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Russia: Analysis From Washington -- Bypassing The Baltics?

Washington, 14 February 2000 (RFE/RL) -- Plans for a new pipeline and port system that would allow Russian firms to export oil to Europe without transiting Latvia and Lithuania would appear to give Moscow powerful leverage over these two Baltic states.

But for a variety of reasons, rooted in politics, economics, and geography, such a pipeline system is unlikely to have that effect.

Last week, the Russian government formally approved the financing for the construction of an oil export route that would bypass Latvia and Lithuania. The $800 million project, if completed, would save Russian firms several dollars a ton in transit fees. And it would offer Moscow another means of putting pressure on these countries.

On the one hand, Moscow could in principle redirect the oil flows entirely, thus cutting into the national incomes of these states unless they showed a more cooperative attitude to Russian demands. And on the other, Moscow might play one off against the other, seeking to exacerbate differences among them.

These ominous possibilities have often been discussed by Russian policy analysts over the last decade. But there are three reasons for thinking that Moscow is unlikely ever to be able to exploit them fully.

First, this new exporting system is unlikely to be built anytime soon or possibly even at all. Last week's announcement is only the latest such declaration by Moscow of such plans. All others have foundered on an absence of funding or political differences among various Russian companies and politicians.

Russian officials last week said that the first section of the Baltic pipeline system, including the new Primorsk port, would begin in the first quarter of this year and be completed within 18 months. No independent analyst thinks that schedule is possible.

Moreover, the Latvian and Lithuanian routes enjoy an important advantage over the new Russian one: they already exist, while the latter does not. As a result, Russian firms are likely to continue to use both rather than shift all their exports to the bypass.

In that event, Moscow may indeed export more oil via the Baltic Sea but the Baltic countries may not suffer on that account.

Second, Moscow is unlikely to be able to force all Russian companies to toe the line even if it decides to try to exploit the existence of a bypass pipeline, should that be built. Over the last five years, Russian officials have complained frequently about their inability to force Russian firms to shift export routes.

When Moscow was interested in pressuring Latvia, it sought to push Russian firms to export oil and other goods through Lithuania. But economic forces -- namely, price and tariffs -- routinely overrode political considerations, and the shift Moscow wanted never happened.

Under the new Russian government of acting President Vladimir Putin, Moscow may have greater leverage, but even it is unlikely to be able to deploy the blunt instrument of shifting the flow of oil in ways that will have the political consequences Moscow would like.

And third, Moscow itself seems more interested in earning money from oil exports than in using them as a weapon on their own. Evidence for this also came last week when Russian officials indicated that they would attend an upcoming meeting of the Organization of Petroleum Exporting Countries but were not willing to limit production as OPEC requires.

Russia has benefited from the recent rise in oil prices. Indeed, many analysts have suggested that Moscow has been able to finance its military campaign in Chechnya only because of its earnings from petroleum exports.

In the short term, Moscow's dependence on this source of income is likely to remain very high, and that too will limit Russia's ability to use the oil weapon against the Baltic countries, even if it succeeds in bypassing them with another pipeline.