Russian today

Economic Warfare a la Russe: The Energy Weapon and Russian National Security Strategy Author(s): Stephen Blank and Younkyoo Kim Source: The Journal of East Asian Affairs, Vol. 30, No. 1 (Spring/Summer 2016), pp. 1-39 Published by: Institute for National Security Strategy Stable URL: http://www.jstor.org/stable/43829408 Accessed: 17-01-2017 11:21 UTC

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Economic Warfare a la Russe:

The Energy Weapon and Russian National Security Strategy

Abstract

Some studies have already been done on the energy factor in Russian foreign

policy during the Ukrainian crisis of 2006 and 2009. Energy affairs at a global

and regional level have changed. We examine how Russia has used energy as an

instrument of foreign policy in the context of the US shale revolution, the new

Ukrainian crisis, and low oil prices in Europe, Eurasia, Central and Eastern Europe,

the Middle East, and Asia. The goal of this article is to examine how Russia is using

energy as a foreign policy instrument in the context of the US shale revolution, the

Ukrainian crisis and low oil prices in 2010-2015. Russia energy weapon resembles a

Swiss army knife that simultaneously cuts in many directions, at home, in the CIS,

and in Eastern and Central Europe, and the Asia-Pacific. This war holds lessons for

the West who must wage its own contemporary economic wars. It is important

to understand that while energy policy as a form of economic warfare can be and

generally is deployed autonomously, Moscow often uses economic warfare in

conjunction with military force, arms sales, or to achieve some strategic goals.

Keywords: Russian Foreign Policy, Energy Affair, Economic Warfare, Strategic

Goals

ECONOMIC WARFARE A LA RUSSE: THE ENERGY WEAPON AND RUSSIAN NATIONAL SECURITY STRATEGY 1

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INTRODUCTION

Recently General Phillip Breedlove, Supreme Allied Commander

Europe(SACEUR), cited Russia's military and economic coercion

directed against its neighbors.1 Breedlove rightly singled out eco-

nomic coercion because on a daily basis Russia's energy network

is its most constantly operating factor of coercion or of leverage in

Eurasia. Energy policies operate constantly as a major weapon in

Russia's national security strategy and are often utilized together

with the other elements of Russia's political warfare to consolidate

the Putin regime's domestic power and authority, obtain a neo-im-

perial sphere of influence in the governments of the former Soviet

borderlands and Eastern Europe, and fracture European cohesion

and integration.

It is equally important to grasp that this form of warfare con-

tinues into the present and in tandem with military operations as

in Ukraine.2 Upon invading Ukraine, Moscow immediately seized

Ukrainian energy platforms in the Black Sea and Crimea and has

continued to expropriate Ukrainian oil jacks and facilities there

through 2015 to drill for oil and gas in Ukraine's marine econom-

ic zone.3 Moscow is also waging a consistent energy war either

to isolate Ukraine from European sources of energy and render

it wholly dependent on Russian gas and oil. The Nordstreanm II

1 Clifton Parker, "NATO Commander calls for recalibration in Europe", www.http://news. stanford.edu/thedish/2015/ll/09/nato-commander-calls-for-recalibration-in-europe/ November 9, 2015.

2 Michael Ruehle and JulijusGrubliauskas, "Energy as a tool of hybrid warfare", in Guillaume Lasconjarias and Jeffrey A. Larsen, eds., NATO's response to hybrid threats, Foreword, General Philip M. Breedlove, Supreme Allied Commander, Europe Brussels: NATO Defense College, Forum Paper, 24, 2015, pp. 189-200.

3 "Ukraine to sue Russia for seizing Crimean oil, gas assets: PM," Piatt's, May 14, 2014, http://www.platts.com/latest-news/natural-gas/kiev/ukraine-to-sue-russia-for-seizing- crimean-oil-26788163; "Russia preparing to drill for oil in Ukraine's marine economic zone," Ukraine Today, December 16, 2015, http://uatoday.tv/politics/russia-preparing- to-drill-for-oil-in-ukraine-s-marine-economic-zone-555179.html

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pipeline, discussed below is merely the latest example of such eco-

nomic warfare. These seizures not only deprived Ukraine of much

needed energy and potential revenues, Russia also can use those

installations as a pretext for stationing warships into the Black Sea

and then threatening Romanian and Bulgarian installations and/or

territory. In addition Russia has thus taken control of Ukrainian in-

frastructure, Ukraine's Chornomonaftogaz (Black Sea gas) company

worth an estimated $1.2 Billion, over 2BCM of natural gas storage

in Crimea, and acquired a huge maritime zone worth trillions of

dollars.4 By seizing the Donbass Moscow also took over most of

Ukraine's coalfields and mines, the massive "Yuzovka" shale gas

deposit area, and several underground gas storage sites and transit

pipelines.

Thus Kyiv has been forced into ever-greater dependence on

external energy sources.5 And in providing gas to the Donbass

and trying to force Ukraine to pay for that gas shipped in lieu of

Ukraine's previous contractual obligations, Russia forced Ukraine

to pay for Russian gas even as it was invading Ukraine. This repeats

the pattern in Moldova whereby Tiraspol, Moscow's client and

rump state in Transnistria refuses to pay for Russian gas, allowing

Moscow to send bills to Chisinau, Moldova's capital, making it in-

cur a debt of $4 Billion almost half of Moldova's GDP, and obliging

it to subidize the Russian occupation of its territory. If this scenario

repeats itself in Ukraine, it will be a textbook example of how ener-

gy chains can be manipulated to exert economic pressure and terri-

torial influence.6 However, these actions are only part of Moscow's

overall continuing economic war against Ukraine and represent

merely the culmination to date of a campaign of economic warfare

that included high tariffs, embargos, or delays of imports to prevent

4 Ruehle and Grubliauskas, "Energy as a tool of hybrid warfare", p. 191.

5 Ibid, p. 192.

6 Ibid., pp. 195-196.

ECONOMIC WARFARE A LA RUSSE: THE ENERGY WEAPON AND RUSSIAN NATIONAL SECURITY STRATEGY 3

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Ukraine from signing an Association Agreement (DCFTA-Deep and

Comprehensive Free Trade Agreement) with the EU in 2013 and

similar tactics against Moldova and Armenia for the same purpose.7

It is important to understand that while energy policy as a form

of economic warfare can be and generally is deployed autonomous-

ly, Moscow often uses economic warfare in conjunction with mil-

itary force, arms sales, or to force the adoption of policies favoring

Russian immigrants in the Baltic States. Moreover, Moscow contin-

ues to use economic coercion as an instrument of warfare against

its neighbors, e.g. the imposition of tariffs and excluson of Ukraine

from the Eurasian Customs Union in December, 2015 because it

refused to give up its Association Agreement with the European

Union and Russia's ongoing efforts to gain control over both gas

flows through Ukraine and the distribution of Russian gas within Ukraine.8

RUSSIAN STYLE ECONOMIC WARFARE

Moscow habitually practices what experts have long since called

economic warfare. But in Moscow's case the instruments of econom-

ic warfare, including, but not exclusively comprising, energy, trade,

investment opportunities and cutoffs, remittances, and attempts to

enhance the Russian ruble while diminishing the role of the dollar

are waged in tandem with a broader strategy of what must be called

political warfare. The instruments of its strategy are military force,

media penetration, intelligence penetration and subversion abroad,

7 Ariel Cohen, "Eastern Europe's pivotal moment: Association Agreement and Deep and Comprehensive Free Trade Agreement (DCFTA) for the European Union and the Eastern Partnership", Testimony before the Europe and Eurasia Subcommittee, Committee on Foreign Relations, United States Senate, November 14, 2013, pp.2-5.

8 Ruehle and Grubliauskas, pp. 189-200.

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unremitting information warfare to organize a lasting process of

mass political-ideological manipulation, organized crime, and the

use of the ethnic card - often but by no means exclusively Russian

diaspora communities abroad.9 As noted above, Moscow contin-

ues to deploy this weapon against Ukraine as well as other former

Soviet republics but also as shown below against Europe as well as

Ukraine in the case of the Nord Stream II pipeline.

