Currency Wars_ The Making of the Next Global Crisis - James Rickards [82]
Dmitry Medvedev, elected president of Russia in 2008, twice served as chairman of the board of Gazprom. The current chairman, Viktor Zubkov, is the deputy prime minister of Russia—that is, Prime Minister Vladimir Putin’s right-hand man. The CEO, Alexey Miller, is a Putin crony from their St. Petersburg days in the 1990s. While the company’s stock is traded on several exchanges, it is nevertheless controlled by the Russian state.
Gazprom’s long-range plans seem more like a study in military tactics than corporate strategy. It speaks of the Chinese vector, exploitation of the Yamal Peninsula and establishing bases in the Arctic. The military comparison is more than a metaphor. In 2007, the Russian Duma authorized Gazprom to create its own security force, with powers far beyond normal security companies—in effect, a corporate army like the ones the trading firms of the mercantilist age deployed. Gazprom also has a strategic enemy that it is determined to destroy. The enemy’s name is Nabucco.
Nabucco is a new natural-gas pipeline consortium backed by members of the European Union and the United States that will allow Europe to obtain natural gas without depending on Russia. It is a direct threat to Gazprom’s near monopoly on natural gas supplies to Europe through pipelines transiting Ukraine and Belarus. Nabucco is an attempt to circumvent these pipelines in a way that neither uses Russian natural gas nor passes through Russian territory. Nabucco would source its gas initially in Azerbaijan and later Kazakhstan and Iraq. It will traverse Turkey on its way to Europe.
One of the critical links in the larger Nabucco scheme is the South Caucasus Pipeline that runs through Georgia. With the invasion of Georgia in August 2008, Russian armored columns were used to threaten Nabucco and support Gazprom’s dominant position. This invasion came at the height of the U.S. bailout of Fannie Mae, and Russia was one of the largest holders of Fannie Mae bonds at the time. By bailing out Fannie Mae, the Bush administration protected Russia’s financial interests with U.S. taxpayer money even as Russia threatened U.S. interests on the energy front. Such is the geopolitical nexus in which the currency wars are fought.
Not only is Russia intent on disrupting Nabucco, it is also sponsoring two alternative pipelines that will deliver gas from Central Asia to Europe but are controlled by Gazprom and transit Russia. Gazprom’s goal is to keep Central Asian supplies bottled up inside Russian pipelines before flowing to Europe. Europe’s energy supplies are largely held hostage by Russia, and Russia has no intention of letting go.
Russia’s use of natural gas as a geopolitical weapon goes beyond threats; it has been put into action several times. On New Year’s Day 2006, Gazprom cut off supplies of natural gas to Ukraine. The effects were not limited to Ukraine but were felt throughout Europe. The stated cause was a billing dispute. While Ukraine had agreed to pay Russia for gas it consumed, Russia had agreed to pay Ukraine for the right to transit its territory to deliver gas to the rest of Europe. Russia could pay its transit fees in kind, meaning that it simply charged Ukraine nothing for some of the gas used by Ukraine. None of these payments were at market rates but were privately negotiated and involved middlemen believed to be diverting the payments to offshore accounts of Russian and Ukrainian officials. This mix of private negotiations, middlemen, payments in kind and off-market transactions ensured that the parties were constantly at odds over who owed what to whom.
Ukraine exploited this confusion to cover up its chronic hard currency shortages and late payments. In time, Russia learned that it could use the same ambiguity for its own purposes—using its disputes with Ukraine to halt shipments to Europe while blaming Ukraine for the stoppages. Russia could take the high ground by posing as an