No. 3, 2005
Prof. Stanislav Zhiznin,
Dr. Sc. (Economics), Senior Adviser, Department of Economic Cooperation, RF Ministry of Foreign Affairs
SPECIFIC FEATURES OF ENERGY DIPLOMACY
The oil component of Russian foreign policy
The oil and gas industry has traditionally been a key element of Russia's foreign policy
and diplomacy in general. That was so both at the time of the Russian Empire and during
the Soviet period, and in today's Russia, energy diplomacy also plays an important role. The state diplomacy support is often indispensible when it comes to successful international business of oil companies.
The energy factor of Soviet diplomacy
Although energy diplomacy is a new phenomenon for Russia, the energy factor was quite important in the foreign policy of the Soviet Union. Back at the Soviet time, Russian foreign trade organizations effectively employed price war methods in their competition with the leading Western companies. By successfully overcoming discriminatory barriers, the USSR even managed to bring about a split among the members of the "seven sisters" cartel.
The mid-1950s, marked the start of a truly large-scale economic expansion of the Soviet oil industry into the world markets following an oil production buildup on the Apsheron Peninsula and in the Volga area. Later, new gigantic oil fields were put into operation in Western Siberia, and it was then that Russia seriously strengthened its positions in the world oil market.
In the 1970s, the West fell for the Soviet Union's oil and gas resources because of increasingly frequent conflict situations arising between the multinational companies and the OPEC. The country's main foreign partner in marketing Soviet gas in Western Europe was the West German company Ruhrgas. Negotiations with its representatives had been organized back in 1969 with the assistance of the Ministry of Foreign Affairs and the Ministry of Foreign Trade of the USSR. As a result, from 1973 on, Soviet natural gas began to be exported to the Federal Republic of Germany. In 1985, following a deterioration of Soviet-American relations, Washington ordered its allies to torpedo "pipes for gas" deal under which certain Western European countries, Federal Republic of Germany above all, were to supply linepipes for the construction of an export gas pipeline - as payment for the future deliveries of Soviet gas. However, owing to the efforts of Soviet diplomats, the deal was saved and duly carried out.
During the Soviet period, under the government monopoly of foreign trade, all products of the Soviet fuel and energy complex (FEC) were exported through specialized foreign-trade associations of the USSR Ministry of Foreign Trade. Consequently, any economic independence of Soviet enterprises was out of the question.
New conditions
Following the breakup of the USSR and privatization of a sizable part of Russia's FEC, independent companies came into being. When the government monopoly of foreign trade was abolished, many of these companies tried to pursue their own foreign economic policy. In the changed economic and geopolitical conditions it was necessary to work out a new energy policy for Russia - one which would reflect the priorities of energy diplomacy. In late 1993, the draft Fundamentals of Russia's Energy Strategy for the Period up to the Year 2010 were drawn up and forwarded to the Ministry of Foreign Affairs whose expert discovered the absence of a foreign policy section in it.
With the support of Yury Shafranik, then Russia's Fuel and Energy Minister, and his deputy Vitaly Bushuyev, a working group was set up to deal with the matter. The group was headed by this author and included representatives of the Ministry of Foreign Affairs and other departments, as well as members of the scientific community. Promptly, the group elaborated the initial conceptual documents on Russia's energy diplomacy which formed the backbone of a special section entitled "The Energy Strategy". That marked the beginning and development of Russia's policy and diplomacy in the energy sphere.
Upholding the national interests
The past ten years have seen an active formation of conceptual approaches and methods of realizing the potentialities of Russia's energy diplomacy.
The priorities of this diplomacy are largely determined by the special place occupied by the Russian Federation in the international arena.
On the one hand, Russia is an active member of the so-called G-8 group of states which, like most industrialized countries, are net importers of energy resources. These countries' global interests in the energy sphere basically boil down to securing for themselves long-term and stable import deliveries of energy resources at reasonably low prices. Such interests are upheld by the International Energy Agency (IEA) which was established at the height of the energy crisis of the 1970s to provide for the energy security of the West.
On the other hand, Russia is one of the leading net exporters of energy resources whose global interests boil down to securing for themselves long-term and stable revenues from the export of energy resources at reasonably high prices. Despite the objective fact that the OPEC states and Russia are competitors, their interests largely coincide since both sides wish to get fair prices for their oil on the world market.
While Russia's foreign economic policy is geared to upholding above all its own interests in the energy sphere, Moscow is also trying to ensure a reasonable balance of interests of all the parties involved.
Global priorities
The situation on the oil markets of the world is determined by a number of factors, the most important of which are economic and political ones. On the global level, Russian diplomats strive to use the political factors to secure for itself favorable prices on the oil markets, while at the same time trying to take the interests of the other G-8 states into account.
Following a sudden deterioration of the price situation on the world oil markets in 1998-1999, Russia has, on the initiative of its oil industry representatives, stepped up its cooperation with the OPEC, obtaining observer status at OPEC conferences. Since then Russia's representatives have taken part in the regular meetings of the OPEC oil and energy ministers, which has helped improve and stabilize to a degree the price situation on the world oil markets.
Russia is stepping up cooperation with the IEA on a wide range of problems outlined in the 1994 declaration on cooperation between Russia and the Agency. Very important for Russia is its participation, jointly with the IEA, in conferences on world oil markets, as well as the use of the Agency's highly professional analytical material on the world oil industry.