Russia's use of the energy weapon, seen in a broader context, is

therefore but one manifestation of the broader and increasing resort

by great powers to programs of action that can only be described as

economic warfare. And economic warfare, especially by the Great

Powers against more vulnerable governments, is a fundamental fea-

ture of contemporary international conflict.10 The U.S. has waged

extensive economic attacks on North Korea and terrorist organiza-

tions as part of this trend.11 But while our concern here is Russia,

U.S. actions have arguably amounted to a template that other great

powers can use as well. While our primary concern has been to

isolate terrorists, Russia, as we shall see has turned these weapons and form of warfare in a different direction. And as we have seen

and will see below economic warfare is now a prime instrument in

Russia's (and other adversarial states') overall arsenal.12

This is warfare defined by the use of financial tools, pressure, and

market forces to leverage the banking sector, private-sector interests,

and foreign partners in order to isolate rogue actors from the interna-

9 Stephen Blank, "The flight of the Red Phoenix: The historical bases of Russian non- linear warfare", Paper presented to the Conference on Hybrid Warfare, Ft. Meade, Md. December 7, 2015.

10 Mark Leonard, Connectivity wars , European Council on Foreign Relations, December, 2015.

11 Juan C. Zarate, Treasury's war: The unleashing of a new era of financial warfare{Ne'N York: Public Affairs, 2013).

12 Ibid p.ll.

ECONOMIC WARFARE A LA RUSSE: THE ENERGY WEAPON AND RUSSIAN NATIONAL SECURITY STRATEGY 5

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tional financial and commercial systems and eliminate their funding

sources13

For example, Russia has sought to conduct analogous operations

against the US.

In the summer of 2008, at the height of the financial crisis, Russian

officials approached their Chinese counterparts with an intriguing

proposal. The countries could band together to sell their holdings in

the US housing giants Fannie Mae and Freddie Mac. These govern-

ment-sponsored enterprises (GSEs) owned or guaranteed over %5

trillion in residential mortgages and mortgage-backed securities, ap-

proximately 50 percent of the total mortgage market. The GSEs had

accumulated approximately $1.7 trillion in debt, hundreds of billions

of which were owned by the Chinese government alone. With the

United States still reeling from the financial crisis already underway, a

coordinated Russian-Chinese sale of GSE holdings could force the US

government to use its emergency authorities and spend massive sums

to keep Fannie Mae and Freddie Mac alive. Such a move would likely

exacerbate the global economic crisis, causing an even deeper crisis

in confidence in the US financial systems and potentially a run on the

dollar.14

This action and those described below are clearly signs of a co-

ordinated strategy of economic warfare against U.S. interests and

those of its allies. Indeed Putin openly told his intelligence services

in 2007 that they, "Must be able to swiftly and adequately evaluate

changes in the international economic situation, understand the

consequences for the domestic economy, and more actively protect

the economic interests of our companies abroad."15 Thus Russia's in-

13 Ibid.

14 Ibid., p. 383.

15 Ibid., p. 388 quoted from, "Spy agency told to help companies", St. Petersburg Times, October 23, 2007.

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telligence agencies, many of whose alumni are the captains of Rus-

sian business or who have infiltrated it, received a clear mandate for

actions they had already taken and would take to conduct economic

warfare abroad. Since then, as shown above, Russian officials have

followed China's lead and sought to cooperate with China in its

assault against the dollar in ways that also include cyber-strikes

against financial institutions.16

Russia's energy weapon resembles a Swiss army knife that si-

multaneously cuts in many directions, at home, in the CIS, and in

Eastern and Central Europe. At home energy revenues are essen-

tial elements of the state budget thus the stagnant price of energy,

now at record lows (since 2009) contributes to a major economic

slowdown and governmental budget crisis. Accordingly the major

energy companies serve not only as a source of state revenue but

also as a contemporary analogue of medieval tax farmers.17 While

this element of firms like Gazprom accentuate the abiding medieval

features of Russian governance; they also reflect this medievalism

because they are à major conduit of rents to the elite who are al-

lowed this corruption in return for their service to the state, so the

tax farmer analogy not only relates to energy firms' function for the

state but also to their role as the motor force of the contemporary

updating of the phenomenon of the Muscovite service state where

property is held only in return for service and payment for that ser-

vice derives from the control of those assets.18 Thus Russian busi-

16 Zarate, Treasury's war, pp. 399-413.

17 In Medieval times tax farmers were state officials whose task was to collect taxes.

But because of the scarcity of state revenues and to induce them to serve they were granted the right to a portion of those tax revenues as their own income, i.e. as a reward and incentive for state service.

18 Richard Hellie, 'The structure of Russian imperial history," History and Theory, 44, 2005, pp. 88-112; Peter Baker and Susan Glasser, Kremlin rising: Vladimir Putin's Russia and the end of revolution (New York: Scribner's, 2005), p. 417; Steven Rosefielde, Russia in the 21st century: the prodigal superpower (Cambridge: Cambridge University Press, 2004); Marshall T. Poe, The Russian moment in world history( Princeton, NJ:

ECONOMIC WARFARE A LA RUSSE: THE ENERGY WEAPON AND RUSSIAN NATIONAL SECURITY STRATEGY 7

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nesses have been pressured to organize, at their own expense so

called charitable funds to support the "special services" (intelligence

agencies). 19 Moreover, by the end of 2011, Putin himself admitted

that one of every two officials of energy companies is connected

with other industries allowing for massive corruption.20

But beyond these considerations the dominance of energy in the

Russian economy consigns Russia to being primarily an economy

organized for the export of commodities and raw materials. This

has led several Russian not to mention Western analysts, to empha-

size the correlation between this kind of economy and service state

with imperial proclivities. Thus Andrei Zakharov writes, "Imperial

statehood is the natural guise of a regime based on the export of raw materials."21

Princeton University Press, 2003); Stefan Hedlund, Russian path dependence (London; Routledge, 2005);Emil Pain, "Will Russia transform into a nationalist empire", Russia in Global Affairs3:2, April-June, 2005, pp. 71-80; Stephen Kotkin, "It's Gogol again", Paper Presented as part of the project The energy dimension in Russian global strategy (James A. Baker III Institute for Public Policy, Rice University, Houston, 2004). These are

only a few of the authors who now see the vitality of the Tsarist metaphor as a means

of explaining Putin's Russia; Richard Pipes, Russia under the old regime (New York: Scribner's 1975); Stephen Blank, Rosoboroneksport; Its place in Russian defense and arms sales policy (Carlisle Barracks, PA: Strategic Studies Institute, US Army War College,

2007); Harley Balzer, "Confronting the global economy after communism: Russia and China compared", Paper Presented to the Annual Convention of the International Studies

Association, Honolulu, Hawaii, March 1-5, 2005; Vladimir Shlapentokh in Collaboration with Joshua Woods, Contemporary Russia as a feudal society: A new perspective on the Post-Soviet era( New York: Palgrave Macmillan, 2007); Vladimir Shlapentokh, "Early feudalism-The best parallel for contemporary Russia", Euro-Asia Studies ; XLVIII: 2, 1996,

pp. 391-411; Peter Stavrakis, State-building in Post-Soviet Russia: The Chicago boys and the decline of administrative capacity, Occasional Papers of the Kennan Institute for Advanced Russian Studies, No. 254, 1993; Peter Stavrakis, "The Russian state in the

twenty-first century", Paper Presented to the VIII Annual Strategy Conference of the U.S.

Army War College, Carlisle Barracks, Pa., April 22-24, 1997; Eugene Huskey "The state- legal administration and the politics of redundancy", Post-Soviet Studies , 11:2, 1995, pp. 115-43.

19 Roman Shleynov, "A tribute of respect", Moscow, Novaya Gazeta , in Russian June 1, 2009, FBIS SOV, June 1, 2009

20 Moscow, Interfax ; in English, December 19, 2011, FBIS SOV, December 19, 2011

21 Emil Pain, "The political regime in Russia in the 2000s: Special features, inherited and acquired", Russian Social Sciences Review, Lll:6, November-December, 2011, pp.64-65.

