As a followup to this post from Sunday, I wanted to add some details to Sri Lanka’s relationship with China and Iran, in particular. This, from B. Raman, explains the scope of the project at Hambantota.

The Hambantota port construction is estimated to cost US $ one billion to be lent by the Exim Bank of China. The entire project is expected to be completed in 15 years in four phases. The first phase of construction, which was started in October, 2007, is estimated to cost US $450 million. The entire project, inter alia, provides for the construction of a gas-fired power plant project, a ship repair unit, a container repair unit, an oil refinery and a bunkering terminal. The bunkering terminal, which is expected to be completed in 39 months, provides for the terminal to handle up to 500,000 metric tonnes (mt) of oil products a year.

The energy-related nature of the project is clear. Another hint as to what China might want out of this port project is the involvement of the Exim (Export-Import) Bank. This bank is owned by the Chinese government, and the bank’s charter says:

Its financial business shall be subject to the direction and supervision of the Ministry of Finance, the Ministry of Foreign Trade and Economic Cooperation and the People’s Bank of China.

(As an aside, the Bank of China is named in a lawsuit saying it knowingly passed funds on to Hamas and Islamic Jihad. Brett Winterble talked about this on the Covert Radio Show last Thursday. Does this mean the Exim Bank might also be involved in shady deals? I have no idea.)

The ExIm Bank is all over Africa. This from the Wilson Center,

By September 2006, there were 259 China Exim projects in 36 African countries, 79 percent of which committed to infrastructure development, such as railways (Benguela and Port Sudan), dams (Merowe in Sudan; Bui in Ghana; and Mphanda Nkuwa in Zambia), thermal power plants (Nigeria and Sudan), oil facilities (Nigeria), and copper mines (Congo and Zambia). China Exim lending practices tend to follow China’s foreign policy, with package deals frequently focusing on projects that provide access to raw materials, and on concessional loans for economically and politically important countries.

I point this out to say the Hambantota project is very much the Chinese government at work. Now, Sri Lanka doesn’t have oil, so China is not after that, but China surely sees Sri Lanka as a perfect base from which to project power into the sea lanes that run right by the island nation.

How might it do so, though? With an eventual military presence? China certainly is not saying. As the 2006 Quadrennial Defense Review said, we don’t have a clear idea of China’s long-term strategies.

China continues to invest heavily in its military, particularly in its strategic arsenal and capabilities designed to improve its ability to project power beyond its borders. Since 1996, China has increased its defense spending by more than 10% in real terms in every year except 2003. Secrecy, moreover, envelops most aspects of Chinese security affairs. The outside world has little knowledge of Chinese motivations and decision-making or of key capabilities supporting its military modernization.

Not surprisingly then, Sri Lanka and China are developing their relationship. Sri Lankan President Rajapakse visited China in early August. And, China’s Foreign Minister is in Sri Lanka today.

Lastly, let me touch on Iran. Iran’s President Ahmadinejad visited Sri Lanka in April, and inspected a couple of projects Iran is funding. Iran is providing a fair amount of aid to Sri Lanka. From the BBC,

Mr Ahmadinejad will visit a refinery and hydro-electric and irrigation schemes that have received Iranian aid. Iran is emerging as a major economic donor in Sri Lanka which is under pressure on human rights issues as war has resumed with the Tamil Tigers. During his visit President Ahmadinejad will tour development projects which Iran is helping to fund. Iran has already agreed soft loans and grants of $1.9bn for a hydroelectric and irrigation scheme and to upgrade a refinery, as well as to buy Iranian oil.

It’s not terribly surprising Sri Lanka and Iran would have a relationship. Sri Lanka imports all of its oil, and Iran is Sri Lanka’s largest supplier of oil. Still, this, also from B. Raman, makes you wonder what Iran thinks it is buying with all its good will.

Iran has also agreed to provide low-interest credit to Sri Lanka to enable it to purchase military equipment from Pakistan and China and to train a small group of Sri Lankan Army and intelligence officers in Iran. A team of about 10 officers has already proceeded to Iran for training after a clandestine visit to Sri Lanka by Brigadier Gen. Qassem Suleimani, the Director-General of Iran’s Quds Force, or the Jerusalem Brigade, which is, inter alia, responsible for covert actions against Israel and for liaison with friendly foreign intelligence agencies. He is expected to come again as a member of the entourage of the Iranian President for further discussions on intelligence co-operation between the two countries.

As you all well know, the Quds Force is hardly an economic aid organization.

I have a saying about history, in that that the study of history is the process of answering two questions: What did people want? and What did people do to get it?

I think the same applies to current affairs, and that you can explain a lot of what nations do in terms of what they do to secure their energy supplies, and their security.

China and Iran see Sri Lanka as important to those goals.

2008 has been a dynamic year in Sri Lanka’s ongoing civil war, one that, according to a study by the University of Washington and Harvard Medical School earlier this year, has claimed between 215,000 and 338,000 lives since the conflict began in 1983.

I’ll give a brief overview of what has led up to the current situation, where the Sri Lankan government thinks it may be in sight of ending the civil war.

