Putin's Energy Empire Grows

The IHT reports that Russia has succeeded in winning a contract to build a natural gas pipeline to important Caspian resources in Turkmenistan. The deal reflects a triumph of sorts for economic pragmatism and Russia's control over the energy sphere in its own backyard. The United States had been aggressively pushing an alternative pipeline that would have run away from Russia in an attempt to loosen Russia's grip on Europe's energy markets.

Of course, American diplomats and the assorted multinationals behind the alternative proposal were operating from something of a disadvantage. Russia claims the pipeline it plans to build will cost $1 billion. The American pipeline would have cost $10 billion. Turkmenistan was nonetheless willing to look at the American proposal because of its potential to get the country out from under Russia's thumb.

In particular, Russia's current energy needs are met by buying approximately 80% of Turkmenistan's natural gas for about $100 per 1000 cubic meters. The problem from Turkmenistan's point of view is that Russia is simultaneously selling its own natural gas for $255 to Europe.

Turkmenistan's president will no doubt attempt to use the spectre of an alternate pipeline to encourage Russia to pay more for the energy, but ultimately the only economically viable proposal involved a pipeline to Russia.

At the same time, Putin continues his brutal energy diplomacy with Europe. The world watched with baited breath when Russia cut off supplies to Europe through Ukraine when Ukraine siphoned off some of the natural gas to run its economy. But Russia also shut down a pipeline to Lithuania in July and hasn't turned it back on. Lithuania's continued energy insecurity could spark a confrontation between the EU and Russia the next time Putin tries to raise rates.