17.906 The Geopolitics and Geoeconomics of Global Energy, Spring 2007 Prof. Flynt Leverett Lecture 8: Resource Nationalism (IV) – Russia and Asia Resource nationalism • Russia is exemplary example of both types Russia • More aggressive ownership rights assertion by the state over international oil companies • During 1990’s there was a liberalization of the Russian energy industry o Foreign investment o 50/50 TNK BP joint venture o ExxonMobile almost took majority stake in Yukos • Under Putin there has been huge reassertion of state power in the industry o Gazprom and Rosneft  Both companies had IPOs in Europe o Came to believe that total control was not necessary… just 51% • Norwegian state oil company Statoil did this before Russia • Italian companies are currently trying to get a piece of upstream Gasprom and Rosneft (the parts that used to be Yukos) o They won’t have a majority stake by any means, but they are willing to play along with the hoops the Russians want them to jump through because the Italians believe that it is worth having some stake than no stake at all, and it will allow them to have more access to resources later on in the future • There are still opportunities for foreign companies to be involved in upstream portions of the Russian oil companies, but you have to be willing to play the games the Russians want you to go through; essentially you will won’t have any ownership in the strategic portions of the industry, but you will still get a piece Other form of Resource Nationalism • Controlling the rate at which energy resources are developed and marketd • Putin has created a new paradigm in energy policy o We don’t know what Yeltzin would have done in this same situation  During his two terms Russia was a different place economically  In first term, though, with his more liberal economic advisors might have taken a different track than what Putin is doing now o Putin came to office with a very different strategic paradigm in mind  Belived that these were strategic assets and the state needed to control how they were marketed and divvied out o Putin came into office with the hope of reestablishing Russia as a powerhouse (reverse what happened in Yeltzin’s terms)  Saw rising energy prices as perfect way to do this o Wanted to reestablish dominance in “Post Soviet Space” o 3 categories of countries that Putin is dealing with in PSS o Customers  Baltic republics  Ukraine  Moldova Cite as: Flynt Leverett, course materials for 17.906 Reading Seminar in Social Science: The Geopolitics andGeoeconomics of Global Energy, Spring 2007. MIT OpenCourseWare (http://ocw.mit.edu), MassachusettsInstitute of Technology. Downloaded on [DD Month YYYY]. Kyrgyzstan  Tajikistan o Transit countries  Where Russia supplies oil and gas  Also where Russia runs pipelines to reach markets in Europe  Russia has leverage over them, but they have some leverage too because they control the infrastructure in their countries à Can push back by shutting down pipelines, siphon off supply, etc. • Ukraine did this recently à Russia has done this 50 times to transit countries, but never to European countries  Moldova  Ukraine  Belarus o Supplier states  Central Asian producers à Kazakhstan à Uzbekistan à Turkmenistan  Russia is not paying market prices to these states, but they have the option of raising the prices if need be  Could stick with the existing infrastructure and pipe to Russia or they could spend lots of money on new infrastructure to other countries à Russians want to make sure the math still adds up to make it beneficial for these countries to pipe to Russia Putin’s use of Energy lever outside of Post Soviet Space • Europe and Asia (maybe US in the future but not now) o Very big supplier of gas to Europe  80% of production goes to Europe o Tried to increase dominant position in European markets • Doing this in ways that will increase leverage in former Soviet countries o Creating new infrastructure that will no longer go through current transit countries • Trying to coordinate relationships with other key exporters to Europe o Algeria  Easy place to go for gas if Europeans want to get away from Russian gas  Putin is trying to work more closely with Algeria to coordinate sales and exports to make sure neither is undercutting the other in gas market o Qatar o Libya o Egypt o (Iran) • Possibility of forming a “gas OPEC” o Putin says publicly that this is an interesting idea o Iranian leader also seems to think it is an interesting idea • Gas Exporting Countries Forum Æ could turn into “OPEC-like” but not likely Cite as: Flynt Leverett, course materials for 17.906 Reading Seminar in Social Science: The Geopolitics andGeoeconomics of Global Energy, Spring 2007. MIT OpenCourseWare (http://ocw.mit.edu), MassachusettsInstitute of Technology. Downloaded on [DD Month YYYY].17.906 The Geopolitics and Geoeconomics of Global Energy Lecture 8 Prof. Flynt Leverett Page 2o Russia o Iran o Algeria o Qatar o Libya o Egypt o Venezuela o Other African nations • At this point, with most gas tied up in long term contracts, you won’t see any sort of OPEC like quotas per month for each country o What this type of organization could do:  Coordinate the responses of major producers on certain policy issues à European Commission has pushed hard for liberalization of European energy markets à Essentially everything would be traded on a spot market basis in Europe • Russia, Algeria, Qatar are not so happy about this o Got commission to back down from eliminating long term energy contracts à Long term contracts should be indexed to the price of oil? • Might push prices above price of oil  Agree to allocate markets and market shares among participating countries à Something Russians like with respect to European markets Gas market is quite different than oil market • “Spot market” or future market determines price of oil in a given deal between countries o deals are reevaluated each month based on quality of output and markets • Infrastructure for exporting gas is very different o oil shipped in tankers o ~80% of gas is exported through pipelines  Fixed  Single-destination infrastructure  Buyer and seller are kind of locked in to