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Likewise, Russia's energy assets are vital to the enhancement of

Russia's global power, influence, and standing. And the government

openly recognizes those assets' role as a major instrument of Rus-

sian foreign policy.22 As Roman Kupchinsky has written,

On February 4 [2009]Ukrayinska Pravda reported that Russian Prime

Minister Vladimir Putin stated: "Russia enjoys vast energy and min-

eral resources which serve as a base to develop its economy; as an

instrument to implement domestic and foreign policy The role of the

country on international energy markets determines, in many ways,

its geopolitical influence." This thesis was not new, it found its way

into the 2003 "Energy Strategy of Russia for the Period of up to 2020"

which stated at the outset that: "Russia possesses great energy resourc-

es... which is the basis of economic development and the instrument

for carrying out internal and external policy." Putin's views were in-

corporated into the security doctrine in a roundabout but nonetheless

blunt manner. Paragraph 9 of the doctrine states: "The change from

bloc confrontation to the principles of multi-vector diplomacy and

the [natural] resources potential of Russia, along with the pragmatic

policies of using them has expanded the possibilities of the Russian

Federation to strengthen its influence on the world arena" In other

words, Russia's energy resources were once again officially acknowl-

edged to be tools of Russian foreign policy, or as some believe, a lever

for blackmail. There was apparently no further reason for denying the

obvious, and the authors of the [2009] security doctrine decided to lay

out Russia's cards on the table.23

22MinisterstvoEnergetikiRossiiskoiFederatsii, EnergeticheskaiaStrategiiaRossiina Period do 2030 Goda [Russian Energy Strategy up to 2030], 2009, http://www.minenergo.gov. ru/activity/energostrategy/full.php?sphrase_id=268229; MinisterstvoEnergetikiRossiisk oiFederatsii, EnergeticheskaiaStrategiiaRossii Na Period do 2020 Goda, Moscow, 2003.

23 Roman Kupchinsky, "Energy and Russia's National Security Strategy", The Progressive Realist , May 19, 2009, http://www.progressiverealist.org/blogpost/energy-and-russias- national-security-strategy

ECONOMIC WARFARE A LA RUSSE: THE ENERGY WEAPON AND RUSSIAN NATIONAL SECURITY STRATEGY 9

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At the same time due to the variegated situations of the energy

economy and that Russia confronts globally, the goals of energy

policy vary according to regions' and countries' specific features. In

the Far East, for example,

Ultimately, the political implications of Russia's Northeast Asian en-

ergy policy are the reinforcement of the country's national energy se-

curity vis-a-vis the reduction of its dependency on European imports,

the expansion of the nation's influence through reinforced energy co-

operation with Northeast Asian countries, and the economic develop-

ment of East Siberia and the Far Eastern region through the provision

of an alternative energy source for West Siberia.24

Clearly the Asian political situation is very different from what

Moscow sees in Eurasia (the former Soviet Union) and Europe and

its policies vary accordingly as it makes no effort to subvert the

Chinese, Japanese, or ROK governments.

In Eurasia, however, abundant evidence exists that Moscow has

used and continues to use energy as an instrument of dominance in

the CIS as a whole and of leverage in Europe, either by controlling

pipelines from Eurasia to Russia and then Europe or by maximiz-

ing its control of gas supplies from Russia (including those Central

Asian supplies) to Europe.25 Indeed this strategy also obliges Russia

to pursue an openly neo-colonial policy in Central Asia and even to

subsidize Central Asian gas production during times of depressed

gas prices in order to ensure that only Russia or China but not Eu-

24 Ji Won Yun, "International cooperation for the construction of Soyth Korea - North Korea - Russia pipeline natural gas (PNG): Effectiveness and restrictions", Journal of East

Asian Affairs, 39:1, Spring/Summer, 2015, pp. 80-81.

25 BertilNygren, "Putin's use of natural gas to reintegrate the CIS region", Problems of Post-

Communism, LV:4, July-August, 2008, pp. 4-17; Andrew Kramer, "Falling gas prices deny

Russia a lever of power", New York Times, May 16, 2009, www.nytimes.com

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rope gets Central Asian gas and oil regardless of cost.26 This policy

ensures continuing leverage over Central Asian gas exports that are

vital to the Uzbek, Kazakh, and Turkmen economies. Although it

has failed with regard to Turkmenistan because China bailed it out,

clearly Ashgabat has no desire to provoke Moscow by buying into

ideas like the European Union's support for various trans-Caspian

pipeline projects. And of course that leverage over the energy sector

then translates into corresponding leverage over domestic and for-

eign policies of these states.

But the most important manifestations of Russian energy strat-

egy occur in the Western borderlands from the Baltic to Moldova

and in Europe where the goals, as noted above, go beyond accruing

revenues to establishing lasting positions in both upstream and

downstream (distribution) sectors of these states' energy economies,

using that leverage for purposes of enhancing lasting economic and

political influence, either through support for subversion or through

corruption and direct lobbying of governments, in those states,

and of dividing Europe in order to arrest the process of European

integration under the EU's auspices. Indeed, despite the dynamic

changes occurring in Europe and Eurasia Moscow continues to use

its energy weapon there for these selfsame purposes.

ENERGY, ORGANIZED CRIME, AND INTELLIGENCE PENETRATION

Some pattern of linkages between energy, organized crime fig-

ures and intelligence penetration of governments has characterized

Russian activities across Eastern Europe and would undoubtedly

26 BertilNygren, The rebuilding of greater Russia: Putin's foreign policy towards the CIS countries( London: Routledge, 2008).

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develop in Georgia if the authorities there allow Russia to become

substantially involved in Georgia's energy economy.27 Spanish in-

vestigators found that the Russian Mafia, which is closely linked to

the government, exercises "tremendous control" over some strategic

sectors of the global economy such as aluminum and natural gas.28

Previous studies make clear the political purposes and outcomes of

Russian energy policies throughout the former Soviet bloc, not just

the former Soviet Union. And these efforts to corrupt Western insti-

tutions are also ongoing. Thus Deutsche Bank is now investigating

a total of $10 Billion in illegal trades from its operations in Russia

whose purpose appears to be money laundering.29

To defend its 'Petro-Power, Russia strives to keep as many of its part-

ners as possible in a state of energy dependence, a dependence which

can be manipulated as Russia chooses. A key component of this strate-

gy is the control of pipelines and other energy facilities in neighboring

countries. [In addition] Oil and gas allow Russia to 'buy off' foreign

companies and individuals. More importantly, the Kremlin can ma-

nipulate whole countries as in the days of the Warsaw Pact; loyal allies

are rewarded with ample amounts of subsidized energy, at great cost

to Moscow.30

For example, in 2004 Roman Giertych, Deputy Chairman of the

27 Magdalena Rubaj and Tomasz Pompowski, "What is the KGB interested in?" Warsaw, Fakt , in Polish, October 19, 2004, FBIS SOV, October 19, 2004;Jan Pinski and KrzystofTrebski, "The oil mafia fights for power", Warsaw, Wprost , in Polish, October 24, 2004, FBIS SOV, October 24, 2004; Warsaw, Polish Radio 3 in Polish, October 15, 2004, FBIS SOV, October 15, 2004; Warsaw, PAP, in Polish, December 13, 2004, FBIS SOV, December 13, 2004, Open Source Center Analysis, "Lithuania: Businessman Stonyswields power with Russian backing," FBIS ŚOV, October 1, 2007.

28 Maria Snegovaya, "The implications of Russia's mafia state", The American Interest ; December 23, 2015., http://www.the-american-interest.com,

29 "Deutsche Bank Moscow laundering probe tallies $10 Billion", The Moscow Times, December 22, 2015, http://www.themoscowtimes.com,

30 Ibid.

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commission that investigated the notorious Orlen scandal in Po-

land, concluded in his report that,

The commission has evidence that a certain kind of conspiracy func-

tioned "within the background of the State Treasury Ministry, the

Prime Ministerial Chancellery, the Presidential Chancellery, and big

business," which was supposed to bring about the sale of the Polish

energy sector into the hands of Russian firms.31

In Lithuania, former President RolandasPaksas was impeached

for his connections to Russian organized crime and intelligence

figures. In August 2009 the Seimas moved to block any possibility

that the Russo-Lithuanian capital bank Snoras could gain control of

the LeutvosRytas media group.32 But this is hardly a new Russian

policy.

In 2007-08 the Lithuanian businessman RimandasStonys, Pres-

ident of Dujotekana, Lithuania's Gazprom intermediary, who has close ties to Russian and Lithuanian officials and has extensive

investments in Lithuania's energy and transit sectors, was brought

under investigation by Lithuania's Parliament. These investigative

reports charge that he had used his ties to Russian intelligence and

other Lithuanian political connections to advance personal and

Russian interests in Lithuania's energy sector. Dujotekana was re-

puted to be a front for Russian intelligence services that are already

entwined with Gazprom. And a counter-intelligence probe into

a foreign citizen's efforts to recruit senior Lithuanian Intelligence

(VSD) officers led to the firm, which also recruited government

officials. Key executives of Dujotekana were apparently also KGB

alumni. Similar charges were also raised in regard to Stonys' and

31 FBIS SOV, December 13, 2004.

32 ViktorsBaublys, "Bank may lose LieutvosRytas", Vilnius, VilnaiusDiena, in Lithuanian, August 8, 2009, FBIS SOV, August 8, 2009.