The Tamil people are a minority in Sri Lanka. The majority Sinhalese are Buddhist, whereas the Tamils are mostly Hindu, though there are Muslim Tamils. However, the Tamil language is a key part of what defines the Tamil cultural identity.

The Tamil language is a Dravidian language, as opposed to the Sinhalese language and, say, Hindi, which are Indo-Aryan languages. It is the offical language of the Indian state of Tamil Nadu, at the southeast corner of India, just across the water from Sri Lanka.

India was much more tolerant of the Tamil language and culture, and indeed Tamil Nadu is a center of Tamil culture. In Sri Lanka, however, the “Sinhala Only” policy in the 1950s was the genesis of resentment on the part of Tamils. The 1972 constitution gave Buddhism the “foremost place.”

The Liberation Tigers of Tamil Eelam (LTTE) were formed in 1976, one of several separatist groups. In 1983, an LTTE ambush killed 13 Sri Lankan soldiers, which led to riots, which led to the outbreak of civil war.

In 1987, the Indo-Sri Lanka Peace Accord was signed in an effort to broker an end to the fighting. The India Peace-Keeping Force was in Sri Lanka from 1987 to 1990, and eventually found itself drawn into fighting with the LTTE.

In 1991, former Indian Prime Minister Rajiv Ghandi was assassinated by a female LTTE suicide bomber, which led to a drop in Indian support for the LTTE.

In 2002, a Norwegian-brokered ceasefire was signed, and this ceasefire held (at least in the abstract) till 2006. During that time, the terrible tsunami of 2004 killed 30,000 people in Sri Lanka, and the resulting debate over how to distribute aid raised tensions.

In 2006 and 2007, there was heavy fighting throughout the north and east of the country.

In January 2008, the government pulled out of the ceasefire agreement, and began a concentrated effort to defeat the LTTE militarily. (This prompted the SLMM to leave Sri Lanka.)

By May, government forces were breaching bunker lines. In July, the government captured the Sea Tiger naval base at Vedithalthivu in Mannar for the first time since the early 1990’s. An LTTE base at Illuppukadavai was captured. A general said the LTTE had lost nearly two thirds of its manpower and land area.

By early August, the entire Mannar district was under the control of the security forces for the first time. Government forces began to concentrate on the Kilinochchi district, home to the Tamil “capital.” Just a week ago or so, government forces captured the important town of Mallavi.

Mallavi captured (from the Sri Lanka MoD)

I’ve mentioned before that I think the “geo” in geopolitical is just as important as the “political.” Sri Lanka is not a faraway place where people with hard to pronounce names are fighting each other. Sri Lanka occupies an important point along the shipping lanes from the Middle East and Persian Gulf to the Far East.

This is not a new thing, either. For instance, the Dutch, Portugese, French and British competed for the important harbour at Trincomalee. The British eventually took possession of it in 1795 and occupied it until 1957.

Today, China has its eye on Sri Lanka. Last year, Sri Lanka and China made an agreement where China would help build the one-billion dollar port project in Hambantota, in SE Sri Lanka.

China has been busy building up its “string of pearls,” and China is adding another one to its necklace. Christopher Pehrson writes,

Each “pearl” in the “String of Pearls” is a nexus of Chinese geopolitical influence or military presence. Hainan Island, with recently upgraded military facilities, is a “pearl.” An upgraded airstrip on Woody Island, located in the Paracel archipelago 300 nautical miles east of Vietnam, is a “pearl.” A container shipping facility in Chittagong, Bangladesh, is a “pearl.”  Construction of a deep water port in Sittwe, Myanmar, is a “pearl,” as is the construction of a navy base in Gwadar, Pakistan.

What is the purpose of these pearls? To protect China’s oil supply. This chart shows how China’s oil consumption is soaring, whereas production has remained flat. China must make up the difference through imports, and most of that imported oil comes across the Indian Ocean, right past these pearls. (The three largest suppliers of oil to China are Angola, Saudi Arabia and Iran.)

(data from BP Statistical Review of World Energy 2008)

China says the port facilities at Hambantota are for civilian purposes, but I’m not sure who truly believes that.

On the north side of Sri Lanka, India is working to complete the Sethusamudram Ship Channel Project. This project is dredging a deep-water channel through the shallow waters between India and Sri Lanka so big ocean-going shipping can take the shorter route past the Indian coast rather going around Sri Lanka to the south.

Sethusamudram Ship Channel Project

India has an interest in a peaceful Sri Lanka. Note how close that canal comes to where all the fighting is taking place in Sri Lanka. It’s not surprising that India has had closer relations with the Sri Lanka government.

If the civil war ended, perhaps Sri Lanka would feel emboldened to use its strategic location to boost its presence on the world stage and forge relations with nations like Iran and China.

India keeps a wary eye on China, and is understandably nervous about the Hambantota project. China might use it to, for instance, monitor (or threaten?) India’s reactor project at Kalpakkam, which is in, to continue a theme, Tamil Nadu. Another reason for India to stay close to the Sri Lankan government, lest it get too close to China.

