Does Russia care whether or not it is a 'reliable' energy supplier?
 
European criticism of Russia's reliability as an energy exporter in the wake of the recent suspension in oil exporters via the Druzhba pipeline is likely to fall on deaf ears in the Kremlin.

SIGNIFICANCE

Although Russia resumed pumping oil via the Druzhba pipeline to Europe yesterday, European Union leaders and member governments - which roundly criticized Russia for halting oil exports in a dispute with Belarus - should take note that Russia acted not in response to their criticism but in its own interests.

IMPLICATIONS

Saying that Russia has dented its credibility in the Belarus dispute and questioning Russia's reliability as an oil and gas supplier will have little effect on Russia's energy policy, which is only likely to become more focused on achieving the country's own goals in light of the fact that Russia was nearly universally blamed for the Druzhba halt.

OUTLOOK

The Kremlin (Russia's presidential administration) knows that - in the end, despite the criticism - the European Union needs oil and gas supplies to an extent that Russia can be 'unreliable' with few consequences - at least until the EU confronts Russia with a unified, cohesive energy policy.

CRITICISM CONTINUES TO RAIN DOWN

After a three-day halt in Russian oil exports to Europe via the Druzhba pipeline owing to a bilateral dispute between Russia and Belarus, Transneft, the Russian state-owned pipeline operator, confirmed yesterday morning that it had resumed pumping via the pipeline. Belarus, after canceling a US$45/tonne transit tax, had confirmed late Wednesday (10 January) that it had resumed transiting oil via its territory, with European refineries reporting yesterday that they were once again receiving supplies in full. With Russian and Belarusian officials expected to reach a compromise deal to end their row over customs duties - likely today - the temptation is to say that problems have all been solved, right?

Wrong. While the European Union (EU) said yesterday that it welcomed the deal between Russia and Belarus to resume shipments via the Druzhba, the incident has obviously set off alarm bells among EU member states. Coming on top of last January's brief 'gas war' between Russia and Ukraine, which resulted in a disruption of Russian gas supplies to Europe via Ukraine, the Druzhba outage has further worried European policymakers about the EU's growing dependence on Russian oil and gas supplies. EU Energy Commissioner Andris Piebalgs said that Russia and Belarus 'should learn lessons' from the Druzhba oil halt, telling reporters that 'We ask from both producer countries and transit countries to be really reliable ... We call for transparent and reliable behavior in the future. We are paying for these energy resources and we are never late in our payment. We have a right and this should be understood by all countries, that you never disrupt supply.'

Similarly, International Energy Agency chief Claude Mandil yesterday urged Russia to recognize that halting the flow of oil via the Druzhba was a 'grave' incident from which the country should draw 'clear' lessons. Germany, which holds the rotating presidency of both the EU and the G8 at the moment, voiced satisfaction that the EU's calls for a resumption of supplies were quickly heeded. 'I welcome that our appeals for a rapid, constructive resolution of the oil dispute did not go unheard in Moscow," said German Foreign Minister Frank-Walter Steinmeier.

LIKE WATER OFF A DUCK'S BACK

Scolding Russia for damaging its credibility as a 'reliable' supplier to Europe, however, will likely have little impact on Russia's behavior. Just as with last January's gas war with Ukraine, Russia has acted throughout the recent oil dispute with Belarus in a manner suggesting it is looking after Russia's own interests, not the European Union's. European leaders patting themselves on the back in the assumption that their criticism of Russia's actions prompted a change in policy and a resumption of oil pumping via the Druzhba pipeline should think again about their Euro-centric views and consider that Russia has interests as well - and they don't always coincide with the interests of the EU.

Indeed, Russia seems to be relatively unconcerned by European accusations that the Belarus and Ukraine episodes means Russian energy exports are unreliable. Although Russia is by no means immune from criticism, and there is every indication that Russia wanted a quick restart to the Druzhba as well, the Kremlin demonstrated this week that it was willing to sacrifice its reputation for 'reliability' and its standing in Europe in pursuit of its own economic goals; in this case, a re-ordering of the customs agreement with Belarus to force Belarus to cede ground in the division of its oil product export revenues. A final deal to end the Russia-Belarus dispute is likely to see Belarus face the full effect of the US$180/tonne export tariff imposed on crude oil supplies to Belarus or a concession by Belarus to give Russia the majority share of revenues from Belarus's oil product exports of duty-free Russian oil imports.

While Europeans may think that Russia shot itself in the foot - and there certainly is an element of 'cutting off your nose to spite your face' in Russia's actions - the Kremlin viewed the halt in the Druzhba supplies as a necessary move to bring Belarus to heel and thus cancel the illegal imposition of a transit tax on Russian oil exports. In this regard, the Russian government determined that the need to pressure Belarus outweighed the negative impact on its reputation as a reliable supplier in Europe. Russian behaved similarly in last January's gas dispute with Ukraine, an indication of the Kremlin's consistency - some may say 'obstinacy' - and its determination to re-orient economic relations with its former Soviet neighbors, even if it damages Russia's relations with its European customers.

OUTLOOK AND IMPLICATIONS

Considering the media coverage of the past week's events, the Kremlin may also have determined that it had little to lose in pushing Belarus and moving to shut-in its own oil production in order to force Belarus to concede. Despite the fact that it was Belarus that acted preemptively to halt Russian oil transit, Russia was the one that took the brunt of the blame for the dispute, at least in the Western press. Instead of seeing a bilateral economic disagreement that flared into the international spotlight, much of the media coverage focused on the dispute as 'another example' of a politically-motivated attack by Russia on one of its former Soviet brethren, as if Belarus was somehow innocent.

With most of the Western press taking a biased approach with an assumption of Russian culpability, it is perhaps not surprising that the Russian government is deaf to the criticism of European leaders, figuring that the Kremlin will be faulted one way or the other, so Russia may as well as least pursue and achieve its own objectives. Since Russia knows that it has the oil and gas reserves and the European Union can do little - at least in the short-term - to diversify from Russian dependence, the Kremlin sees little concern in European yammering about Russian 'reliability'. Besides, the Druzhba episode made clear that the EU has 120 days' worth of oil stocks to meet consumption needs, so - in the final analysis - what difference does a three-day disruption mean aside denting Russia's reputation?

Of course, the recent halt will make the EU's efforts to reduce dependence on Russia that much more urgent, but Russia appears more concerned with re-orienting relations with its former Soviet neighbors in the short-term than any impact on its share of the European energy market in the long-term. Considering the disparate interests of the EU member states, the Russian government also is betting that questioning by the EU over Russia's 'reliability' as an energy supplier matters less than Russia's ability to meet the future oil and gas needs of individual member states. Russia has long taken a 'divide and conquer' approach to the EU, discounting EU scolding and shrugging off criticism of its reliability by reaching long-term supply deal with individual European states. Until the EU is unified in its approach to Russia with a cohesive energy policy, Russia will not change its cavalier approach to European energy security. Even if the EU is able to present a united front to Russia, the EU should take heed that Russia will continue to look after its own economic, political, and energy interests first and foremost - just as the EU's own member states have in dealing with Russia.