Being a member of the G-8 group, our country takes an active part in discussing the global energy issues, including the problems and prospects of development of the world oil industry, within the confines of that "elite" international club. Such problems were in the center of attention of the G-8 energy ministers meeting held on Russia's initiative in the spring of 1998 in Moscow and on the United States' initiative - on May 2-3, 2002 in Detroit. Every indication is that the subject of global energy security will figure prominently on the agenda of a G-8 meeting to be held in 2006 under Russia's chairmanship.
In all destinations
Russia bases its regional oil industry priorities on the provisions of the Energy Strategy which say that although Europe is the main region for the export of our oil and petroleum products, Russia is determined to expand the flow of its exports in the eastern and southern directions. The country's energy strategy envisages involving in its fuel and energy balance the hydrocarbon resources of the Central Asian CIS member-states, including the countries of the Caspian region. In this connection, rendering assistance in implementing a number of large oil industry projects, including the construction of strategic oil pipelines, is one of the priority tasks for Russian diplomacy.
In the energy sectors of many European countries Russia largely seeks to preserve and expand its sales market, gain a foothold in sales segments of their oil and gas business, obtain investments and transit routes. Hence its efforts to promote the Russia-European Union energy dialogue. It should be noted that so far the energy dialogue between Moscow and Brussels has not transcended the confines of politics - despite the attempts of the business communities in the EU and Russia to set up a regular energy-business forum within the framework of that dialogue. At the same time, Russia's "energy relations" with a number of EU countries are developing successfully both on the political and economic plans. In particular, this concerns Russia's relations with Great Britain, Germany, Italy, France, the Netherlands, and Finland.
The Energy Charter Treaty and related documents are very important for establishing a legal framework of cooperation in the energy sector of Eurasia.
Russia has quite a few energy-sector interests in the so-called post-Soviet space which is of prime importance for Russia's energy diplomacy. Its energy interests in the Caspian region are inseparable from its geopolitical interests in that region, as well as from its interests in the transport and other economic spheres. The Asia-Pacific Region (APR) is a priority area of Russia's foreign policy in general and its energy aspects in particular.
On the regional plane Russian diplomats focus primarily on providing diplomatic support for implementation of the international projects which affect the country's foreign-economic and geopolitical interests. These projects include the Burgas-Alexandrupolis, Druzhba-Adria, and BPS oil pipelines, as well as the Eastern SiberiaРPacific Ocean and Western SiberiaРBarents Sea oil pipeline systems.
The energy aspect, which has the oil component as its basis, largely determines the nature of Russia's bilateral relations in the foreign-economic and foreign-policy spheres with 60 or 70 other countries. The United States stands out among some oil-importing countries with which Russia has solid bilateral relations. And this despite the fact that Russian companies only gaining a foothold on the North American market. This is so because decisions of international financial institutions regarding the granting of credits to Russia's energy sector, including its oil industry, depend to a large extent on the United States. Therefore, Russia is interested in developing cooperation with the United States in the energy sphere. In this connection it should be noted that two successful business summits on energy matters have been held within the framework of the Russia-US energy dialogue started in 2002 (one summit took place in October 2002 in Houston, and the other - in September 2003 in St. Petersburg). Preparations for a third summit are now under way.
The other oil-importing countries with which Russia has bilateral business relations include the CIS and Baltic states, Turkey, Central and Eastern European countries, and, in the long term, a number of ARP nations.
Speaking about Russia's bilateral relations with oil-exporting countries, it would be appropriate to single out Norway which is the most important producer and exporter of oil and gas in Western Europe. Obviously, Russia and Norway have common interests despite the fact that they compete on the Western European oil and gas markets. Russia has complicated relations in the energy sphere with the resource-producing CIS countries, as well as with the transit states which have appeared in the post-Soviet period.
Russia's interests in the Persian Gulf area are primarily associated with the fact that the countries there have tremendous oil reserves and are the main suppliers of oil to the world market. Russia's relations with those countries are marked by both competition and partnership. Significant in this respect is the 2003 agreement on cooperation between Russia and Saudi Arabia in the sphere of energy, which laid the foundation for strategic partnership in the energy sphere between the two countries. Lately, the energy factor has come to play an increasingly important role in Russia's relations with a number of Latin American and North African states.
Moscow may successfully use its oil and gas potential in addressing its foreign-policy tasks. For instance, Russia's purchases of gas in Central Asia are becoming an important element of consolidating the post-Soviet space. Its export of liquefied natural gas to the United States and expanding the share of Russian oil on the American market may become a fresh argument for improving Russian-American ties, while its export of oil and gas to the East will build up Russia's political prestige in that part of the world.
In keeping with the rules of fair play
In the conditions of heightened competition on the world energy markets, the winners are only those companies which have both solid financial and economic resources and a vast experience in corporate diplomacy and which also enjoy strong support from the government. It is clear that without government support the Russian oil and gas companies would surely be at a disadvantage in competition with their foreign rivals on the international markets.
In recent years, such joint-stock companies as LUKOIL and Gazprom, which are active on the international markets, have often promoted Russia's national interests. And so the government must be interested in helping Russian oil and gas companies to expand the sphere of their operations outside Russia, thereby strengthening the country's positions in the international arena. The presence of Russian companies abroad, companies which make large investments into the local economies, undoubtedly enhances Russia's international prestige.
It should be noted that companies in the West have accumulated many-years' experience of practicing corporate strategies, and they coordinate their activities with their country's official diplomacy. An important part in such strategies is played by Russia and Russian companies. Therefore, it is necessary to study and utilize the experience of Western "corporate diplomacy" to promote the development of Russian companies and make their participation in the international energy business more effective.
