US-Ukraine Energy Dialogue III:
Securing Ukraine’s Energy Independence
The Need for a Trans-Atlantic Energy Security Strategy
Senator Richard Lugar
Presentation by Senator Richard G. Lugar, delivered at “US-Ukraine Energy Dialogue III”, Capitol Hill/Hart SOB Ninth Floor Forum Room, Washington, D.C., April 15, 2008.
I welcome this opportunity to participate in the U.S.-Ukraine Energy Dialogue Series. Increasingly, access to energy is at the heart of security concerns for both the United States and Ukraine, as it is for other European countries. This concern is manifested in sometimes desperate efforts to attain reliable energy supplies, and it looms across our multilateral relationships. Energy is so essential to maintaining a high quality of life that guaranteeing reliable energy supplies is sometimes conceived as an almost existential concern for countries. Likewise, the definition of our trans-Atlantic community and capacity for multilateral action is threatened if we are unable to act upon this most important of challenges.
In my view, the trans-Atlantic community now stands at a critical decision point that demands a collective energy security strategy. The most urgent challenge such a strategy must address is how to forge a more productive relationship with Russia as that country accelerates its drive to increase its influence over natural gas supplies to Europe. The current European strategy will be unsuccessful in meeting this challenge. Success at developing productive European and Russian energy interdependence requires much more European unity.
The absence of a collective energy security strategy will lead to greater fragmentation among European nations and across the Atlantic. This fragmentation will not be exclusive to energy policy; it may also detrimentally impact our ability to act upon shared security and economic issues. This concern was illustrated at the recent NATO summit in Bucharest, Romania. Members struggled to find agreement on final language affirming the future membership of Ukraine and Georgia. It was disappointing that Membership Action Plans were not awarded. Numerous reasons were cited for withholding the Membership Action Plans, including a lack of public support for NATO membership in Ukraine and frozen conflicts with Russian-backed separatists in Georgia. Yet Russia’s adamant opposition was the elephant in the room. Many alliance members are heavily dependent on Russia for energy, and they are well aware of Russia’s record of using energy to exert pressure o n neighboring countries.
Some countries enjoy long-term energy contracts with Russia and Gazprom, and are pursuing pipeline systems dedicated almost exclusively to meeting their own needs. Others are former Soviet and Warsaw Pact states located in what the Kremlin calls its “sphere of influence,” and may face Russian demands for foreign policy or economic policy concessions backed up by concerns of energy cutoffs.
Two years ago at the NATO summit in Riga, Latvia, I encouraged the Alliance to make energy security an Article V commitment in which a member experiencing a deliberate energy disruption would receive assistance from other alliance members. I argued that a natural gas shutdown experienced by a European country in the middle of winter could cause death and economic loss on the scale of a military attack. Such circumstances are made more dangerous by the prospects that nations might become desperate, increasing the chances of armed conflict and terrorism.
Many European friends felt I raised some valid points but that this was not a subject they were inclined to discuss in public. Others argued that energy issues should be handled by the European Union, not NATO. I am less interested in which organization leads the effort, than in ensuring that someone leads the discussion. Neither NATO nor the EU has developed an adequate strategy to address Europe’s energy vulnerability.
In the two years since the Riga summit, discussion of energy security has increased. However, the trend has been predominantly toward bilateral agreements as Gazprom seeks to increase its control over gas supplies, a situation that will have implications for European security for decades to come.
Bilateral deals with Germany to construct the Nord Stream pipeline and with Italy’s ENI to construct the South Stream pipeline will reduce Russia’s dependence on current transit countries while also blunting the economic position of non-Russian alternative pipelines like Nabucco. Russia has recently inked pipeline agreements with Greece, Bulgaria, and Hungary. These nations had little reason for confidence that their western neighbors would support them in case of an energy emergency. We should not be surprised that they reacted by seeking their own deals with Russia. Such deals are being made from positions of weakness. European governments are being pressured to surrender majority shares of national refineries and energy transportation systems. Meanwhile, Serbia agreed to sell its energy assets to Russia around the same time that Moscow declared its opposition to Kosovo’s declaration of independence.
Russia’s strategy is not limited to Eastern Europe. North Africa is a key source of natural gas for Europe, and Gazprom is seeking agreements with Libya and Algeria. An April 9, 2008, article in the International Herald Tribune underscored the consequences of this action: “Some analysts describe Gazprom’s moves in North Africa as a ‘pincer’ attack on Europe. They say if Gazprom succeeds in Libya and in Algeria, where it is already competing for contracts, it could end up dominating the supply routes to Southern Europe.” Russia has even advocated a global natural gas cartel and proposed a trans-Saharan pipeline linking West Africa to export terminals in North Africa in an effort to gain leverage over African gas supplies to Europe.
