), have been living under constant, multi-dimensional fear and rigid totalitarianism for at least the last 80 years. As opposed to the turmoil of the past decade, Putin brought in “order” – an archaically authoritarian “order” the nostalgic Russians are willing to give up many freedoms for; freedoms they probably never even owned in the period of modern history.

Thus, while Chavez acted in a military-background induced, atrociously blunt, and prospectively self-detrimental manner, having openly and ruthlessly commented on and pronounced the (upcoming) closure, Putin, owing to his KGB - the single most efficient Soviet-generated structure - experience, proceeded more furtively, and consequently more “effectively” in the long run, which makes it even more appalling and daunting.

Since this cunning de facto elimination of the only opposition-channel almost 8 years ago, there have virtually been no more attempts to reinstate any similar channels in Russia ever since; and no remembrance of these events, as if they were something insignificant, seems to currently permeate the discontent of the existing opposition.

Compared to Putin’s slyness and carefully premeditated conspirative approach, Chavez’ clumsy shutting of a dissident channel from the public system, which triumphantly reemerged soon afterwards in independent cable broadcasting (and even YouTube) following the logically predictable strong international reaction, seems just a poorly calculated whim, regardless of how intrinsically erroneous it is.

What is obvious is easier to confront and has a tendency to backfire eventually.

Optimistically, the support for Chavez and his “revolutionary” policies is just a temporary Venezuelan poor’s “nervous breakdown” and the nouveau riches’ “folly” that - under favorable circumstances of the opposition’s effort supported by a strong-willed, though diminishing, middle class that has been manifesting great dissatisfaction with and spirit to oppose Chavez - can theoretically be reversed.

Unfortunately for the Russians - even the younger and notably increasingly more prosperous ones - continuing complacence with a latent, concealed and consequently more enduringly perilous governmental “iron-fist” seems to be metaphorically an almost genetically inherent mentality trait.

- This article was written for and provided to the Weekend Economist by Julia Socolov

#63 The Energy Champion

Every time we hear about Russia in the news in reference to oil and gas, it seems to be about Russian muscle flexing. In the past few years alone, Russia has used her vast energy reserves as a weapon in times of disagreement against not only the European Union, but also Georgia, Ukraine, her ally Belarus and, most recently, Estonia. But credit must be given where credit is due: Moscow is in a league of its own when it comes to securing her energy interests.

The proof? Just today (May 12, 2007) Russia announced an agreement with Kazakhstan and Turkmenistan to build a new natural gas pipeline north from the Caspian Sea, carrying gas from Turkmenistan through Kazakhstan to Russia. This is a major smack in the face of the EU, which had hoped to lessen their dependence on Russian gas by finding an alternative supplier in the form of Turkmenistan. This was to be done by creating a new pipeline under the Caspian Sea that would go through Turkey to Europe, thereby bypassing Russia. The gas routes as they stand today can be seen in the picture above (source: the Economist).

Even if the idea proposed by the EU were to take hold, some analysts doubt whether it would make a significant difference. ICG energy analyst Charles Esser pointed out that the EU could count on at most 20bn cubic metres of gas per year from a Caspian pipeline, which amounts to no more than 4% of EU consumption in 2004. Nevertheless, given the fact that the exact amount of gas present in Turkmenistan is unclear, a significantly high number could lead to the expansion of current plans and seriously reduce EU dependency on Russian gas in the long term. In any case, the deal announced today is a clear victory for Russia, as it effectively means that Turkmen and Kazakh gas will only be exported to Europe via Russia, putting the Europeans at the mercy of Russian caprice more than ever before.

China will no doubt see this deal as a loss as well, since they too were vying for direct control of Turkmen gas in their global quest to secure their energy needs in the most far-flung of places. In April 2005, deceased Turkmen President Saparmurat Niyazov had blessed the construction of a pipeline to China that would send 30 billion cubic meters of gas to China starting in 2009. Whether this deal will now go through is uncertain, though it seems unlikely that the Russian-Turkmen agreement will affect it. It does, however, give Gazprom and Russia a powerful bargaining tool in any future discussion, negotiation or conflict with China.

Say what you will of the Russian mafia-like monopolizing tactics, but effective they most certainly are.