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his firm's influence in Lithuania's transit sector and his large con-

tributions to politicians and media and his influence over political

appointments.33

Subsequently it became clear that the company was established

with the help of Russian special services, but because Stonys failed

to gain control of a new power plant in Kaunas that would have

legitimized Gazprom as an investor and power in Lithuania, he

may well be on his way out.34 However that would hardly stop

other friends of Russia from trying to capture key positions in the

state and its policy.35 Indeed, Gazprom kept trying to obtain a long-

term contract to supply Lithuania with gas and make a deal with

the main gas company LieutvosDujos until 2030.36 Clearly this is

a constant, long-term Russian policy. Thus Stonys only took off

from where earlier efforts had failed when attempts were made to

compromise Lithuanian politics by using such figures as Viktor Us-

paskich, founder of the Labor party, who is trying to make a come-

back, and Paksas.37 Likewise, in Estonia the 2006 annual report

of the Security Police noted that the Constitution Party is financed

partly from Moscow.38 These kinds of operations are apparently

also ongoing. Thus the Estonian newspaper, Postimees, reported in

2015 about how Russian oligarchs, operating closely with some of

the highest figures of Putin's Administration, are attempting to seize

33 FBIS SOY ; October 1, 2007.

34JurgaTvaskiene, "Russia does not need 'exposed' friends", Vilnius, LieutvosZinios, in Lithuanian, September 11, 2009, FBIS SOV, September 11, 2009.

35 Ibid.

36 Moscow, ITAR-TASS, in English, September 9, 2009, FBIS SOV, September 9, 2009.

37 Richard J. Krickus, "The presidential crisis in Lithuania: Its roots and the Russian factor",

Occasional Papers of the East European Studies Institute, No.73, Wilson Center, Washington, D.C., 2004; Vilnius, BNS Internet Version in English, September 21, 2007, FBIS SOV, September 21, 2007; Kaunas, KaunoDiena Internet Version, in Lithuanian, September 20, 2007, FBIS SOV, September 21, 2007.

38 Tallinn, Eesti Express Internet Version, in Estonian, October 1, 2007, FBIS SOV, October 1, 2007.

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control of Estonia's economy and use their influence to not only to

take over sectors like oil, but also to influence Estonian politics.39

In Hungary Istvan Simiscko, a member of the Christian Demo-

cratic People's Party and Chairman of the National Security Com-

mittee of the Parliament, has publicly charged that Russian (and

possibly Slovak) intelligence and criminal links may be involved

in the murder of members of the Hungarian Roma in an attempt

to incite ethnic unrest inside Hungary and/or discredit Hungary

abroad.40 There are also repeated examples of Russia, either acting

on its own or through the Austrian energy firm OMV, atempting

to gain control over Hungarian energy firms, notably MOL.41 Thus

there has been good reason for open US concern about Hungarian

policy, especially when the Socialists led by Prime Minister Ferenc

Gyurcany were in power.42 Indeed, Gyurcsany had at various times

proposed that the EU, Russia, and Caspian Sea governments form

an energy partnership or said that despite Hungary's democratic

orientation, it cannot expect to become independent of Russia.43

More recently there are discenrible signs of this phalanx of busi-

ness, crime and government money establishing havens for itself in

Iceland and Montenegro.44

39 Andrey Kuzichkin, "Putin's friends in Estonia: Local economy as citadel of Russian business", Postimees, September 1, 2015, BBC Monitoring.

40 Budapest, Magyar Hirlap Online, in Hungarian, August 6, 2009, FBIS SOV, August 6, 2009.

41 Budapest, Hungary Around the clock, in English, August 24, 2009, FBIS SOV, August 24, 2009;Budapest, Magyar Hirlap Internet Version, in Hungarian, December 14, 2007, FBIS SOV, December 14, 2007; "Hungary, Austria: A continuing energy rivalry in the Balkans," August 6, 2008, http://www.stratfor.com,

42FerenceKepecs, "Hungarian maneuvering in the draw of three power centers", Budapest, Nepszava, in Hungarian, July 31, 2008, FBIS SOV, July 31, 2008; Budapest, MTI, December 10, 2007, FBIS SOV, December 10, 2007.

43 Budapest, MTI, in English, November 14, 2008, FBIS SOVF, November 14, 2008; Budapest, MTI, in English, September 25, 2008, FBIS SOVF, September 25, 2008.

44 Vladimir Prybylovsky, Natalya Morar, llya Barabanov, YevgeniyaAlbats, "From Petersburg to Reykjavik: Whose money is rescuing Iceland", Compromat.ru Internet, in

Russian, October 20, 2008, FBIS SOV, October 20, 2008; Dan Bilefsky, "Despite crisis,

ECONOMIC WARFARE A LA RUSSE: THE ENERGY WEAPON AND RUSSIAN NATIONAL SECURITY STRATEGY 15

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Finally, in the Czech Republic already in 2008 one NATO diplo-

mat told the Czech newspaper Mlada Fronta Dnes,

The extensive building up of Russian espionage networks in the Czech

Repbulic and in other NATO countires, and also the hitherto unprec-

edented amounts of money that Moscow was starting to invest in this

'project' in the recent period have exceeded the acceptable, and some-

times also tolerated, limits of espionage. In the recent period this has

exceeded any kind of degree, whether this is a case of infiltrating the

intelligence services or of contacting experts involved in NATO strate-

gic defense.45

Formally Prague expelled these diplomats for attempting to

influence public opinion against the planned US missile defense

installations in the Czech Republic. Czech officials and reports have

long observed that, using business and either Czech or Russian

businessmen as a front, Moscow has been trying to make contact

with and suborn politicians to influence Czech policies.

By 2009 Moscow had doubled the number of known agents in

the Czech Republic from 50-100 and many officials believed that

the leadership of the Czech Social Democratic party is either prey

to dangerous illusions about Russia or worse and would undermine

Prague's pro-Western policies.46 Czech intelligence thus reported

Wealthy Russians are buying up coastal Montenegro", New York Times , November 1, 2008, http://www.nytimes.com,

45 Jan Gazdik, "In Czech Republic Russians are reactivating agents from the Cold War period", Prague, IDnes.cz Online, in Czech, August 25, 2009, FBIS SOV, August 25, 2009.

46/ö/'c/.; Erik Tabery and OndrejKundra, "The big spying game: What was behind the expulsion of two Russians from the Czech Republic?" Prague, Respekt.cz Online , in Czech

August 24, 2009-August 30, 2009, FBIS SOV, August 31, 2009; LenkaZiamalova, "Interview with Lucas Dobrovský", Prague, HospodarskeNoviny Online, in Czech, August 21, 2009, FBIS SOV, August 25, 2009; Prague, Czech Happenings, in English, August 21, 2009, FBIS SOV, August 25, 2009; Prague, Czech Happenings ; in English August 27, 2009, FBIS SOV, August 27, 2009; Prague, CTK, in English, August 31, 2009, FBIS SOV, August 31, 2009; "Russia, Czech Republic: Trading Diplomatic Expulsions", Stratfor.com, August 18, 2009.

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that Russian intelligence has attemtped to establish and exploit ties

to Czech politicians and civic groups for purposes hostile to gov-

ernment policy and on behalf of Russia.47 As one representative of

Czech Inteligence, the BIS, told the Czech journal Respekt.cz previ-

ously,

In the last few years we have noted numerous attempts by business

entities that had proven connections to suspicious Russian capital to

gain control over telecommunications, information systems, and trans-

portation infrastructure from railroads to airports and airlines. To

what extent the Russian secret services are involved in these activities,

however, we do not know.48

Knowledgeable Czech experts like the former Ambassador to

Moscow Lucas Dobrovský have little doubt what Moscow wants to

achieve through such efforts to penetrate the Czech government. As

he observed,

We would stop resisting the efforts to bring Russia's economic, polit-

ical, and perhaps, to a certain extent, military, influence back to the

area of Central Europe. The current Russian Government and the

president believe that this is a natural influence in the area that was

directly and indirectly occupied by the former Soviet Union. You will

find a lot of evidence of this in the statements of Russian politicians.

This would lead to the weakening of our Euro-Atlantic relations.49

Czech Deputy Foreign Minister Thomas Pojar echoed these

comments and notes that recovering Russia's position in Central

47 Prague, CTK, in English, August 31, 2009, FBIS SOV, August 31, 2009.

48Tabery and Kundra, FBIS SOV, August 31, 2009.

