TROIKA REPORT: EU ready to pin down Gazprom; battle lines drawn against Russia at Arctic Council; Moscow alarmed as Islamic State targets Afghanistan

RUSSIA BEYOND THE HEADLINES presents its weekly analytical program TROIKA REPORT, featuring a look at three of the most high-profile recent developments in international affairs.

1. Engaging the West

EU ready to pin down Gazprom with a €4 billion fine


The European Commission has given Gazprom 12 weeks to respond to the Statement of Objections. Source: AP

Reigniting an old dispute over Gazprom’s place on the European energy market, the European Commission, namely Margrethe Vestager, the EU’s competition commissioner, has pulled the trigger on the Russian energy company by sending it a Statement of Objections. This looks like a disengagement policy on the part of the EU, Moscow experts told Troika Report.

The document accuses Gazprom of violating several regulations supporting the free market, in particular, fair play in the energy sector.

Firstly, Gazprom is charged with partitioning the market by introducing territorial restrictions and thus preventing customers from re-exporting gas to other clients. The EU claims this contractual provision has enabled Gazprom to over-charge without fear that its gas could flow to other markets and be sold much cheaper.

Secondly, Gazprom has linked its pipeline projects to supply deals and prices, and it left few choices for the EU nations, which are importing Russian gas, to diversify and find alternative suppliers. This practice amounts to an abrasive breach ofcompetition rules, according to the Statement of Objections.

Thirdly, in the Statement of Objections Ms. Vestager’s office claims that oil indexation in Gazprom’s long-term contracts was being used to charge unfairly high prices in five different countries: Lithuania, Latvia, Estonia, Poland, and Bulgaria.

Gazprom has rejected the charges contained in the Statement of Objections, calling them “unfounded” and insisting the Russian energy giant has adhered to “all the norms of international law and national legislation” where it does business. Gazprom’s statement emphasized that the Statement of Objections is “just one of the stages of the antitrust investigation and does not imply that Gazprom is being held liable for any violation of the EU antitrust legislation.” The official response also noted that Gazprom’s pricing practices “meet the standards that are used by other producers and exporters of gas.”

How relevant are the EU accusations, or rather the “allegations,” as it was carefully phrased by the EU’s competition commissioner? Does the Statement of Objections have a political lining? Troika Report approached a staunch critic of Gazprom, Mikhail Krutikhin, a partner and analyst at the Moscow-based RusEnergy consultancy, for comment:

“I do not believe this is political because the same experts have accused companies such as Google and Microsoft of violating European Union antitrust laws. Gazprom is a very interesting company in this sense. Some of the accusations appear irrelevant today. Gazprom has managed to abandon its monopolistic position, which prevented other suppliers of gas reaching out to end consumers. In September last year, Gazprom announced that it had changed its strategy in Europe and no longer insisted on playing a monopoly role at every stage of the chain from Russian gas well to European gas burner. Gazprom decided to deliver gas only to a hub on the border of the European Union, allowing European companies to build access pipelines.

The other accusation of the EU dealt with Gazprom’s differentiated pricing for national markets. The further the country from the Russian border, the lower the price. This is a paradox, at first glance. But the fact is that Gazprom has been able to raise the price for countries which have no other means to meet their gas demand. These countries were ready to pay a premium on Gazprom gas because they had no alternative suppliers. This is the case for Lithuania, Latvia, Bulgaria and several others. These EU accusations about higher pricing will be difficult to prove.

However, there are some serious charges against Gazprom, namely its subsidiaries and their fraud schemes. For instance, when Gazprom sold gas at a fraction of the real price to its subsidiaries, Overgas Holding AD in Bulgaria and Gazprom Germania, and then these two companies resold gas to a local distributor, Bulgargaz, at a price more than three times higher than the original one.

