ARTICLE BY FORMER BRITISH AMBASSADOR, CRAIG MURRAY: Gazprom (*Russian boss of former Royal Dutch Shell Sakhalin-2 project)

Gazprom HQ Moscow 

By Craig Murray
Writer and broadcaster

As Britain’s outspoken Ambassador to the Central Asian Republic of Uzbekistan, Craig Murray helped expose vicious human rights abuses by the US-funded regime of Islam Karimov. He is now a prominent critic of Western policy in the region.

THE ARTICLE: June 1, 2007

GAZPROM

The identification this week of a “former” KGB officer, Andre Luguvoi, as the chief suspect in the murder in London of dissident Alexander Litvinenko, and Russia’s curt refusal to extradite him, reflects once again just how ruthless and audacious Putin’s Russian has become – and how little we can do about it. But in fact there is a less obvious, but more sinister, danger from the Kremlin that threatens the future security of every British citizen.

Which building in Europe houses the greatest potential power over Britain’s citizens? Is it the House of Commons or 10 Downing St? Is it rather the European Parliament or Commission? Perhaps the White House, or the Kremlin? This skyscraper, shelled in blue glass and topped by a pyramid, already holds a tremendous concentration of power, and it is growing. In ten years time its occupants will have the ability to make all Europe tremble. This is the corporate headquarters of Gazprom, Russia’s monopoly gas giant.

According to the European Commission, Europe currently gets 23% of its energy from natural gas. They predict that will increase to 30% by 2016. Already Europe is heavily dependent for this on Russia – which means on Gazprom. Some EU states like Slovakia and Bulgaria already get 100% of their gas from Russia, and many get over 50%. 43% of Germany’s gas comes from Russia, as does 27% of France’s. Both figures are set to increase dramatically, as Gazprom’s Nordstream project comes on line and as Western Europe’s – and especially Britain’s – natural gas reserves dwindle fast.

For technical reasons, unlike oil, natural gas is much more heavily dependent for large scale transport not on tankers but on fixed pipelne systems. There is much less capacity with gas for short term switching of supplier on the spot market. The EU as a whole is already highly dependent on Russia and yet is moving further into a position inside ten years where any interruption of Gazprom supplies, particularly in winter, would be devastating. There would be no way to avoid massive economic shutdown and numerous deaths among the vulnerable. By 2016 Gazprom will have the ability to cause more damage, just by turning off the taps, than the Red Army could have done short of nuclear war. Does this matter, or can we trust Russia? And how did our political leaders let us drift into this position?

Did nobody planning the “Dash for gas” worry that in the long term the gas would have to come from Russia? On the face of it, Britain is better placed than most of the EU. Very little of our natural gas comes from Russia, and we have entered long term contracts that tie up most of Norway’s production. But does anybody believe that, with Europe in chaos and essential services and industry short of power, both the UK and Norway could resist the politicla pressure to share out the available gas? In fact, the UK is especially vulnerable – we are a leader in the UK for the percentage of our electricity generated from natural gas. Anyway, we are strategically and economically dependent on Europe, which takes half our exports. Chaos there would knock our economy sideways.

The central skyscraper, surrounded by matching smaller blocks, sits in a massive, highly guarded compound in suburban Moscow. Getting in is more difficult than crossing many international borders. There is a twelve foot fence, razor wire, and a small army of armed guards, with rigorous document inspection for visitors. Eventually my passport is accepted and I am admitted. Inside the miles of pristine marble corridor and dark wood paneling seem brand new. Through a maze of corridors I am ushered in to the very grand room of Sergei Kuprianov, press spokesman for the Chairman of Gazprom. Sergei looks young and sharp, in a well-cut silk suit. But his manner is curious for a press spokesman; far from emollient, he is arrogant, even combative.

I start off with some emollient questions. I ask whether Gazprom is considering branching off into alternative, carbon-friendly technologies. “No,” Kuprianov replies bluntly, “We are only interested in serious commercial propositions. We do not regard wind or solar technologies as practical.” I probe a little further about public concern about global warming. “Fortunately public opinion in Russia has no interest in such matters,” he says brusquely. Denis Ignatiev, Head of Gazprom International Media Relations Division, has been sitting deferring to Ignatiev but here thinks it politic to add that that Gazprom sponsor an award for scientific advances in alternative energy technology. Kuprianov glares at him.

Coming closer to the point, I ask Kuprianov if Western Europe should worry about its increasing dependency on energy supplies from Gazprom. “Not at all”, he says, “this is a commercial transaction guaranteeing security of supply. We are committed to long term contracts. This is normal business.”