49 LenkaZiamalova, "Interview with Lucas Dobrovský", FBIS SOV August 25, 2009.

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Europe has been a Putin priority since he took power in 2000.50

More recently Lukoil finance President Milos Zeman's election in 2013.51

THE BALKANS: AN ARENA OF EAST-WEST

GEOPOLITICAL RIVALRY

Similar phnenomena are observable in the Balkans. The Balkans

remain an arena of East-West geopolitical rivalry as they have been

for centuries. Today, however, the instruments of rivalry are not

armies but rather economic-political forces: control of energy pipe-

lines and production and the use of that control for political more

than purely econoimic objectives, as well as the attraction of com-

peting political models i.e. the liberal internationalist and post-na- tionalist EU model or the Putinist model of authoritarian statism

and crimnalized elite rule buttressed by state if not popular nation-

alism. Thus a Macedonian newspaper observed that the Balkans'

geostrategic importance today is in no small measure due to the fact

that it is the heartland of the confrontation between rival energy

pipelines, the EU's Nabucco pipeline and Russia's South Stream

project. Since the Bosphorous and the Dardanelles are limited in the

amount of energy that can be transported through them, the Balkan

landmass becomes all the more important in this context and each

state therefore does its utmost to ensure that oil and gas pipelines

traverse their territory.52

50 LenkaZlamalova, "Interview with Deputy Foreign Minister Thomas Pojar", Prague, HospodarskeNoviny Online, in Czech, September 25, 2009-September 28, 2009, FBIS SOV, September 28, 2009.

51 Jan Richter, "MilošZeman - Political veteran seeking to crown his career", http://www.

radio.cz/en/section/curraffrs/milos-zeman-political-veteran-seeking-to-crown-his- career, December 19, 2012.

52 MerselBilalli, "Utter isolation", Skopje, Dnevnik, in Macedonian, October 16-17, 2010,

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Arguably the current struggle for the Balkans, now occurring

through competitive energy projects and political models, therefore

ties into the larger East-West geoeconomic and geopolitical rivalry

founded on control of energy supplies and routes. Milan Simurdic

duly observes that,

Russian energy policy in the Balkans could be viewed as part of the

competition for accces, control, and influence over the oil and gas

business, especially in the Caspian basin and in Central Asia. The Bal-

kans represent the final stage of oil and gas delivery from that region

towards, in the case of gas and gas pipelines - the European markets,

and, in the case of oil to sea ports, transporting oil further to the world

market. More and more, the Balkan region is being connected to the

"New Great Game, i.e. the modern re-run of the struggle between Im-

perial Britain and Imperial Russia of the XIX century for influence in

Central Asia.53

Although Balkan states wanted to be ableto maximize their op-

tions and access to gas by relying on both Russia's South Stream

project and the Azero-Turkish Trans-Anatolian pipeline (TANAP)

for obvious economic reasons, ultimately the decision to rely prim-

iarily on one oranother pipeline scheme, is a statement of political

intent as well.54 Therefore the decision to rely mainly on Russian

pipeline projects like the South Stream gas pipeline or the EU's pro-

jected Nabucco West project or, the Trans-Adriatic Pipeline (TAP),

the TANAP emerging Azeri-Turkish Trans-Anatolian gas pipeline

(TANAP) were as much if not fundamentally geopolitical decisions

Open Source Center, Foreign Broadcast Information Service, Central Eurasia, (Henceforth

FBIS SOV), October 17, 2010.

53 Milan Simurdic, "Russian energy policy and the Balkans", http://www.isac-fund. org/.../06e-Milan%20Simurdic%20-., pp. 3-4

54 Liuhto

ECONOMIC WARFARE A LA RUSSE: THE ENERGY WEAPON AND RUSSIAN NATIONAL SECURITY STRATEGY 19

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and had geopolitical outcome rather than purely econoimc ones.

While it may well be the case as Balkan ministers have told US

audiences that if they do not have Russian gas, built over pre-exist-

ing pipelines their countrymen will freeze during the winter; this

attribution of a primary geopolitical importance to pipeline choices

is still correct because what is at stake is not just energy supplies

but rather decisive leverage over economic-political affairs in Balkan

governments.55 For the same reasons any future enlargement of

either the EU or of Russia's proposed Eurasian union and associat-

ed integration schemes will have as much geopolitical as domestic

econoimc content and repercussions.56 Indeed, as Kupchinsky ob-

served,

South Stream could position Russia to control the entry of pipeline-de-

livered gas to Europe form Central Asia and other producer countries.

On top of its role as unwanted middleman, Russia would also become

the gatekeeper of Europe's southern corridor for energy supplies.

Moscow seeks to control pipelines from Eurasia to Russia and

then Europe and thus set the price of gas to its clients.57 It then tries

to tie Balkan and other states into long-range contracts that restrict

these states' ability to buy gas freely at real market prices. Essen-

tially this control of the pipelines and thus of prices in the Balkans

and the CIS has allowed Moscow to behave as a monopolist and tell

gas suppliers in the CIS and consumers in the Balkans, either you

55 Christie in Liuhto

56 FederigaBindi and Irina Angelescu, "Introduction: Defining the frontiers of Europe from

a Transatlantic perspective", in FederigaBindi and Irina Angelescu, eós.Jhe Frontiers of Europe: a Transatlantic Problem? (Washington, D.C.: Brookings Institution Press, 2011), p. 2; "Putin sets Russia's APEC Summit priorities in the Wall Street Journal article", The

Voice of Russia, http://english.ruvr.ru/2012_09_05/Putin-sets-Russia-s-APEC-summit- priorities-in-The-Wall-Street-Journal, September 5, 2012.

57 BertilNygren, The rebuilding of greater Russia ; BertilNygren, "Putin's use of natural gas

to reintegrate the CIS region", pp. 4-17.

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accept our prices or you freeze.58

The instruments of this attempted domination have been pipe-

line projects, the enforcement of monopoly at both the supply

and consuming end and the persistent Russian efforts to transmit

economic leverage into strategic and enduring economic-political

influence. Contractually Russia's efforts at control have been man-

ifested in its terms that European consumers must sign long-term

contracts and take Russian gas at previously stipulated prices re-

gardless of actual market conditions. These take or pay clauses are

vital to the Russian enterprise as a whole. Thus in 2006 President

Putin observed that the energy market must be protected from un-

predictability with buyers and sellers, equally assuming a "fair dis-

tribution" of risks. This means that Russia must develop long-term

contracts with its customers that tie them into onerous take or pay

clauses whereby they must buy gas at higher prices or pay for the

gas that they do not buy and do so for years.59

As the World Bank found Russia has historically practiced mo-

nopolistic policies of price discrimination among customers for

political reasons. Those customers, e.g. in the Balkans, who played

ball with Moscow received price discounts, whereas Western coun-

tries paid higher prices and thereby subsidized Russia's own gas

economy. Although after 2005 Russia claimed to demand that cus-

tomers and transit countries alike pay market prices, in fact though

the prices went up the price discrimination has continued among

customers.60 Accordingly Russian strategy since 2000 has been to

sustain high prices by limiting domestic investment in Russian gas

fields and new production capacity as long as needed to persuade

European buyers to extend till 2030 these long-term contracts with

58 Oliver Morgan, "Kremlin ready to take on the West", The Observer, January 7, 2007.

59 Moscow, Interfax, in English, July 6, 2006, FBIS SOV, July 6, 2006.

60 The World Bank, The future of the natural gas market in Southeast Europe (Washington,

D.C.: The World Bank, 2010), p. 94.

ECONOMIC WARFARE A LA RUSSE: THE ENERGY WEAPON AND RUSSIAN NATIONAL SECURITY STRATEGY 21

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take or pay clauses that will expire around 2015 and keep prices

high. The strategy also requires preventing Central Asian and Cas-

pian producers from sending gas to Europe, gaining control over the

shipment of that gas, using the ensuing leverage to reduce the lever-

age of transit countries, Belarus, Ukraine, and Turkey, preventing

resolution of the determination of the Caspian Sea's status and frus-

trating any efforts to construct a trans-Caspian pipeline, blocking

the Nabucco pipeline project that would effectively compete with

Russian gas, investing in North African sources to gain leverage

there on gas sales to Europe, and create preemptive pipeline projects

like North Stream and south Stream that foster partnerships with

major EU players, undermine transit states, and reduce them to de-

pendence on sole source Russian gas.61

Today with the advent of shale gas and liquefied natural gas

(LNG), as well as EU actions against Gazprom there are signs that

this monopolistic strategy could break down. Shale gas in particu-

lar represents a major threat because it could be exploited in large

amounts by Poland, Ukraine, Lithuania, and the Balkan states. And

once the US and Canada start exporting shale in 2016 this could

put Russian gas under enormous pressure. This makes it all the

more urgent for Russia to retain its hold on the Balkans as it faces

a dual threat, continuing integration of the region into a European

and democratic project, and the loss of its monopoly power over

regional gas flows. This is a major reason for the intense Russian

focus on energy diplomacy in the Balkans as a whole and in the

Western Balkans, especially Serbia, in particular.

