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Why The Russia Spy Story Really Matters

Gazprom Chief Executive Aleksei Miller attaches the Russian national flag to a pipe of the Nord Stream pipeline near the town of Vyborg in April. The pipeline should bring Russian gas directly to Germany, bypassing transit countries.
Gazprom Chief Executive Aleksei Miller attaches the Russian national flag to a pipe of the Nord Stream pipeline near the town of Vyborg in April. The pipeline should bring Russian gas directly to Germany, bypassing transit countries.
Invisible ink, instructions concealed in images posted on the Internet, a laptop in a Barnes & Noble flashing messages to a passing van: the high-tech spycraft used by the 10 now-confessed Russian intelligence agents arrested last month intrigues us because it rings of good old spy fiction -- and the exchange of the spies for four Russians convicted of spying for the West only adds to that feeling -- but it's less astounding than the farce.

A former KGB officer who handled the KGB's biggest-ever spies -- Aldrich Ames and Robert Hanssen -- in Washington during the 1980s calls it so absurd as to be unbelievable. "It's as if a kindergarten class decided to go into espionage," says Viktor Cherkashin, "not the intelligence service I knew."

But dismissing the latest spy scandal as indication the Russians are ineffectually still fighting the Cold War is to miss the big picture. In fact, Moscow is skillfully advancing its interests in the West, not through intelligence but business, often supported by crafty industrial espionage, influence-buying, and under-the-table deal-making.

Since Vladimir Putin took power a decade ago, Russia, the world's biggest energy exporter, has been extending an ever-tighter grip over Europe's energy market by vying for control over the pipeline networks, storage facilities, and utilities that deliver Russian oil and natural gas to European consumers. It has been doing that partly by rebuilding the influence it lost after the Cold War in former Soviet bloc countries that are now members of the European Union and NATO. "Russian energy companies are using their old, communist-era contacts," former Czech Environment Minister Martin Bursik says.

The contacts include lobbyist Miroslav Slouf, a former communist youth leader whose Slavia Consulting company brokered a deal by Russia's LUKoil to supply 20 percent of the jet fuel used at Prague's international airport last year. No other companies bid for the deal, despite a promise by then-Prime Minister Mirek Topolanek to diversify energy supplies. LUKoil's main promoter in the Czech Republic, Slouf also happens to be the right-hand man of popular former Prime Minister Milos Zeman, a social democrat who many believe to be eyeing the presidency.

State-controlled Gazprom has lost billions pursuing Russian foreign policy.
Fair enough, perhaps -- many officials say Russian companies behave no differently than their Western counterparts. "I don't think ordinary investments from Russia, the United States, Italy, China, Japan, Brazil, Germany, France, or anywhere else are a threat to our national independence," says another former prime minister, Social Democrat Jiri Paroubek.

But others disagree. Unlike Western firms, which lobby largely in their own interests, Russian state-controlled and private enterprises play an integral role in Kremlin foreign policy.

Surely no Western company would have agreed to lose billions of dollars by cutting off supplies to its customers. That's what Russia's Gazprom did when Moscow twice shut down gas pipelines to Ukraine in what looked very much like punishment for Kyiv's pro-Western policies.

Influence By Stealth

To conceal its designs, the Kremlin relies on a dizzying web of shell companies nominally owned and operated by Europeans but in reality controlled by Moscow to attack by stealth. Among them, a gas-trading company named Vemex has taken 12 percent of the Czech domestic market since its establishment in 2001 to sell Russian natural gas. Although there's nothing on Vemex's website to indicate it, the company is Czech in name only. It's actually controlled by Gazprom through a series of companies based in Switzerland, Germany, and Austria, including Centrex Europe Energy and Gas, which has helped spearhead the Russian drive to buy energy assets across Europe.

Centrex is registered in Austria and, according to Gazprom's website, founded by its own Gazprombank. But the company's real ownership is impossible to trace. According to the European Commission, Centrex is owned by Centrex Group Holding Ltd., registered in Cyprus, a company controlled by Gazprom's German subsidiary, and RN Privatstiftung, a Vienna foundation whose stockholders are unknown.