Only normal business is the last thing Gazprom is involved in. Gazprom is perhaps the most important tool in Putin’s armoury. He keeps a close eye on it. The Chairman of Gazprom is Dmitri Medvedev, First Deputy Prime Minister, close Putin ally and a possible Putin choice for his successor. The Trade, Energy and Foreign Ministers are all represented on the board at ministerial level.

Gazprom has been the instrument by which Putin has reasserted Russian hegemony over the Former Soviet Union, blackmailing European ex-Soviet countries by cutting off energy supplies in winter, and buying up the Central Asian ex-Soviet countries by taking over the heart of their economies.

More surprisingly, Gazprom is key to Putin’s harsh internal control. Mr Kuprianov often appears on the nation’s TV screens, which is easily explained. A year after taking power, Putin decided to stamp out independent media in Russia. When NTV, the only independent national TV channel, was closed down in 2001, it was Gazprom Media who took it over and turned it into a propaganda arm of the Kremlin. Gazprom went on to buy up Russia’s two large independent national newspapers. The last significant remaining one, Kommersant, was bought last November personally by the sinister Uzbek oligarch Alisher Usmanov, chairman of Gazprominvest Holdings. The Editor-in-Chief was immediately sacked while the longstanding defence correspomdent, Igor Safronov, mysteriously fell out of a window three months later.

Gazprom now controls a whole raft of formerly independent media outlets, encompassing TV, radio and newspapers from national to local level. All faithfully echo the Kremlin line. The era of free speech, ushered in by Mikhail Gorbachev through glasnost and perestroika, is now over.

Last week in the Mail on Sunday, I explained that there are two elements to the oligarchy in Putin’s Russia. The criminal Russian Mafia were in an exclusive position to benefit from the incredible fortunes to be made from Russia’s flawed privatisation programme. Putin has legitimised and co-opted them in return for their unwavering political support.

The second element are Putin’s own people, members of the KGB and former security services. The leading Russian social expert, Olga Kryshtanovskaya, has calculated that 58.3% senior officials under Putin are drawn from the security services, compared to just 4.8% under Gorbachev.

This month Alexander Lebedev, billionaire banker, oligarch, and an MP from Putin’s own party, told the BBC that the huge fortunes of Russia’s billionaire businessmen are smaller than the incredible secret fortunes built up by Putin’s current corrupt ministers. He named the Russian Minister for Social Security as perhaps the richest.

The effects are obvious. In mid-April, Garry Kasparov, former world chess champion, attempted to lead a peaceful march of 2,000 opponents of Putin. They were surrounded by 9,000 heavily armed security services who broke up the proposed march with much gleeful violence. Last weekend the EU-Russia summit in the city of Samara saw a minor diplomatic spat, as German Chancellor Angela Merkel complained that Kasparov and a few supporters had been detained at Moscow airport, and prevented from coming to demonstrate at the summit. Putin dismissed Kasparov as “Marginal” and “having little popular support”, going on to ask rhetorically: “What is pure democracy anyway.” He certainly does not seem to understand that democracy is a system in which minority views are not repressed.

Putin has waged a ruthless campaign to eliminate any major independent players from the Russian economy, be they foreign investors or wealthy businessmen not under his control. Shell’s purchase in 1994 of a 50% stake in the massive Sakhalin 2 oil and gas project – the largest in the World – was hailed as the great breakthrough for foreign investment in Russia. After seven years of harassment and obstruction under Putin, last month Shell were finally forced to sell up their stake for a bargain $7.5 billion. The buyer? Gazprom, naturally.

I ask Kuprianov whether this means foreign investors are no longer welcome in Russia. I was expecting a bland response assuring me that Russia remained open. Instead the reply made me sit up. “Russia no longer needs any foreign investment. Back in the 1990s, we lacked capital and we lacked expertise. Now we have plenty of both. We don’t need foreigners taking advantage of our resources. Russia will develop its raw materials itself.”

Ouch. Recently BP has been under pressure in much the same way as Shell, over its TNK-BP Russian joint venture. I confidently predict Gazprom will take that one over, too. BP also this year had the temerity to bid for some of the assets stripped from Putin opponent Mikhail Khodkorvsky’s Yukos group. Not surprisingly Gazprom won, in auctions which were not transparent, to say the least.

Merkel’s chiding of Putin was a welcome breakthough in straight-talking by the EU on the situation in Russia, yet it is Germany which has pioneered the policy of basing European energy strategy on gas supplies from Russia. The key development in this is the Nordstream project, a $9 billion joint venture owned 51% by Gazprom and 49% by German groups BASF and EON to bring a great pipeline straight into Germany from Russia via the Baltic Sea. A prime motive is for the route is political – to avoid the need to pass through Poland and the Baltic States, which remain from bitter experience deeply distrustful of Europe’s growing dependence on Russia.