Using the revenues it has acquired from gas and oil sales abroad,

Russia has also eagerly sought to buy up downstream assets in

Europe to gain control over gas distribution networks and other

"commanding heights" of European economies e.g. oil companies

61 Ibid., , p. 95.

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and industries in other key sectors that are in the process of being

privatized thereby transmuting economic clout into lasting politi-

cal leverage.62 And, of course these investments are generally made

with the full backing and knowledge of the Russian government,

which is able to direct the investment plans of these state corpora-

tions like Gazprom.63 The objective of such investments is not just

profit but clearly establishing beachheads for the extension and

perpetuation of economic-political leverage and influence over local

governments as well as sites from which it becomes possible to cor-

rupt public institutions and political leaders in these countries.

Thus we see a conscious policy of state support for monopoliz-

ing gas flows in particular into the Balkans, acquiring downstream

assets there and in the rest of Europe, and then branching out into

other industries and the acquisition of economic- political influence

over these states.64 In the Balkans, Gazprom, and its oil subsidiary,

Gazpromneft are busy looking to set up Balkan subsidiaries.65 To-

wards this goal Gazprom has obtained minority equity holdings

as of 2009 in some 60-80 entities across Europe according to C.

Boyden Gray. Yet the EU does not pursue Gazprom as a monopolist,

which it undoubtedly is (it also has been likened, not unfairly, to an

organized crime syndicate).66 Gazprom, according to an earlier list

in the Russian press,

62 BertilNygren, The rebuilding of greater Russia; BertilNygren, "Putin's use of natural gas

to reintegrate the CIS region", pp. 4-17.

63 Moscow, Interfax , in English, September 16, 2011, FBIS SOV, September 16, 2011.

64 The World Bank, The future of the natural gas market in Southeast Europe; Open Source Center, Report: East Europe: Overview of energy issues, dependence on Russia, FBIS SOV, May 16, 2007; Open Source Center, Analysis: Russian oil companies expand influence in Balkans with Kremlin's support, FBIS SOV, August 7, 2009.

65 Alexander Fatic, "A strategy based on doubt: Russia courts Southeast Europe", Contemporary Security Policy, 31:3, September, 2012, p. 448.

66 C. Boyden Gray, "Europe should tackle Gazprom monopoly", European Affai rsl0:l-2, Winter/Spring 2009, p. 45.

ECONOMIC WARFARE A LA RUSSE: THE ENERGY WEAPON AND RUSSIAN NATIONAL SECURITY STRATEGY 23

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Has a share in over 20 European companies from 16 countries, which

engage in distribution, marketing, and transport of gas. At the same

time, in half of them, its share comprises or surpasses 50 percent (Gas

Und Warenhandelgesellschaft, Overgas In. AO, Fragaz, WIEH GM-

bH&Co KG, Prometheus GAS S.A., Promgas SpA, Blue Stream Pipeline

Company B.V., Gas Project Development Center Asia AG (Zug), WIEE,

Nord Stream AG). Furthermore, at the end of January (2009) Gazprom

created a joint enterprise with the Austrian OMV company for updat-

ing the system of gas storage facilities and the distribution network in

Baumgarten, which are geared toward storage and distribution of gas

from the Nabucco pipeline.67

Therefore Gazprom already (not to mention other Russian firms)

commands an imporant position in the overall European gas econ-

omy if not other sectors as well. And it also has targeted certain key

European countries like Germany where Russian and especially

Gazprom investments are flourishing.68 Indeed, as a result of the extensive Russo-German commerical ties German businessmen

have become a major lobby arguing against any policies that might

upset this relationship and the government too possesses a funda-

mentally different Weltanschaung (world view) about Russia and

the opening up of Germany to Russian commerical influence (not

to mention Eastern Europe) than does the US, a fact that has cor-

roded all hope of unifed policies towards Russia 69

67 Ekaterina Kuznetsova, "Gas dilemma of Moscow and Brussels", Nezavisimaya Gazeta Online, in Russian, May 21, 2009, FBIS SOV, May 21, 2009.

68 Michael Steurmer, Putin and The Rise of Russia{ New York: Pegasus Books, 2009), pp. 134-139.

69 Christopher S. Chivvis and Thomas Rid, "The roots of Germany's Russia policy", Survival,

Ll:2, April-May, 2009, pp. 105-122; Stephen G. Szabo, "Can Berlin and Washington agree on Russia?" The Washington Quarterly, 32:4, October, 2009, pp. 23-41; Kostis Geropoulos, "Merkel to Putin: Bring Germany das gas", New Europe, October 4, 2009, http://www.neurope.eu/article96646.php; Open Source Center, OSC Report -Business Ties With Russia Limit Berlin's Policy Choices, OSC Report, FBIS SOV, October 28, 2008.

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These trends are particularly visible in the Balkans. Moscow

has also used, still uses, and will keep using its energy weapons to

achieve its political goals, e.g. by manipulating gas supplies to po-

tentially recalcitrant governments and by buying up available ener-

gy sector assets. Moscow exploits the need of these small economies

for reliable energy supplies based on existing pipelines and for in-

vestment, using the revenues it has attained to invest in and target

key sectors of local economies, particularly what might be called

the "commanding heights," energy, power transmission, gas and oil

distribution, and communications. And it also has grand designs

for the region. In 2010 Russia published plans for a huge Balkan oil

pipeline to accompany the South Stream gas pipeline.

The document envisaged a 3, 200 Km oil pipeline named Dru-

zhba Adria, projected to deliver 5-15 million tons of oil annually

over there incremental phases of its activation. Druzhba Adria

will start at the Russian town of Samara and run across Belarus,

Ukraine, Slovakia, and Hungary to the docking terminal of Omis-

salj on the Croatian island of KRK.70

Moscow's demands on Europe regarding energy are quite sim-

ple, essentially amounting to giving it a free hand to decide how it

will supply gas and allowing it to dominate European gas supply.71

Moscow wants the EU to include the South Stream pipeline as one

of its priority projects and threby prevent any other rival pipeline

like the Nabucco pipeline form ociming into being.72 And beyond

that demand Gazprom has announced that it will seek exemptions

70 Fatic, "A strategy based on doubt: Russia courts Southeast Europe", pp. 447- 448; nPOrPAMMA 3(ļ)(ļ)eKTMBHoro ncn0/ib30BaHHfl Ha cucTeMHoň ocHOBe BHewHenoTiMTMHecKHX 4>aKTopoB B Lļe/i ax AO/irocpoHHoro pa3BHTHfl PoccuňcKoří OeAepauuM (PROGRAM For THE EFFECTIVE USE ON A SYSTEMATIC bASIS OF fOREIGN pOLICY fACTORS WITH THE alM OF THE IONG-TERM dEVELOPMENT OF THE rUSSIAN

fEDERATION)/' rUSSKY nEWSWEEK, mAY 11, 2010, http://www.runewsweek.ru/ country/34184/

71 Ibid, pp. 78-82.

72 Moscow, ITAR-TASS, in Russian, May 19, 2009, FBIS SOV, May 19, 2009.

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form EU law for the various branches of the South Stream pipeine

throughout Europe (which clearly includes much of the Balkans

and would creae an "EU-free" zone of Russian influence there). The

exemptionss Gazprom seeks would exclulde the EU from any par-

ticipation or supervision of the pipeline and ensure that it is almost

if not as opaque as other Russian energy ventures..

