Russians, Gas and the WTO


Energy makes the world go around, and the biggest players are the ones with the greatest resources... like Russia. However, says Robert, our correspondent in Europe, while most countries embrace Russian attempts to re-enter the economic world stage, the U.S. government seems less thrilled by this prospect. Read here what he has to say.

On September 8, 2005, representatives of Russian and German gas firms gathered in Berlin to sign a momentous contract. Russia's Gazprom and Germany's BASF and Eon agreed to jointly construct a pipeline directly connecting the two countries. About 750 miles long at completion (planned for 2010), most of the pipe will run along the floor of the Baltic Sea. It will cost an estimated US$8 - 10 billion and increase the gas supply to Germany by 27.5 billion cubic meters per year initially, rising to 50 billion cubic meters annually in later years. The same pipeline will provide Scandinavian countries and Great Britain with gas. (Total supply of Russian gas to Western Europe to date is 116 billion cubic meters per year.)

Not every EU country, however, is enthusiastic about the project. Poland and the Baltic states have expressed fears that Russia will soon be able to dictate gas prices and thus regain political leverage in Europe. The question is: How realistic are these fears?

It is true that the costly new pipeline is deliberately bypassing other recipients in Eastern Europe. From a Russian point of view, however, this is understandable, as these countries--such as Ukraine--could act as "gatekeepers", forcing lower prices in exchange for granting "right of way." Also, the fears voiced by the Eastern European countries disregard at least two facts: first, natural gas is not the only source of energy, and even though Russia has large reserves of coal, oil, and uranium, it is nowhere near as dominating in these sectors as with gas. Second, trade is never a one-way street. Russia needs other countries' know-how and technology at least as much as they need Russian gas. While Russia knows it may not overcall by asking too high a gas price in the future, it does not want to be robbed either--therefore the "direct link policy".

But there definitely is a significant political dimension to this project, as illustrated by the fact that both German Chancellor Gerhard Schröder and Russian President Vladimir Putin were present at the signing of the agreement. Yet precisely this political dimension should allow the small neighboring countries to relax... because Russia's overarching goal is nothing less than its complete reintegration into the world economy from which it had effectively shut itself off after the Communist revolution of 1917.

Crucial for the attainment of this goal is a membership in the World Trade Organization (WTO), something Russia has striven for since 1993. And it certainly wouldn't do for an aspiring WTO member to inflict unreasonable economic pain on its neighbors. The recent gas agreements with Germany and other countries are but a stepping stone for Russian membership. It would be more appropriate for Poland et al. to fret about any obstacles that lie in Russia's way toward its trade policy objective. Therefore, they shouldn't be worrying about Russia; they should be worrying about America.

A year ago, the EU had negotiated breakthrough concessions from Russia regarding average import duties, opening of the telecom and financial markets and the raising of domestic gas prices, all of these points crucial for entry into the WTO. While Russia's bilateral negotiations with other countries, most notably China, are also progressing well, the U.S. insistence that the Russian Federation needs to do more to combat intellectual property (IP) violations--in particular regarding pirated CDs and DVDs--has so far proven to be a stumbling block.

I could understand the U.S. stance on IP if the issue was industrial espionage in highly sensitive areas such as military technology. But CDs and DVDs? True, the losses estimated by the Office of U.S. Trade Representatives range at US$1.7 billion annually due to piracy originating in Russia. On the other hand, losses due to IP piracy originating from China--WTO member since 2001--are estimated to be twice as high. Also, the Internet being what it is, it is difficult to see how IP can be safeguarded in the future... except by an all-knowing, universally intrusive world government.

Regarding Russian entry into the WTO, has the Bush Administration, which officially supports Russia's bid for WTO membership, got its priorities right? Or is the lobbying force of the entertainment industry too strong? Or is there another agenda? Could it be possible that the real reason the U.S. is raising the stakes over this point is that they have most to lose from the reintegration into world economy of the one country over which they have the least military clout?

In the one and a half decades after losing the Cold War, Russia has come a very far way from its self-inflicted Communist exile. The many concessions, privatizations, breakups of monopolies and further efforts the Russian government has undertaken to become acceptable as a WTO member, not least combating and soothing unavoidable protectionist tendencies at home, demonstrates their utmost resolve. This huge country full of natural resources (e.g. one third of known natural gas reserves) and highly educated people ought to be allowed to return into the globalized world as soon as possible. America and the rest of the world have, on balance, much to gain from an economically reintegrated, modernized Russia. And this benefit will, I hope, win over the U.S. government in the not too distant future.



Energy does indeed make the world go around--especially these days when the theory of imminent Peak Oil is not viewed as the doomsday belief of a few fanatics anymore, but has gained widespread acceptance among the scientific and economic community.

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Posted 10-04-2005 2:12 PM by RobertGroezinger
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