BACKGROUND: In early 2002 Russian President Vladimir Putin called for a cartel of gas producers in the CIS. This clearly was a major initiative connected with the rejuvenation of Russian efforts to augment the value and the effective deployment of its economic instruments of power in Central Asia as a response to the American presence in Central Asia after September 11. While superficially it might appear that he was calling for a natural gas equivalent of OPEC, in fact the asymmetry of pipeline distribution and of power in the CIS would inevitably tilt such a cartel to Russian hegemony and dominance. Success in building such a cartel would materially and strikingly enhance Russian power and presence in Central Asia, the CIS, and global gas markets, giving it a truly formidable instrument of power for deployment abroad. Since then the Putin regime has moved steadily, even in the face of setbacks and obstacles, to take advantage of its strategic dominance over natural gas pipelines in the CIS to force other producers to come to terms with Moscow lest they not be able to export natural gas to consumers abroad. Finally this year Moscow successfully completed agreements with Turkmenistan, Uzbekistan, and more recently with Kazakstan’s KazMunaiGAz firm giving it virtual control over the export of their products through Russian pipelines. These deals have several consequences. Moscow no longer will have a competitor who can challenge its price setting capabilities with regard to natural gas form within the CIS. Thus we can expect more signs of monopolistic price-setting behavior by Russia in the global natural gas market. Second, these deals give Russia enormous leverage, if not hegemony over the producer states because it can manipulate prices and export rates as well as the actual transmission of gas to its markets. Not only can it shut down consumers who oppose it on various issues as it repeatedly has done in the CIS, it also can shut down producers as well for reasons not connected with gas but which affect what Russia considers to be its key interests. Third, by converting local energy officials and companies into dependencies of Russia, Moscow gains major points of leverage within the politics and societies of those states which we can be sure it will not hesitate to exploit. Fourth, the implications of the creation of this cartel extend beyond Central Asia. As the American firm of strategic analysis, www.stratfor.biz observed, “All natural gas produced in the former Soviet Union comes from Gazprom, Kazakhstan, Uzbekistan, or Turkmenistan with any natural gas originating in a country ending in ‘stan’ having to transit through Kazakhstan and Russia on its way to any market. The KazMunaiGas deal means that Gazprom -- and by extension the Kremlin -- now owns all of that gas. Any state wishing to use Central Asian gas in order to get energy independence from Russia is now out of luck. This is particularly worrisome for states such as Ukraine and the Baltic states who now have no reasonable alternative to Russian-owned natural gas. Russia has been bandying the threat of sharply higher energy prices around for years. Now it has finally taken the concrete step necessary to make that an arbitrary reality.”

IMPLICATIONS: At a single stroke Russia has undermined both Turkmenistan and Uzbekistan’s overall sovereignty not to mention gaining control of their natural gas production. It will be able to use the profits it gains from its price setting capabilities to inhibit their development and thereby perpetuate both their backwardness and their dependence upon energy while keeping them in an essentially colonialist position. Neither is this cartel’s influence confined to the CIS. Through it, Russia will be able to frustrate the hopes of outside consumers like India and China who have money to buy equity in Central Asian gas producers and who have hoped to gain reliable sources of energy for themselves through the purchase of such equity. Now it won’t matter whether or not they buy companies because Russia controls the pipelines and could use that leverage to buy out the producers as well or force itself upon them as an equity owning partner instead of other potential rivals. Thus developments in Central Asia will exercise great influence upon trends in the Baltic states, Belarus, Ukraine, Moldova, Georgia, and Armenia. And we should have little doubt that Moscow will move to exploit all the benefits accruing to it from these deals to consolidate this cartel and use it to further its avowed aims of hegemony throughout the CIS. By definition, a cartel allows its members to set prices in a monopolistic way and force consumers to accept it. This is how OPEC functions. But it also is the case that in many, if not most cartels one or two states tend to be the dominant figures in the cartel and the real price setters. In regard to OPEC, Saudi Arabia fulfills this function. Russia aims to fulfill this same function in the cartel of CIS gas producers that it is creating. It has moved steadily to bring about this cartel but without much fanfare, almost offstage, as it were. Nevertheless by these recent agreements Putin has forged what could become the most powerful instrument of Russian foreign policy in the CIS if not abroad. It has also parlayed this instrument of policy into what could be a formidable source of leverage upon energy-hungry European or Asian states who will be forced to reckon seriously with Russian energy and other interests, even those extraneous to energy, in their future calculations.

CONCLUSIONS: Inasmuch as there is abundant evidence of Russia\'s continuing use of the energy card to bring CIS regimes to heel or try to do so and to use its energy leverage in Europe and Asia, these deals ultimately have a much greater and wider resonance than does the important agreement with Uzbekistan. Consequently we should not be surprised at further uses of the energy instrument, particularly natural gas in this context, to try and compel CIS regimes into submission to Russian dictates. This is even more likely given the seasonal importance of natural gas in the winter time. And therefore all analysis of Central Asian and even Russian foreign policy will now have to take into account this major change in what used to be called the correlation of forces. AUTHOR’S BIO: Professor Stephen Blank, Strategic Studies Institute, US Army War College, Carlisle Barracks, PA 17013. The views expressed here do not represent those of the U.S. Army, Department of Defense or the Government.