Back in Moscow Gazprom’s spokesman, Kuprianov, explains that Gazprom’s plan is gradually to double gas supplies to Western Europe over a ten year period. Nordstream, and a Southern pipeline through Turkey to Italy, are key to this.

Nordstream is certainly high-powered. Its Chairman is former German Chancellor Gerhard Schroeder, who moved to take over this highly remunerative position immediately on retirement as Chancellor, in which position he had secured German government backing for the scheme and the necessary commitments to long term purchase contracts. For Schroeder to commit Germany to massive dependence on Russian energy supplies, and then move so quickly to join the project, raised rather fewer eyebrows in Germany than might have been expected.

In an effort to counteract reasonable fears across Europe, Nordstream has adopted the corporate slogan “Secure Gas Supply for Europe”. Many believe that slogan is designed to cover up the danger and convey the opposite of the truth.

So it all comes back to the question, how far does Europe trust Putin, and his successors? With the media completely under state control, freedom of speech heavily curtailed, and all opposition parties effectively banned from elections, at least we appear to be finally twigging that Russia is not a democracy – although the British government has been remarkably reticent among EU countries in noting the fact.

The murders of Politkovskaya and of Litvinienko, and of scores of journalists, should make us wary of the ruthlessness of the Russian authorities. So should the viciousness of Putin’s attack on Chechnya, which cemented his popularity and his position at the shaky start of his Presidency. It was not only Politkovskaya and Litvinenko who believed that the Russian security services carried out the bombings of apartment blocks in 2000 which justified that attack. I can tell you for certain that many professionals in the FCO believe it too, and I personally read reporting from our Embassy in Moscow which took it very seriously indeed. As highly respected Russia expert David Satter, who at the time of the bombings was Moscow Correspondent of the Financial Times, wrote in his book Darkness at Dawn: “Both the logic of the political situation and the weight of the evidence lead overwhelmingly to the conclusion that the Russian leadership itself was responsible for the bombings of the apartment buildings”. The Russian leadership are completely ruthless: Europe should avoid dependence on them at all costs.

In Moscow, I asked for a bottle of Georgian wine with my dinner. I was stunned that there was none – the best wine in Moscow restaurants always came from Georgia, and some of it was very good. In fact there is now no Georgian wine in Russia at all, as Russia has imposed a trade blockade over a variety of political disputes. It has caused massive hardship in Georgia, 80% of whose wine was exported to Russia.

Russia will impose bullying trade blockades at the drop of a hat. Crucially, Russia has at various times in recent years cut off gas to Ukraine, Georgia, Belarus and Armenia, while its client state Uzbekistan has cut off gas to Kirghizstan and Tajikistan. These blockades have usually been imposed in depth of winter, deliberately causing enormous hardship. They have been motivated by a variety of dispute.

Gazprom turning off the taps is therefore an established ploy of Russian foreign policy. So far it has not been used outside former Soviet states – but there are three of those in the EU. To date, Western Europe is not yet dependent enough for the weapon to be quickly effective. That is definitely changing, even as there is a notable long term deterioration in diplomatic relations between Russia and the West.

Some argue that we need not worry as it would not be in Gazprom’s financial interest to halt supply. That presumes Gazprom to be a normal commercial venture, which plainly it is not. Russia is a hydrocarbon exporting economy which has benefited enormously from record oil prices. It has built up substantial foreign reserves and these will continue to grow for the forseeable future. It could survive a gas standoff, particularly as its people are more inured to hardship than Western Europeans. Sanctions in international relations, from trade blockades to war, all carry an economic cost and if commercial interest were the overriding factor they would not happen. But they do happen, and to imagine Europe will not have a security problem because otherwise Gazprom would lose money, is naïve in the extreme.

Of course, it is not necessary for such a threat to be used for it to be effective. Europe’s dependence on Russia could just lead to a policy of meek subservience. David Clark, who I knew as a Foreign Office special adviser and is now Chairman of the Russia Foundation said last month “I do not believe in the Pearl Harbour scenario where Europe suddenly becomes completely dependent on Gazprom and the Kremlin shouts ‘Gotcha’. I do believe there is a process … going on under which European politicians will realise it is not in their interests to get on the wrong side of Russia.”

Tony Blair may go down in history as the most stupid man ever to have control of British foreign policy. He saw a terrible danger to the UK from WMD in Iraq, where there were none. He has been completely indifferent to Europe’s drift into energy domination by Russia. In April 2006 Gazprom entered into talks with an aim to purchasing a major stake in Centrica and British Gas. The Financial Times reported on 26 April that Tony Blair had decided there should be no attempt to block this. The next day the No 10 spokesman clarified that Blair thought it was a matter of “free trade” and was against “economic nationalism”. Amid general incredulity that Blair believed that Gazprom practised “Free trade”, George Soros, the billionaire financier and philanthropist, contradicted Blair, pointing out that Europe was relying on “a country that does not hesitate to use its monopolist power in devious and arbitrary ways.”