#37 Turkmenbashi Lives On

With the death of Turkmen "President-for-life," Saparmurat Niyazov, last December, hope emerged that maybe Turkmenistan would be able to finally get a taste of Democracy. The election as new President last Sunday of heir-apparent, Gurbanguly Berdymukhamedov - who won with the surreal number of 89.23% of the votes in a matter of only four hours of voting, with a 95% turnout according to the Central Election Commission - has put a quick damper on such hopes. On a more positive note (for Turkmenistan, that is), the continuation of Niyazov's legacy will mean that Turkmenistan will likely become neither a Russian nor a European proxy state.　

There was talk that the death of Niyazov provides a golden opportunity for the European Union to lessen its dependency on Russian gas, while also allowing for Russia to regain some of its lost Cold War influence in the hermit state. With Turkmenistan being home to the fifth-largest natural gas reserves in the world (proven reserves of 3 Trillion Cubic Meters) and substantial oil reserves as well (Turkmenistan has proven oil reserves of 546m barrels, estimated reserves of more than 2 bn barrels, and large areas that are yet to be explored), the Central Asian nation is of extreme interest particularly to the EU. It could serve as the perfect partner in the realization of an energy corridor from Central Asia to Europe.　

There are, however, doubts about Turkmenistan's oil and gas reserves, or at least the potential to make use it. Former vice Prime Minister and head of the Central Bank of Turkmenistan, Khudaiberdy Orazov, noted that "Everyone had to make do with information from Niyazov about Turkmenistan's gas reserves, which were said to be 22 trillion or even 44 trillion cubic meters. But in reality the only gas field in Turkmenistan was opened under the USSR and has been being exploited ever since...It is completely possible that Turkmenistan has a lot of gas. But first it has to be found, a gas field has to be opened, and extraction has to begin. And no one has done that for 15 years, and in the meantime the Geology Ministry has been disbanded and many specialists have left for Russia or let the profession lapse."

If we are to assume that the country is capable of becoming a major player in the world's energy market, recent signs provide no clue as to who will benefit most. Turkmenistan is scheduled to continue providing Gazprom with 50 billion cubic meters of gas a year at below-market prices through the old Soviet-era pipeline and, starting from 2009, the Chinese are to receive 30 billion cubic meters of a gas a year. On the political front, the current festivities in the Turkmen capital, Ashgabat, don't provide any hints either, as they are attended by leaders and senior diplomats from a wide range of countries, including European officials, Russian Prime Minister Mikhail Fradkov, US Assistant Secretary of State Richard Boucher, a vice-chairman of China's parliament, Turkish Prime Minister Tayyip Erdogan, the leaders of Ukraine and Georgia, and even Iranian President Mahmoud Ahmadinejad.

Turkmenbashi lives on for now, meaning little change within the country and no foreseeable near term impact on the energy and geopolitical chess boards. However, in the hopeful words of an unnamed Western Diplomat in Ashgabat who defended the policy of engagement, "You can take an obese person and tell them that they need to lose weight. Until you see the pounds coming off there's so proof they've absorbed the message...but a crash diet is bad, because you're looking for sustainable change." In other words, the West is choosing to grant Berdymukhamedov and co. the benefit of the doubt for now, allowing for time to implement the necessary changes. Or if you look at it another way, they are hoping to befriend the new leader so as not to alienate the gas-rich nation and increase their own chances of striking some juicy deals.

See also Post #5 Turkmenistan up for Grabs

#11 A New Security Paradigm?

The previous bipolar contestation between East and West was based upon which economic doctrine should prevail. Today’s primal security concern is that of energy resources. In Europe, the recent squabble between Russia and Belarus is threatening to disturb the ease with which Western Europe is able to turn up the thermostat in the (so far) mild winter.

The big change is that Russia seems more interested in earning top dollars for its resources, rather than subsidizing its neighbors and allies. Russia is no longer interested in “giving” its gas resources away cheaply when there are well paying, gas hungry customers around the corner. This could be good news for Europe, as this signals the intent of Gazprom to be more of a business partner rather than a political instrument: although in reality it is clearly both.

According to spokesman Sergei Kupriyanov, Gazprom is not Santa Claus. Isolated and dictatorial Belarus was accustomed to buying gas at a nearly 70% discount relative to market prices (around 46$ per 1000 cubic meters). Gazprom wants around 200$ per 1000 cubic meters. In the newly announced deal, Belarus will now pay around 100$ per 1000 cubic meters, which, looking at current prices, can still be considered a sweet deal.