Gazprom’s monopoly-seeking behavior should not come as a surprise. We have seen in our own history that without regulation, many businesses will seek to gain monopoly power. The difficulty in restraining this tendency is multiplied when the business in question is backed by the Russian government.
Some European leaders have argued that energy is an economic issue that depends on markets and should not involve governments. Unfortunately, not all energy suppliers are playing by these rules. It is difficult to distinguish where the Russian Government ends and where Gazprom begins. Clearly Gazprom has sacrificed profits and needed domestic infrastructure investments to achieve Russian foreign policy goals. This is the crux of the problem facing the trans-Atlantic community.
The Kremlin and Gazprom have shut off energy supplies to six different countries during the last several years. These energy cutoffs were efforts at Russian intimidation. Unfortunately, neither NATO nor the EU provided assistance to its members. In fact, several European capitals were conspicuously silent, failing to even lodge complaints.
In this context, it is no surprise that Membership Action Plans for NATO and Georgia and Ukraine were complicated by energy security at the Bucharest Summit. Georgia has faced significant gas supply interruptions dating back to President Saakashvilli’s election victory. Ukraine has had energy supplies cut off several times. Russia made clear to European energy importers their strong opposition to Ukraine and Georgia receiving Membership Action Plans.
While several NATO and EU members have pursued a unified European energy strategy, others have frustrated the formulation of a European policy. The effect of Nord Stream and South Stream will be to increase overall European dependence on Gazprom, make certain countries like Ukraine more vulnerable to supply disruption, and make it easier to divide Europe on critical foreign policy issues.
Russia will be Europe’s preeminent energy supplier for decades, but this does not have to be a confrontational relationship. Nor do European countries have to be in a weakened bargaining position because of their import dependence. Right now, NATO and the EU have tremendous leverage in developing a more constructive relationship with Russia on energy.
Establishing a Trans-Atlantic Energy Policy
It is time for the trans-Atlantic community to establish a credible energy security strategy that diversifies energy sources for all Europe, establishes a collective framework to work with Russia, and refuses to tolerate the use of energy as an instrument of coercion. Russia, Europe, and the United States should be interdependent partners in energy security. Russia will benefit from U.S. and European investment, expertise, technology, and trade revenue, and Europe – like the U.S. – will benefit from reliable supplies and investment opportunities.
The dilemma now is that European countries are trying to solve their energy security concerns with Russia on a bilateral basis. Some countries will be more successful than others. Still others risk being left behind completely. While several European countries struggle to form a collective strategy, Russia is highly organized and strategic in pursuing its energy strategy.
I believe NATO should play a leading role in formulating and advancing a trans-Atlantic energy security strategy because energy and security are synonymous. As the world’s preeminent security alliance, it is NATO’s duty to respond to crises threatening member states as well as act to prevent such crises. Failure to address energy will undermine the alliance’s ability to act in a unified way on these core functions.
While the current situation appears grim, progress in unifying Europe behind a cohesive energy policy can be made in the near term. A first priority should be completing the so-called East-West energy corridor to bring oil and gas across the Caspian from Central Asia to distribution points from Central Europe. This will help diversify gas supplies to Europe, thus increasing its collective bargaining position. Success requires leadership in promoting Caspian sources of energy with independent transportation routes; supporting pro-Western governments in Azerbaijan, Georgia and Turkey that host significant energy transportation routes; and developing strong multilateral support and funding for the Nabucco pipeline.
Promoting Caspian Energy Sources
Kazakhstan and Turkmenistan hold large energy reserves. While not as large as Russia’s, they can play a pivotal role in European diversification efforts. When I visited leaders in both governments earlier this year, they told me that they want more dialogue with the West. Nevertheless, Kazakhstan and Turkmenistan recently concluded large-scale agreements with Moscow to sell more gas and oil to Russia for delivery to European markets. In part, these deals were reactions to the failure of the West to provide alternatives and to engage leadership in the region. Both countries understand that while maintaining trade with Russia, it is in their interests to diversify their export opportunities.
The willingness of these governments to discuss trans-Caspian alternatives will not turn into investments on the ground without concerted, high-level engagement. President Putin visits the region several times a year, and his personal diplomacy has been critical to Russia’s success. I am encouraged that just last week, we saw an announcement that Turkmenistan has agreed to make natural gas available to European markets. Nevertheless, NATO and EU leaders have not devoted the time, energy, and political capital required to solidify Western relationships in the region.