What next? The European Commission has given Gazprom 12 weeks to respond to the Statement of Objections. The Russian company has the right to call an oral hearing to make its defense, though industry experts question whether the threat of being fined up to €4 billion is realistic. Any solution will take months. But it is evident that a settlement, let’s call it a “workable deal,” would be preferred by both sides since the European Commission is hardly likely to find a worthy substitute for Gazprom as a key gas supplier even in the mid-term, let alone the short-term. 

 

2. Globally speaking

Arctic Council: a new battlefield between Russia and the West?

 

(Left to right) Minister of Education and Science Dmitry Livanov, Deputy Prime Minister Dmitry Rogozin and special presidential envoy Artur Chilingarov during the meeting of the participants of the 8th Russian youth expedition "To the North Pole - on Skis!" in Longyearbyen, Spitsbergen. Source: Sergey Mamontov / RIA Novosti

Controversies over political issues, namely the difference between the Russian and Western approaches to the conflict in Ukraine, are threatening to ruin cooperation within the Arctic Council.

The ministerial meeting of the Arctic Council, held last week in the northern Canadian town ofIqaluit, almost turned into a verbal battlefield when Leona Aglukkaq, Canada’s environmental minister and the chairwoman of the organization for the past two years, took Russia to task over its involvement in the hostilities in Ukraine.

This criticism came at a particularly inopportune moment. The drive to untap the mineral riches of the ice-capped region has increased competition between Arctic nations while the recent tensions between Russia and the West have resurrected the specter of the Cold War.

Recently, Oslo blamed Russian Deputy Prime Minister Dmitry Rogozin of violating the sanctions regime by setting foot on the Norwegian island of Spitsbergen on his way to the North Pole. Moscow retorted that in its view Mr. Rogozin’s short stop did not violate international law. Moscow’s stance is as follows: according to the Svalbard Treaty of 1920, citizens of any treaty signatory country may visit the island without a visa, especially in the case of the Russian settlement, Barentsburg.

These two episodes bear witness to the danger of politicizing the work of the Arctic Council. The organization, which ismade up of Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the United States, was created in 1996 as a diplomatic forum to foster understanding and cooperation in the region.

Canada and Norway have been among Russia’s harshest critics over the development in Ukraine. Now the chairmanship has been passed over to the United States. Will recent adverse events turn the Arctic into a new terrain of hostilities?

Here is the opinion of Fred Weir, chief of Christian Science Monitor’s Moscow bureau, who shared with Troika Report this somewhat pessimistic forecast:

“With the U.S. set to take over chairmanship of the Arctic Council for the next two years, we can basically expect to see the new Cold War tone extend to yet another forum of international cooperation. It's a pity, since the Arctic was one zone where, despite a bit of saber-rattling from Russia and Canada in recent years, it had looked as though a truly complicated problem of territorial division — of undersea resources opened up by climate change — was going to be solved in a rational spirit through the institutions of international law.

But the crisis over Ukraine has been gradually poisoning East-West relations across the board over the past year. The outgoing chairman, Canada, has been one of the hard-line countries in terms of isolating and sanctioning Russia, and it used the position to cancel an Arctic Showcase event that was supposed to be held in Ottawa this month, just to block Russian participation. The other main hardliner, the U.S., is now set to take over. Hence, we can look forward to an increase in acrimony and tit-for-tat insults that will only serve to spoil the chances of cooperation in the Arctic for years to come.”

Fred Weir’s pessimism may be well founded but the parties concerned have not yet passed the point of no return. Russia’s minister of natural resources and the environment, Sergei Donskoi, who attended the summit, emphasized that Russia was opposed to engaging in politics where the Arctic was concerned. He insisted that “there is no room here for confrontation or for fear mongering.”

The sentiment was shared by Finland’s foreign minister, Erkki Tuomioja, who did not like the prospect of political disputes becoming stumbling blocks in dealing with economic, social and environment issues in the Arctic. “It’s in no one’s interest to let problems elsewhere impact cooperation in the Arctic,” he said.