If the re-pricing had been more aggressive, it would have created more pressure on Belarusian president Alexander Lukashenko by effectively ending a multibillion subsidy. Although the re-pricing is a welcome step in the right direction, it is merely Russia flexing its muscles. However, in the long term these are good signals to shareholders who are not keen on Gazprom being used as a political subsidy agent.

Looking at Western Europe, their dependence on foreign hydrocarbon sources remains a critical issue because, as the Economist put it, “a new hegemony, based on pipelines rather than tanks, is advancing”. As Europe's thirst for Russian resources increases, their independence decreases; and this time there is no “Iron Curtain” to hide behind.

#7 The Empire Strikes Back

The value of an oil firm lies in the value of its "proven" reserves. Determining the size, true value and exploitation costs is at best a murky business. The scandal of 2004, when Shell callously over estimated its reserves, has given past hydrocarbon portfolio holders a sour taste. Turning to Russia, the hunger for sweet crude in the Sakhalin fields is going to be bitter at best for foreign investors.

Shell's majority share was just recently bought out for 7.5 billion dollars, which gives Gazprom a 55% majority share in the mammoth fields. In Russian media the deal is noted as a Christmas gift for Gazprom. Although nothing more than a generous extortion, the deal could actually have been worse for Shell. Nevertheless, there will have to be yet another de-valuation of its reserves and hence, the intrinsic value.

There is some good news on the horizon: the threat of under investment was looming and after much haggling, Russia has now finally agreed to a new 20 billion dollar expansion of the mammoth project. Nonetheless, even when the Sakhalin fields get up and running, it is going to be an expensive money machine at best. The price of oil is an important factor in the overall profitability of the venture. The are certainly going to be some hick-ups along the way, notably in the short term.

The predicted weakness of the American Economy is brewing stormy clouds. The American consumer is already feeling the pinch of "expensive" oil as their purchasing power slides with a weakening dollar. And the front for commodity prices such as oil to be denominated in Euros is gaining momentum. Although this would be a welcome move for oil producers who are seeing their dollar assets slide, American consumers would finally be exposed to the real cost of energy and their inherent inefficient per capita mode of production. Higher prices would lead to a slowing American demand (something we are perhaps already starting experience), adding some downward pressure on the inescapable upward trend.

In the short and medium term there is much to be grumpy about and in the future even more to speculate about. Will this be the last wrestling match in Russia for state control of natural resources, or will the empire strike back yet again?

(Sources: Financial Times, NRC Handelsblad, the Economist, The Moscow Times)

#2 Russian Roulette & Big Oil

(Sources: Economist, BBC NEWS, FT & Reuters)

The Sakhalin II Project is one of Royal Dutch Shell's largest undertakings in history. However, the Anglo-Dutch giant was dealt yet another blow by Russian national "strong arm" tactics.

Russia effectively needed a "casus belli" to re-ascertain its grip on its precious oil resources. This, of course, after 80% of the investments had been made by Shell & consortium. Gazprom & Co. knew very well that Shell was in no position to effectively negotiate or walk away for that matter. Gazprom had been inside the deal from day one; this to ensure political protection. However, Shell effectively paid the burglar to watch his house, only to find it held ransom.

To its credit, Shell has had much experience in extracting oil from regions with substantive political risk (i.e. Nigeria). It should have realized, as little red riding hood did, that offering cookies to grandmother Gazprom could mean that it would be eaten by the big bad wolf (Vladimir Putin) or the Russian bear in this case.

Sadly the oil sector in Russia needs quality investment and the Sakhalin drama comes at a bad time. On the other hand, another oil spike could lead to proportionally more investments into alternative energy solutions as political risks begin to outweigh technological risks.

There is a valuable lesson to be learned here. In fact this should serve as a warning to investors with foreign hydrocarbon portfolio exposure. The legacy of authoritarianism still upholds: if you're in need of a fix, do a favor to the boss. Beware of the big bad wolf. Unfortunately we can expect our appetites for oil to be spoiled by more "bad wolves."

Starring Chavez of Venezuela and Morales of Bolivia (not to mention the desert wolves in Iran and Saudi Arabia).

To be continued