One of the top priority goals of the joint venture after determining the

technical and economic prameters of the selection South Stream proj-

ect option will most likely be filing for the necessary exemptions form

the new gas rules (third party access, setting tarriffs on the network,

separation of ownership of operator and supplier) needed to guarantee

the interests of the investors.73

Equally imporantly through control over energy Moscow also

hopes to curtail the actual independnce of the post-Soviet states

from the Baltic south to the Black Sea. Effectively Moscow aims to

undo in practice the content of the post-Soviet and former Warsaw

Pact states' sovereignty. Thus Michael Emerson reports the com-

ments of a civil society leader in Belarus who told him that, "we

have the impression that Moscow has come to see a certain Finlan- dization of Belarus as unavoidable and even useful."74 As Emerson

describes the term, Finlandization means,

Remaining in Moscow's orbit for strategic security affairs (strategic

military installations, 50% ownership of the gas pipeline, no question

of NATO aspirations), but becoming more open to its EU neighbors for

personal contacts and eventual political liberalization and for modern-

73 Moscow, Interfax , in English, March 22, 2011, FBIS SOV, March 22, 2011.

74Michael Emerson, "Do we detect some neo-Finlandization in the Eastern neighborhood?" CEPS Commentary, May 28, 2009, http://www.ceps.be

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izing its economy. All this has the ring of plausibility to it.75

This internal hollowing out of European security structures

is directly tied to the leverage provided by the fourfold linkage of

Russian energy firms who seek to obtain downstream properties

in Europe rather than develop Russia's infrastructure, organized

crime, the intelligence services, and the government. European dip-

lomats and intelligence officers have acknowledged privately and

publicly that these Russian goals remain operative and even call

Russia a Mafia state based on the pervasive corruption that links

the government, security services, energy and other businesses, and

organized crime though their governments remain afraid to say this

in public.76 And the objective is simple: the subversion of European

public institutions.77 Indeed, the evidence to support this argument

is overwhelming 78 And if we were to investigate Russia's Balkan

75 Ibid.

76 Conversations with European intelligence and diplomatic officials, Washington, and Europe, 2008.

77 Keith C. Smith, Russian Energy Politics in the Baltics , Poland, and the Ukraine: A New

Stealth Imperialism? (Washington, D.C.: Center for Strategic and International Studies, 2004); Anita Orban, Power , Energy, and the New Russian /mper/Gf//sm(Washington, D.C.: Praeger, 2008); Edward Lucas, The New Cold War: Putin's Russia and the Threat

to the West, Updated and Revised Edition (New York and London: Palgrave Macmillan, 2009); Janusz Bugajski, Janusz Bugajski, Dismantling the West: Russia's Atlantic Agenda( Dulles Va.: Potomac Press, 2009);Janusz, BugajskiCo/d Peace: Russia's New //7ïper/'a//s/7?(Washington, D.C.: Center for Strategic and International Studies, Praeger,

2004); Richard Krickus, Iron Troikas{C arlisle Barracks, PA: Strategic Studies Institute of

the US Army War College, 2006); Valéry Ratchev, "Bulgaria and the future of European security", paper presented to the SSI-ROA Conference, "Eurasian Security in the Era of NATO Enlargement," Prague, 4-5 August 1997; Laszlo Valki, "Hungary and the future of European security," Ibid.; Stefan Pavlov, "Bulgaria in a vise", Bulletin of the Atomic Scientists, January-February 1998, pp. 28-31; Moscow, Izvestiya, in Russian, 19 June 1997, in FBIS SOV, 97-169, 18 June 1997; Sofia, Novinař, in Bulgarian, 10 April 1998, in Foreign Broadcast Information Service, Eastern Europe (hereafter FBIS EEU), 98-100, 13 April 1998.

78 Edward Lucas, The New Cold War: Putin's Russia and the Threat to the Wesf(London: Palgrave Macmillan, 2008); Robert L. Larsson, "Nord Stream, Sweden and Baltic Sea security," FOI (Swedish Defense Research Agency), March 2007; Robert L. Larsson, "Russia's energy policy: Security dimensions and Russia's reliability as an energy

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policies on a country by country basis we would see even more

clearly the critical role that energy and other facets of economic

warfare have played in Russian strategy right up to the present. In

other words, we are confronting a pervasive and strategic policy on

the part of the Russian elite.

Despite the enormous and dynamic changes in the global energy

economy and world politics since 2009 there has been no let up in

Moscow's efforts to use the energy weapon as is Swiss army knife in

Europe or Eurasia as well as the Middle East to serve Russian state

interests and undermine the global status quo. In more contempo-

rary manifestations of its efforts to use energy to achieve its strate-

gic objectives we can turn to three ongoing energy campaigns: he

campaign to circumvent the European Union through the projected

Turkstream pipeline - now itself an object of contestation due to the

unforeseen Russo-Turkish crisis generated by the shooting down

by Turkey of A Russian fighter jet in November 2015; the ongoing

effort to seduce Germany away from a unified stance with the EU

through the Nordstream II pipeline, Russian energy pressure in

Georgia, and energy policy in the Middle East.

TURKSTREAM

The suspended Turkstream project to bring Russian gas to Tur-

key where it would be sold to Europe at the border with Greece

thus bypassing the EU reflects Moscow's continuing efforts to iso-

late Ukraine from Europe, render Ukraine wholly or largely depen-

dent upon Russian gas, increase tis leverage over Turkey and other

Balkan states and fracture EU cohesion. Although South Stream was

blocked due to EU sanctions; Turkstream continues its tradition

supplier", FOI (Swedish Defense Research Agency), March 2006.

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and Moscow's proclivities to use energy as weapon of international

politics.

However, Moscow's recent gambit to establish "Turk Stream"

with Turkey to replace the defunct South Stream continues the use

of energy as a weapon with which to threaten vulnerable states. Turk Stream continues Moscow's efforts to force Ukraine into total

dependence on Russian energy and Russia while isolating it form

Europe. Moreover, in its recent moves on Turk Stream Russia es-

sentially has laid down an ultimatum to Europe. On January 14,

2015, Moscow unilaterally and abruptly cut off gas to Ukraine and

six other European countries that depend on those gas flows.79

Moscow has many motives for making this move. It is attempting

to force an easing if not an end to EU sanctions on it for invading

Ukraine. Second, Russia is blackmailing Balkan and other Europe-

an states into allowing it a free hand as well as major leverage on

their economics and politics by threatening them with gas cutoffs -

a long-standing Kremlin policy.80 Third, Moscow wants to destroy

any hope of Ukraine's self-rule by forcing it into eternal economic

and strategic dependence on Russian gas by threatening to freeze it

out, especially during the winter. Fourth, it aims to prevent Euro-

pean integration around the EU and also the enlargement of the EU

area through Deep and Comprehensive Trade Agreements (DCFTA)

otherwise known as Association Agreements with former Soviet

republics. Fifth, it wants to establish Turkish dependence on Russia

as the major, if not exclusive, provider of gas to that country. In this

connection, Moscow's December 2014 decision (which was not an

unplanned decision taken in a fit of pique) to terminate the South

Stream project through the Balkans and reroute it through Turkey

79 Stephen Blank, "Russia gives EU, Turkey and Azerbaijan an ultimatum on 'Turk Stream",

Eurasia Daily Monitor, January 22, 2015.

80 "Turkey's gas deals with Russia raise concerns of dependency", Today's Zaman, December 2, 2014, http://www.todayszaman.com/anasayfa_turkeys-gas-deals-with- russia-raise-concerns-of-dependency_365960.html

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would, as Turkish analysts admit, generate an outcome where Tur-

key would depend on Russia for over 70% of its gas.81 Moscow's re-

cent decision to cut of gas to Ukraine, Turkey and five other Balkan

states underlines the real dilemma that Turkey could face due to

this excessive dependence on Russian gas.

Equally crucial and sixth, by making this move now and by re-

routing South Stream through Turkey, Russia is striking at Azerbai-

jan and beyond it, at potential Central Asian exporters to Europe.

The Southern Gas Corridor is currently embodied exclusively by

the Azeri-Turkish program to bring gas through the Trans-Anato-

lian pipeline (TANAP) to the Turco-Greek border and thence to the

Balkans through the Trans-Adriatic pipeline (TAP) and regional interconnectors (TANAP-TAP).

If Turkey became excessively dependent on Russia, Moscow

would exploit that dependency to place enormous pressure on

Turkey to downgrade the TANAP-TAP line and to block the SGC's

intentions to integrate Central Asian gas producers with European

markets. The failure to realize the potential of the SGC would mar-

ginalize Azerbaijan, restrict its access to key markets and ability to

move toward Europe, diminish its future cash flows, and entail the

diminution of its sovereignty and influence. Since Azerbaijan has

moved strongly in the last four years to become a genuine player in

Balkan energy markets and forge strong commercial ties with Eu-

ropean energy markets, Russia'srecent gambits clearly threaten vital

Azerbaijani interests, including SGC, which is a vital Azeri interest.

Indeed, attesting to the severity of this new threat to Azerbaijan,

Turkey, and their European customers and partners, Russian com-

mentators have approvingly commented that this, decision speaks to

Europe (and others) in the language of ultimatums. Thus the night-

mare currently taking place in Ukraine is by no mean an accidental

81 Stephen Blank, "Azerbaijan's security and U.S. interests: Time for a reassessment", Institute for Security and Development Policy, Stockholm, 2013.

