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Russia feels the heat over fuel

The Kremlin says its price increases are in line with market levels. Some fear a backlash.

January 29, 2007|David Holley | Times Staff Writer

MOSCOW — In the eyes of foreign critics like Georgian political analyst Ghia Nodiya, Russia has been bullying its neighbors for the last year or so, primarily by demanding sharply higher prices for natural gas and oil and cutting supply, if necessary, to get them.

The roots of the problem lie with Russia's emergence from an "inferiority complex" that it developed after the 1991 collapse of the Soviet Union, Nodiya said. Now, he said, with Russia's economy bolstered by high oil and gas prices, the country's political elite is "overconfident that Russia's influence can only grow."

But he warned that the Kremlin was risking a backlash.

To Russian President Vladimir V. Putin, however, the nation's only image problem is the hypocrisy of its critics. Asked at a news conference last week how he explained the foreign criticism often directed at Russia, Putin singled out Western countries, led by the United States, for refusing to accept his nation's recovery from its post-Soviet slump.

"A common saying has it that monopolies are always bad except in one case: when it's your monopoly," Putin said.

After the Cold War, "the illusion emerged in some quarters that the world was now unipolar and that all problems could be solved easily enough from one center," he added, in a dig at American dominance of global affairs. "Now we have a situation where Russia's economic, military and political possibilities are clearly growing and a new competitor is emerging, a competitor that was supposedly already out of the running.

"Who wants to move over and let in a competitor?" Putin said.

European concerns over the reliability of Russia as an energy supplier were heightened this month when a dispute over taxes and transit fees led Moscow to cut off supply to a pipeline crossing Belarus that delivers oil to Europe. A similar pricing dispute between Ukraine and Gazprom, the Russian state-controlled natural gas monopoly, led to a disruption of supplies to European Union countries in early 2006.

Critics and defenders of the Kremlin's policies often talk past each other. Speaking in Lithuania last May, Vice President Dick Cheney accused Russia of using natural gas and oil as geopolitical weapons. Putin responded by describing the United States as a wolf that eats whatever it desires.

"Russia is portrayed in the West as a clumsy bear that is trying to grab all its neighbors and take them back to his den. But this is an oversimplification," said Alexei Blinov of the International Center for Political Studies, a think tank in Kiev, Ukraine. "Before the price hikes, the profitability of Gazprom's operations in Ukraine was ludicrously miserable compared to deals for the same volume of gas sold to Western Europe. This just couldn't go on. It was unreasonable."

Moscow has also drawn particularly sharp international criticism for measures taken against Georgia last year that were seen as an attempt to undermine pro-Western President Mikheil Saakashvili.

Those steps included bans on the import of Georgian wine and mineral water, a cutoff of transportation links, deportation of some Georgians living in Russia without proper documentation and the apparent selective targeting of Georgian-owned businesses in Russia for tax inspections.

Beginning Jan. 1 this year, the price of natural gas sold to Georgia was more than doubled to $235 per 1,000 cubic meters, nearly the same price as that charged to EU countries.

Russia has also provided strong diplomatic support to separatist regions of Georgia and Moldova that are seeking independence.

Nodiya said Russia sought to pressure Georgians to depose their president and replace him with a pro-Moscow leader.

"But this plan backfired," he said. "The economy of Georgia is gradually and steadily growing. The people's support for Saakashvili is also growing. The Russian budget may be getting some additional revenues, but the big question is whether the loss of political prestige is worth it."

Backers of the Kremlin's tough stance say that Russia is simply insisting that former Soviet states agree to pay market prices for oil and natural gas. That is true, they say, not only for pro-Western governments in Georgia and Ukraine, but also for Belarus, long a Russian ally.

"Those who accuse Russia of imperialism simply because we are raising our fuel prices to market levels are indulging in blatant Russophobia," said Sergei Markov, director of the Institute of Political Studies, a Moscow think tank with ties to the Kremlin.

Critics say Russia mishandled its dispute with Belarus by cutting off oil to exert pressure.

"It is not acceptable when there are no consultations about such moves," German Chancellor Angela Merkel complained at the height of the dispute. "That repeatedly destroys confidence, and you cannot build cooperation based on true mutual trust in this way."

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