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Russia: Is Moscow Seeking Political Power Through Energy Wealth?

A new wave of Russian energy investment is challenging nearby countries to deal with worries from the Soviet past. Many will have to answer the question of whether Russia is simply seeking business opportunities for its growing oil wealth or another path to regain political power.

Boston, 5 September 2002 (RFE/RL) -- Russia's rising oil profits have posed a political question for neighboring countries which must decide whether it is time to trust Moscow again with their energy security.

What began as a recovery from a 1998 currency crisis has now turned into a shift of oil wealth and power toward Russia. The country has defied the Organization of Petroleum Exporting Countries (OPEC) to boost its income and become a major buyer of foreign assets this year.

More than a decade after many countries were freed from the Soviet sphere and control over their energy networks, several now face the prospect of takeovers by Russian oil companies on commercial terms.

This week, Lithuania and Poland are both deciding how to deal with the question.

On 3 September, Lithuanian President Valdas Adamkus said he welcomes a move by Russia's Yukos oil company to take a controlling stake in the country's Mazheikiu Nafta refinery. The facility with its oil terminal at the port of Butinge has been seen as a key national asset for years.

Despite concerns about turning it over to Russian interests, Adamkus took care in an interview with Lithuanian Radio to call Yukos "a company of Russian origin" rather than a Russian company. Adamkus argued that the deal "should be viewed from a purely business perspective."

Economics Minister Petras Cesna also spoke in favor of the Yukos acquisition, but he made clear that the government saw no choice after the withdrawal of the U.S.-based Williams Companies from the refinery last month. The only option would be to buy more shares in the facility, which has already lost huge sums for the past seven years.

But opposition lawmakers and the Union of Former Political Exiles and Prisoners oppose the Yukos purchase. The union's chairman, Povilas Yakuchenis, called it "fatal for the Lithuanian state." The government has until 20 September to make a final decision on the sale.

In Poland, the government of Prime Minister Leszek Miller has delayed the $1 billion sale of the Gdansk refinery to a group including Yukos rival LUKoil. A decision was expected last week, but Reuters reported on 2 September that the government would not say when it would come. Miller cited the sale's "political context" in calling for closer examination in July.

In Ukraine, a settlement on gas transit and debt also appears stalled over Kyiv's insistence on retaining majority control over its pipelines in a consortium that was to include Russia's Gazprom with interests from Germany and France. Last week, Ukrainian Prime Minister Anatoliy Kinakh told Interfax, "We believe this is a justified and objective attitude on the part of Ukraine, considering the importance of the gas transit network for us." Kyiv has long regarded Gazprom's bid for power over the transit lines as a matter of state sovereignty.

In Georgia, similar sentiments have been aired over the deal to give the Russian gas trader Itera a majority in the joint venture Tbilgazi, which would run the country's gas grid. Last week, Georgian opposition leader Mikhail Saakashvili charged that Itera is "an appendage of Russian special services," the Prime-TASS news agency reported.

In the cases involving LUKoil and Yukos, the acquisitions would be unlikely without the stunning growth of Russian oil output and exports in the past two years.

In the first eight months of 2002, oil production jumped 8.6 percent from the year-earlier period at a time when OPEC has been trying to hold the line in order to keep world prices high. Russia's crude exports outside the CIS rose 6.8 percent in the first half of the year. Production by Yukos soared 16.5 percent. On 4 September, Interfax reported that Russian crude exports gained 15 percent through July, although the figure is believed to include supplies to the CIS.

This performance raises two key questions about Russia's energy policy and the rapid growth of its investments abroad. The first is whether the drive for new acquisitions merely reflects the natural movement of capital into opportunities that promise returns. Companies like Yukos are behaving increasingly like Western businesses, which would not sit idle with investment funds on their hands.

The second question is whether Russia's buying spree in nearby countries is only an unintended consequence of its strategy of profiting from OPEC cuts and high oil prices. Or, has Russia's profit-and-purchase behavior all been part of the same plan?

There seems little doubt that Russian President Vladimir Putin has dealt shrewdly with OPEC as a matter of national interest. After first refusing to cooperate on oil prices last year, Moscow promised token export cuts last December. Analysts saw the deal as a sham to camouflage non-cooperation and record export growth.

But it may be harder to argue that Russia planned all along to invest the proceeds of profiteering on OPEC in the old East bloc and "near abroad." In any case, the question of energy security among Russia's neighbors may come down, more than at any time in the past decade, to a matter of trust.

The investment trend under Putin is a dramatic reversal, not only from the decline of the oil industry under his predecessor Boris Yeltsin but also from the energy strategy of Soviet President Mikhail Gorbachev.

In the late 1980s, it was Gorbachev's abrupt decision to end subsidized oil exports to Eastern European countries that helped turn them toward the West. Now, Russian energy investment seems to be returning on Western business terms. But in some countries, the move still seems sudden after more than a decade of distrust.