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or unintended aspect of Russian policy. Ukraine shows that energy

subordination to Moscow cannot ultimately bring security or a

guarantee of no further Russian threats, quite the opposite.

NORDSTREAM II

Russia is still playing these games, most recently with the Nord

Stream II project. Here the prize is locking Germany and other

countries into a long-term energy relationship with Russia at the

expense of Ukraine and every other East European country. In

Germany's case, the mantra of Wandel Durch Annäherung, change

through rapprochement, or the new slogan of a modernization

partnership, even before 1989 led to Germany becoming the main-

stay of the DDR and its chief foreign banker, a morally as well as

strategically dubious position.82 And those interests in German

business and government who have portrayed their business deals

with Russia as being merely commercial ventures that nonetheless

will ultimately bring about this "Westernization" or modernization

of Russia have been proven to be quite wrong. The support of large

sections of the German business community for keeping the com-

mercial and thus political wires open to St. Petersburg at all costs

in the mistaken belief that this will lead to change in Russia is well

known and regularly articulated.83 More purely commercial motives

that play an enormous, if not critical role in German foreign policy

are at work here as well. These commercial motives are not merely

the lure of the Russian market, which in any case is disappearing

due to sanctions and crashing oil prices. It also has a more sinister

82 Timothy Garten Ash, In Europe's name: Germany and the divided continent{New York: Random House, 1993).

83 Stephen Szabo, Germany, Russia and the rise of geo-economics{Lor'óor': Bloomsbury Academic Publishers, 2015).

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side, as one of the most visible results of German business ties to

Russia is an upsurge of corruption scandals involving major Ger-

man businesses like Deutsche Bank, to name only one.84 The most

outstanding example of this corruption of German policy that ben-

efits only Russia and unilaterally undermines the EU is the effort to

build a second branch of the Nordstream gas pipeline from Russia

to Germany. As currently envisaged, Nordstream II violates most

provisions of the European Commission's policies aiming to reduce

dependence on Russian gas that is not just commercially unprofit-

able for Europe but also strategically unsound as those revenues go-

ing to Russia are also used to extend Russian political influence and

corrupt European economic and political institutions. Beyond these

facts, they create Russian leverage on European businesses that

translate into political influence upon European governments, par-

ties, and institutions. Third, Nordstream II deprives Ukraine of $2-3

billion in vital transit fees, for a pipeline that is not commercially

justified, as European storage capabilities are only 25-30% full.

Furthermore it enables Germany to bypass the EU and through a

series of interconnectors, reestablish the dependence of Balkan and

Eastern European countries upon Russian gas coming through Ger-

many rather than Poland and Ukraine.85

This project not only contradicts EU policies and the strate-

gic interests of both Germany and its allies, it also is deliberately

intended to bypass and thus undermine the EU. Vice Chancellor

Sigmar Gabriel of the SPD openly told Putin that this should be a

bilateral deal and that its chief virtue is that it bypasses Brussels, i.e.

the European Commission. Inasmuch as one of Putin's chief goals

is to shred the unity of the European Union and establish a lasting

**!bid, pp. 61-81; Walter Russell Mead, "The moral crisis behind the Deutsche Bank scandal", http://www.the-american-interest.com/2015/12/22/the-moral-crisis-behind- deutsche-banks-russia-scandal/, December 22, 2015.

85 Gabrielle Steinhauser, "Germany's Merkel defends Russian gas pipeline plan", Wallstreet Journal, December 18, 2015.

32

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Russo-German partnership that would inevitably be at the expense

of Eastern Europe and NATO Gabriel's remarks were music to his

ears and a telling example of the corruption of Germany policy.86

Even as Prime Minister Angela Merkel is advocating increased de-

fense spending to meet Russian military threats and has resolutely

supported sanctions due to Ukraine, she also supports Nordstream

II as a purely business deal with no political connotations.87

But since the deal makes no commercial sense given current gas

prices and the availability of cheaper gas from elsewhere, as well as

the underused storage capacity in Europe, it is clear that for many

in Germany this is not so much about gas as much as it is rather the foundation for a vast Russo-German business condominium in

Eastern Europe and Eurasia, that inevitably entails the fragmenta-

tion of the EU, weakening of the European Commission and thus

of and European unity. Not surprisingly, Italy, irate at being left out

of the deal and angry about Germany's double standards, evidently

wants to join it as well and Putin seems more than happy to offer it

a part of the action here, knowing full well that this will enhance

Russian leverage on Italy and across Europe, undermined European

cohesion, and the viability of the sanctions regime.88 So as a result

virtually every East European country has protested the Nord-

stream II project to the European commission (including Ukraine).

As of this writing the Commission's decision has not been rendered,

but its importance is clear as accepting the project opens the door

to a Russo-German energy and thus political condominium at the

expense of the EU and its rules in Eastern Europe.

86 Albrecht Meir, "Ausbau der Ostsee-Pipeline, ZweiGegenBruessel", Der Tagsespiegel http://www.tagesspiegel.de/politik/ausbau-der-ostsee-pipeline-zwei-gegen- bruessel/12596578.html/ November 16, 2015; "Putin - The Interview: For me, it is notborders that matter", http://www.bild.de/politik/ausland/wladimir-putin/russian- president-vladimir-putin-the-interview-44092656.bild.html, January 11, 2016.

87 Steinhauser, "Germany's Merkel defends Russian gas pipeline plan."

88 Gerardo Pelosi, "Putin makes overture to Italy over North Stream II", Sole 24 Ore, January 10, 2016, Retrieved from BBC Monitoring.

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CONCLUSION

Despite the major crisis generated to a considerable degree by

collapsing energy prices, the Nordstream II gambit as well as the

ongoing energy war with Ukraine show that Moscow will not and

indeed cannot stop utilizing the energy weapon. Indeed, due to

the collapsing energy prices Moscow is exporting more oil and gas

than ever before. Russian gas supplies to Germany increased by 17.1

percent, by 12.6 percent to Italy, by 36.8 percent to France, by 10.2

percent to Great Britain, and by 11.5 percent to Austria.

Germany, Russia's top gas buyer, purchased 45.3 bcm of Russian

gas last year, an all-time high.89 Should Nordstream II go through,

and prices go up as will eventually happen, those outcomes could

lead to the Russo-German condominium with corrupting effects on

European solidarity and especially Germany while extending East-

ern Europe's dependence upon Russian gas and all the consequenc-

es flowing form that. Therefore it is necessary to counter this de-

pendence by stepping up European reliance on other suppliers like

the U.S. who can now export gas and oil to Europe thanks to new

legislation. This also means building the re4quisite infrastructure

both in the U.S. and Europe, i.e. interconnectors across Eastern and

Central Europe, as is now happening. With the construction of the Polish and Lithuanian LNG terminals and the network of intercon-

nectors coming into play, gas from Azerbaijan and the U.S., not to

mention Middle Eastern suppliers and even Norway, can go to Eu-

rope and be distributed across the continent. Other key moves are

ensuring the Southern corridor through Azerbaijan and ultimately

Central Asia that brings gas to Turkey and then to the Balkans and

beyond, the implementation of the European Commission's Third

89 'UPDATE 1-Gazprom says Russian gas exports to Europe up 8 Pet in 2015' Reuters , January 11, 2016.

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Energy Package preventing Russian monopolization, and strength-

ening of trends towards an all-European gas policy. None of this

will end Russian energy exports to Europe, an outcome that is, in

any case, impossible and inconceivable. But these measures, plus

the return of new production to market when prices revive will al-

low for the globalization of the gas market so that it becomes more

like the oil market where oil is traded as a commodity in strict busi-

ness terms whereas gas is intrinsically a political product given the

necessity of pipelines and other infrastructure.

Only by moving forward on these kinds of reforms can we re-

duce the politicization of gas and oil exports, the corruption of Eu-

ropean politics by Russia, and the destabilizing use of energy as a

political and other weapon to consolidate the Putin regime at home

and empire abroad. These moves are not going to happen overnight

but we must move forward because if we do not do so the prospects

for war in Europe, which are no longer inconceivable, will remain,

and could well grow in likelihood. And as Russian elites regularly

and have officially stated, the cause for that struggle might yet be-

come the struggle to control Russia's energy resources. And by then

not only the energy weapon but every other one may have been de-

ployed.

ECONOMIC WARFARE A LA RUSSE: THE ENERGY WEAPON AND RUSSIAN NATIONAL SECURITY STRATEGY 35

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