Why go to the trouble of hiding the real owners of companies either already known or believed to be controlled by Gazprom? Vemex is just one of a large number of enterprises Gazprom has set up in countries across Central and Eastern Europe to jockey for stakes in European energy utilities. By disguising the real owners, Gazprom makes its actions more palatable to Europeans wary of expanding Russian influence.

Investigative journalist Jaroslav Plesl points the finger at his own countrymen for enabling Moscow. Czechs are "willing to sell anything," he says of the staggering corruption in his country, something Russian companies have been able to exploit by taking advantage of nontransparent tenders. They also lobby to prevent the development of regulations that would prohibit those kinds of activities, with the effect of exporting the kind of corruption that dominates Russia.

Former foreign-intelligence chief Karel Randak fears there's little that can be done to counter those activities. "If the Russians want to gain control over some strategic assets in the Czech Republic," he says, "they will do it via companies in Switzerland or Western Europe, and no one's able to say the Russians are behind this or that firm."

Commerce As Politics

In Western Europe, Moscow has operated by making lucrative arrangements with foreign energy companies that become de facto lobbyists for the Kremlin within their own countries.

Italian Prime Minister Silvio Berlusconi (left) is known to be close to his Russian counterpart, Vladimir Putin, while Italy has backed a key Russian pipeline.
Germany, Italy and Austria are among those that have joined projects to build two major new gas pipelines from Russia that would deepen Europe's dependence on Moscow. The North Stream project -- which is building a pipeline to Germany directly from Russia, cutting out troublesome transit countries such as Ukraine -- is headed by none other than Germany's former Chancellor Gerhard Schroeder, who shocked many by taking the highly paid job only weeks after leaving office. His efforts in Berlin are aided by a network of former agents of the East German secret police, the Stasi. Among them is the head of Gazprom's German subsidiary, who worked with Putin recruiting spies when he was a KGB officer stationed in Dresden in the 1980s.

Signing up Schroeder, Plesl says, was the equivalent of "spitting in Chancellor Angela Merkel's face," an unmistakable reminder of Russia's influence among German elites, and something she couldn't ignore. The usefulness of such influence, on a country that relies on Russian gas for 30 percent of its supplies, is clear.

Taking office in 2005, Merkel talked tough about Russia, urging a fractious European Union to develop a common energy policy toward Moscow. But EU countries have failed to agree on a common policy toward Russia, while Germany's dependence on Russia continues to grow, partly because the Kremlin has persuaded customers it's too risky to look elsewhere for their gas.

Instead, when Washington campaigned to put former Soviet Ukraine and Georgia on a path to NATO membership in 2008 -- an issue that provoked fury in Russia -- Merkel led the successful opposition to the U.S. plan, despite international outrage over Russia's invasion of Georgia that year. At the same time, Germany blocked proposed EU regulations that would have restricted foreign companies from buying European energy utilities, a policy that could have slowed Gazprom's advance into Western Europe.

For Russia, which depends on its oil and gas exports, commercial energy interests and political power are inseparable. In 2008, Gazprom agreed to buy control over the entire Serbian energy industry just when President Boris Tadic was seeking crucial support from Moscow during his reelection campaign. This year, Ukraine turned its back on the Orange Revolution under a new, enthusiastically pro-Moscow president who extended Russia's lease of a Black Sea port of Sevastopol in return for a 30 percent gas discount. Ultimately Moscow expands its influence by eroding political autonomy in the target countries.

Although Russia is a long way from enjoying that kind of influence in the United States, Moscow has already enlisted extremely influential lobbyists, including former Secretaries of State Henry Kissinger and James Baker, who has worked as a consultant for Gazprom and Russia's pipeline monopoly Transneft. "They're not spying. They're shaping American foreign policy absolutely legally," says political scholar Andrei Piontkovsky. "So why does the Kremlin need to groom a dozen super-spies to gather information any competent journalist can compile in Moscow?"

Perhaps they were plants for a much longer-term project than we give Moscow credit for. What's clear is that their Keystone Kops bumbling shouldn't distract us from the fact that while Moscow's intelligence service may be lost still fighting the Cold War, Russia has been very busy on other fronts building an effective web of influence well beyond its borders.

Gregory Feifer is a senior RFE/RL correspondent. His book "The Great Gamble: The Soviet War In Afghanistan" was published in paperback this year. The views expressed in this commentary are the author's own and do not necessarily reflect those of RFE/RL