If You Don’t Like Putin, You’ll Love This

New York Times
May 16, 2009

Falling Gas Prices Deny Russia a Lever of Power

MOSCOW — As energy markets shrink, the same tactics that the Kremlin used to build Gazprom,
the giant energy company, into a fearsome economic and political power
that could restore Russian influence in the world are now backfiring,
slashing both its profits and its influence.

Throughout his eight years as president of Russia, Vladimir V. Putin pursued the strategic goal of dominating natural gas
supplies to Europe and the pipelines that deliver them. His success was
underscored in January, when for the second time in three years a
pricing dispute with Ukraine disrupted the flow of natural gas, leaving
hundreds of thousands in Eastern Europe shivering in the deep winter
cold.

But in his zeal to monopolize gas supplies, Mr. Putin, who is now
Russia’s prime minister, committed Gazprom to long-term contracts with
Central Asian countries for gas at a cost far in excess of current
world prices. Now that the world economic crisis has sharply curtailed
demand for gas, Gazprom is saddled with a glut of expensive Central
Asian supplies that it is forced to sell at a loss.

In a painful twist, the company also finds itself forced to close
its own wells in Russia, which produce gas for a fraction of the cost
of that from Central Asia, in order to balance its supplies with
declining world demand. In effect, a strategy that made business and
political sense in a time of high and seemingly ever rising prices is
threatening to create years of losses and declining influence, if
energy prices fail to rebound.

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