U.S. Secretary of State John Kerry, representing the new host nation of the Arctic Council, also struck a conciliatory note by saying that focusing matters on military activities in the region “could really deter” participants from the overall work, which should be focused on social and environmental issues. 

As it stands, Troika Report believes that there is still a reasonable chance that the Arctic Council will not be engulfed in a vicious circle of tit-for-tat insults.

 

3. Going Eastward

ISIS targets Afghanistan; Moscow sets the alarm bell ringing


People run for cover after an explosion in the Afghan city of Jalalabad, April 18, 2015. Source: Reuters

The Islamic State militant group has expanded its operations by adding Afghanistan to its hit list and directly challenging the Taliban in its role as the pretender to local hegemony, leading Russia to voice its concern over the matter in the United Nations Security Council. A broadening of the campaign being waged by ISIS could engulf Afghanistan, turning it into a hotbed of terrorism in the region, from where it could threaten Central Asia, Russia’s soft underbelly.

Lately, ISIS has claimed responsibility for a suicide bomb attack in the Afghan city of Jalalabad that killed 35 government officials and military personnel who were queuing to collect their wages, as well as injuring 100 civilians.

The attack highlighted a gruesome development: Since last fall ISIS-affiliated fighters have expanded their control over areas previously administered by Afghan government forces or by the Taliban. Gaining additional foothold on the ground was made possible by numerous defections from the Taliban.

In October last year, a former Taliban leader known as Hafiz Saeed Khan changed sides and, along with five other top field commanders and operatives, pledged allegiance to ISIS chief Abu Bakr al-Baghdadi. In January, Saeed was appointed the warlord in charge of a new group called ISIS Khorasan, which has been commissioned to expand military activities across a wide region embracing Afghanistan, Pakistan, India and Bangladesh, as well as parts of Central Asia. 

It is now apparent that Islamic State is challenging the Taliban’s supremacy and threatens to steal away its role as the region’s primary fundamentalist religious force. 

Does the fact that defectors from the Taliban are joining ISIS spell doom for the “madrasah students,” as they were originally nicknamed? Pyotr Topychkanov, a member of the scientific council of the Moscow-based Carnegie Center, has this to say:

“The Taliban is not a united organization. From the beginning there were different factions in this movement with connections with Islamists, criminals, political parties in Afghanistan and beyond. From this point of view, if Islamic State fighters want to control the situation, they need to learn how to play the game in Afghanistan. I think they would need more time and more resources to do this.

“It will become more and more serious for Russia and neighboring countries. 

However, I feel pessimistic about the future of Islamic State in this region and I am quite optimistic about Russia’s abilities to face this threat.”

A much less upbeat prophecy was expressed by Ivan Safranchuk, editor-in-chief of the journal TheGreat Game: Politics, Business, Security in Central Asia, who predicts a major transformation of the Taliban movement. Following the seemingly inevitable clash with ISIS, the Taliban would most probably disintegrate. The moderates would legitimize themselves by going into politics, probably dissolving within the existing political parties and associations, while the radicals would join Islamic State and continue their lethal mission.

For the moment, it is essential to watch closely: Will the Taliban join Islamic State en masse, witness a split or slip toward extinction?

Should the latter happen and ISIS take the upper hand not only in Afghanistan but in Pakistan too, the two countries will become the stronghold of global jihad. This constitutes a grave danger for Russia and its allies in the Central Asian region. ISIS has once again proved that it is a global challenge and requires a concerted rebuff.

Unfortunately, the adopted UN Security Council resolution reiterates the necessity for the international community to lend a helping hand to the Afghan government to deal with the Taliban, al-Qaeda and other extremist groups, as well as drug traders, but falls short of pointing the finger at the new threat posed by Islamic State. 

Troika Report is rather puzzled by this oversight: Could this be the result of a lack of detailed intelligence? Or is it a short-sighted approach to what appears to be the largest single threat to stability across a vast region already prone to breeding fundamentalist and militant groupings?

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