I strongly urged the Administration to appoint a Special Energy Envoy to the Caspian region. The White House responded by naming C. Boyden Gray to the position. He currently leads the U.S. mission to the European Union and will be dual-hatted. Special Envoy Gray’s close relationship with President Bush gives him significant gravitas in building relationships and promoting U.S. interests in Kazakhstan and Turkmenistan. I wish him well and hope that he will make significant progress. Notwithstanding the contributions a Special Envoy can make, it is time for a U.S. President to visit Central Asia and make these critical geostrategic arguments in person. President Bush should consider a visit before he steps down in January, but his successor must certainly make a visit to Central Asia a high priority early in his or her presidency.
Supporting Azerbaijan, Georgia, and Turkey
Energy resources from the Caspian and independent transportation routes are dependent upon Azerbaijan, Georgia, and Turkey. Recently, President Aliyev of Azerbaijan told me that he had put his country on a path of cooperation and dialogue with the West, and we have seen this sentiment borne out in a number of ways. Yet we cannot take for granted the progress made in Azerbaijan, Georgia, or Turkey. These three countries host the Baku-Tbilisi-Ceyhan and South Caucasus pipelines, which are carrying oil and gas from Azerbaijani fields in the Caspian toward Western markets.
To ensure true resource diversification, the trans-Atlantic community must continue to support the independence and democratic transformations in the Caucasus. Both Azerbaijan and Georgia have made great progress, but need substantial and on-going international support as their governmental and economic institutions evolve. If NATO’s failure to extend Membership Action Plans at the Bucharest summit is interpreted as lack of commitment, this will not be helpful in securing Georgia’s future. An unfortunate result of that meeting could be the perception that Russian intimidation can affect the alliance’s approach to Caspian security.
European positioning on future Turkish membership in the EU also has consequences for energy security. Unfounded fears of mass migration and other cryptic concerns must be rejected. Meanwhile, the situation in Iraq has strained U.S-Turkey bilateral ties. It is time for the United States to redouble our efforts to improve the relationship and support Turkey’s EU ambitions. Turkish membership is important to regional security, outreach to the Muslim world, and energy diversification.
Supporting the Nabucco Pipeline
The Nabucco natural gas pipeline is intended to connect energy infrastructure nodes in Turkey and Austria passing through Bulgaria, Romania, and Hungary. It is intended to be the final link connecting Caspian energy resources with European consumers, but it is being challenged by the Russian-backed South Stream pipeline proposal that would cross the Black Sea.
Numerous NATO and EU member states have attempted to make the Nabucco pipeline a reality. Unfortunately, their efforts have been stymied. Reluctant European governments must be convinced that long-term security interests are not served by developing a two-tier European energy society. European history has proven that insecurity in one country is enough to provoke reactions across the entire continent. The EU took an important first step by appointing a Commissioner for the Nabucco Pipeline, but success will depend on the level of cooperation he receives from member states.
Although diversifying energy transit routes from Central Asia to Europe should be a first priority, this does not diminish the importance of rapid progress in building energy trade with North African countries, increasing use of biofuels, improving efficiency in power and transportation, deploying clean coal and carbon sequestration technologies, and increasing usage of nuclear power. Nor does it negate the need for proactive engagement with Russia to advocate market-oriented energy policies. Yet without decisive action by the trans-Atlantic community to increase their leverage in energy dialogue with Russia, Western unity on a wide range of security issues will be put in jeopardy. In such an environment, it may become increasingly difficult to find common ground with Russia.
The trans-Atlantic community has the ability and responsibility to provide energy security for all of Europe, not just those countries in Moscow’s favor. We can continue to hope that the economics of energy supply and pricing will be rational and transparent; that nations with abundant energy resources will reliably supply those who need them through normal market transactions; that pipelines and other means of transmission will be safe and reliable; that energy rich nations will not exclude or confiscate productive foreign energy investments in the name of nationalism; and that vast energy wealth will not be used as a political tool or military weapon. But hope alone has not succeeded to date. The trans-Atlantic community must come to grips with the fact that our future is threatened by the continued abdication of leadership on energy. Our energy-derived vulnerabilities will continue until we have the possibility of collective action and are implementing supply diversification.
The upcoming EU summit scheduled for June in Slovenia is an opportunity for progress. President Bush has been invited, and he should spur European heads of state to be more resolute in pursuing European energy security. He is sure to receive the support of many of the newest members, but will more experienced members continue to resist a common European energy strategy? President Bush must start reaching out to his colleagues today if he is to be successful. I believe we have time to reverse the damage that has been done to our security and set ourselves on the right course for a healthy, respectful, and market-based relationship with Russia. This will be the foremost test of alliance unity in the coming decade. It is a test we must not fail.