Accepting Soros’ wisdom, what can Europe do? One solution is to obtain alternative supplies of natural gas. The only viable major alternative sources are in the Caspian and Central Asian regions.

But at present gas from these regions can only reach Europe through Russia itself, and thus is controlled by Gazprom. There has therefore been great Western interest in building a pipeline out bypassing Russia, either through the Caspian Region to Turkey or Greece or through Afghanistan through Pakistan to the Arabian Sea. The United States has put a great deal of muscle behind this efforts.

Putin and Gazprom have provided an effective blocking game. The Caspian pipeline would have to pass through Azerbaijan and Georgia. Massive Russian pressure has been brought to bear, including cutting off energy supplies. Again, Kuprianov of Gazprom was brutal in replying to me about these proposed pipelines: “I would like to see who in that region would dare to die with the US!” he snorted.

Gazprom’s other tactic has been to secure for themselves the gas reserves of Central Asia. Turkmenistan, with a population of only 5.5 million, has the World’s third largest reserves of natural gas. A fortnight ago Putin toured the key Central Asian states, signing gas deals in each, the key one being an agreement with Turkmenistan to expand the Prikaskipsky pipeline and massively increase the transit of Central Asian gas through Russia.

Key to this triumph has been the Uzbek oligarch Alisher Usmanov, chairman of Gazprominvest Holdings. This subsidiary is the channel for massive slush funds. In November 2004, for example, a payment of $88 million to Gulnara, the daughter of President Karimov of Uzbekistan, secured Uzbekistan’s gas contracts for Gazprom from under the noses of the United States, which had originally secured them through a bribe from the subsequebtly defunct Enron. In a series of transactions typical of Gazprom, at the same time Usmanov transferred half of a Russian bank, Mapobank, to Putin’s private secretary, Piotr Jastrzebski. Jastrzebski was Usmanov’s former flatmate at Moscow Diplomatic Academy and bagman for Putin. Putin instructed Karimov in return for the cash to kick out the US military base which dominated Central Asia, and Gazprom had secured the strategic kingpin to dominate the Central Asian and Caucasus gas reserves.

Schroeder and Usmanov have become close through the Nordstream project. Analysts believe this has very much motivated a determined drive by the German Foreign Minister, a Schroeder protege, to persuade the EU to remove sanctions against Uzbekistan imposed following the Andijan massacre in which 700 pro-democracy demonstrators were killed by Karimov’s troops in May 2005. It also appears to explain a waning of German support for the Caucasus pipeline project.

I ask Kuprianov what precisely are the roles of Schroeder and Alisher Usmanov within Gazprom. Again, he is surprisingly candid. “Herr Schroeder is Chairman of Nordstream. His role is to use his influence with European governments to persuade them to support the Nordstream project and to remove political difficulties. Alisher Usmanov is not connected to Gazprom, but to a subsidiary, Gazprominvest Holdings. Mr Usmanov’s skills as a financier are well known. He devises vehicles for handling our most difficult and sensitive financial transactions.”

I had known from my own intelligence sources while British Ambassador in Uzbekistan that Usmanov was in charge of Gazprom bribery and slush funds. I had not expected Kuprianov to come so close to saying it straight out.

That leaves only one option to Europe if it wishes to avoid client status. It must drastically reduce its dependence on natural gas, particularly for electricity generation. This is also potentially helpful to reduce carbon emissions. We need to look around to those energy sources in which we are self-sufficient, particularly our winds, our streams, our waves and our tides. We need to increase the effort we put in to developing these renewable energy resources, and do so massively, beyond recognition. And we need to do so in the acceptance that it may be expensive, carry an initial economic cost. It is the cost of our security. Traditionally we have been prepared to pay that cost in armies and weapons. We have to accept that in the coming century energy security must be a major priority, and we must urgently enhance our self-sufficiency.

So Gazprom has now emerged not only as the monopoly supplier to Europe of Russian gas, but of Caspian and Central Asian gas too. Unless Europe reduces its dependency on gas, this represents a massive strategic threat to our security. It is a much more fundamental and credible threat to Europe than Islamic terrorism or North Korean nuclear weapons, but has received massively less publicity. Russia is strutting with a new arrogance on the World stage; let us retain out ability to thumb our nose when we wish.

http://www.craigmurray.co.uk/archives/2007/06/russian_journal.html#more

* text in brackets added by ShellNews.net