MOSCOW, 5 October (RIA Novosti political commentator Peter Lavelle) - Russian President Vladimir Putin, visiting London for a two-day summit with the European Union, is correct in insisting there is nothing wrong with Russia-EU relations.
It is easy to cite issues where Russia and the EU disagree, but bilateral energy relations make any meaningful disagreement over a single issue pale in comparison.
Putin’s working agenda for the London visit was formulated last May in Moscow during the last Russia-EU summit, focused on the "roadmaps for the four common spaces" of the economy, security and justice, external security and culture.
Western media and some politicians fear too much commonality in the area of economy; both Russia and the EU have differences about security and justice. On external security, there are some differences of opinion on how to define the war on terrorism and the term “culture” is often used by the West to lecture Russia on the state of its civil society.
Russia provides almost half of the EU's natural gas and a third of its petroleum needs. It is home to 27% of the world’s known gas reserves, as well as enormous oil fields. It is slated to be the key energy provider of ever-gas-and-oil-hungry Europe.
For some, this means Europe has become perilously dependent on Russia. Those who don’t know much about business or economics should carefully consider Putin’s reply about such fears. He said, 'the more the supplies, the lower the prices, or at least [the more] stable.” These are pragmatic words. Any Russian threat to cut off energy supplies to Europe would hurt Russia more than its EU consumers. After all, the EU is Russia’s largest export market.
Russia’s delivery of energy to Europe is business and far more important than some of the petty differences some recently inducted post-communist countries to the EU hope to use against Russia with hope of broader support. Sergei Yastrzhembsky, Putin's representative to the EU, is correct in stating that, "There's a kind of pushy, pestering drive to impose their view on the EU as a whole." Irrespective of those differences, Russia has a fundamental financial interest in keeping the pipelines flowing.
Simple arithmetic explains what is at stake for Russia. For every $1 increase in oil price above $25 a barrel, the government garners an additional $3 billion each year, with Russian oil companies' seeing their net profits rise by $1.1 billion. This is a far cry from the situation in 1998 when state and private oil companies earned only $28 billion. This year it is expected they will earn $150 billion. With oil prices stubbornly hovering around $60 a barrel, the Kremlin will do everything possible to maintain these extraordinary windfall profits.
Super hydrocarbon profits also benefit the government’s budget and the Kremlin’s plans to increase living standards. Budget outlays have skyrocketed fourfold from $34 billion in 2000 to $129.5 billion this year. High severance tax revenues have advanced at an even quicker pace, from $40 billion to $153 billion. Budget expenditures and tax revenues for 2006 are estimated to be $150 billion and $177 billion, respectively.
According to British Prime Minister Tony Blair, far from being in full agreement with Putin concerning the remaining “common spaces” said the EU wants to “work to take the relationship between Europe and Russia to a new and more intense and strengthened level…This is a relationship in economic terms that can only grow and prosper and strengthen."
Putin, no doubt, is in complete agreement.
The opinions expressed in this article are those of the author and do not necessarily represent the opinions of the editorial board. –0-