If this civil war does end soon, and assuming a brutul counterinsurgency doesn’t arise, the ongoing jockeying for control of the sea lanes around Sri Lanka will be interesting to watch.

A video trailer for The Curse of the Black Gold, a photography book reviewed in the September Atlantic.

In a previous post, I outlined why I thought Russia’s invasion of Georgia is aimed at the West, not just Georgia, and as such, Russia’s action is a vindictive aggression.

Ironically, in a February 2007 speech at the Munich Security Conference, Putin decried a ”world in which there is one master, one sovereign.” He was clearly speaking of the US, and spoke against a unipolar world,

I am convinced that we have reached that decisive moment when we must seriously think about the architecture of global security. And we must proceed by searching for a reasonable balance between the interests of all participants in the international dialogue.
…
Did not our country have a peaceful transition to democracy? Indeed, we witnessed a peaceful transformation of the Soviet regime – a peaceful transformation! And what a regime! With what a number of weapons, including nuclear weapons! Why should we start bombing and shooting now at every available opportunity? Is it the case when without the threat of mutual destruction we do not have enough political culture, respect for democratic values and for the law?

Where was Russia’s consultation with the international community before it started bombing and shooting in Georgia?

It wasn’t there, because Russia is sending a message that it wants to resume its place as the opposite pole to US power, that it is once again a force to be reckoned with, and feared.

Russia is tired of what it views as Georgian defiance, and it is using military force to squash Georgia, plain and simple.

Much of this perceived defiance centers around energy. Georgia has the fortune, or misfortune of occupying a strategic chunk of land. It is part of a land bridge between the immense energy resources of the Caspian basin and the West. As such, it is an obvious route for pipelines.

A recent Power Line post described the importance of the BTC pipeline, and it is important, but there is more to the picture.

Consider this slide from a presentation by Giorgi Vashakmadze at the 2007 Energy Security conference in Vilnius. Note how Russia dominates the gas pipelines.

European Gas Pipelines

Georgia has been involved in a few attempts to circumvent Russia’s dominance of gas routes, and one of those is the proposed White Stream pipeline. This pipe would take Caspian gas to Europe without passing through Russia.

White Stream route

This would branch off the South Caucasus pipeline, which runs near the BTC pipeline. If Russia were to take control of the BTC pipeline, it would also control the South Caucasus pipeline, and hence could dictate the success or failure of the White Stream pipeline.

The Nabucco Pipeline is another proposal for bringing gas to Europe, without having it pass through Russian control. It would connect “the Caspian region, Middle East and Egypt  via Turkey, Bulgaria, Romania, Hungary with Austria and further on with the Central and Western European gas markets.”

In cooperation with Italy, Russia has countered with its own proposal, the South Stream Project. This project would augment the Blue Stream pipeline, and would take gas from Turkey through Bulgaria and Serbia to Hungary and Austria. Note that Ukraine is avoided.

Russia has been putting pressure on European nations to join its project, and not Nabucco. And, with success. Serbia, Hungary, Greece and Bulgaria have signed on.

It may not be a direct cause and effect, but at the very least it’s an interesting metaphor to look at the responses of these nations to Russia’s action in Georgia.

Italy’s Foreign Minister was “following the crisis with concern.” Bulgaria said it was “following with concern the intensifying tension.” There is no statement on the English page at the Hungarian Foreign Ministry. The Foreign Ministry of Greece has a notice of a meeting embassy officials from Georgia and Russia.

Not exactly strong stuff. (To their credit, Austria’s Foreign Ministry has a firm statement.) The desire for gas (winters can be cold in Eastern Europe) is a powerful motivating factor.

At the NATO Summit in March (see this post), NATO membership for Ukraine and Georgia was put on hold. Germany was among those in opposition. Do you think it has anything to do with the fact the Nord Stream pipeline is being built to bring gas straight into Germany?

Energy politics is in abundance here, and Ukraine must be shaken, seeing the ease with which Russia has acted with impunity in Georgia.

Another element in play here is Russia’s desire to join the WTO. Membership to the WTO can be blocked by any member, and Russia has already come to agreement with some 60 members. It has yet to make agreements with two members. Guess which two. Ukraine and… Georgia.

In April, Georgia said it would not support Russia’s WTO membership, over their ongoing conflicts.

This, to me, is a curious angle of Russian aggression in Georgia. It can’t expect Georgia would ever agree to Russian membership after this. So, how far is Russia willing to go here? Will Russia try to topple the Georgian government and install a puppet government, one that would accede to Russian WTO membership?

If Russia did go that far, if the international community did not react strongly to such a farce, then, we might as well pack up, head for the hills and await the apocalypse.

Russia’s invasion of Georgia says “Do not try to defy our supremecy in energy politics.” It says a lot about Russia that it is willing to bomb and destroy to send such a message. The rest of us ought to worry.

According to the NY Times, Russia has brought its attack on Georgia to a new level,

Russia issued an ultimatum to Georgian forces on Monday to disarm its troops along the boundary with the western pro-Russian separatist enclave of Abkhazia, in a sign that fighting could escalate on a second front in western Georgia.
….
Russia has poured extra forces into the western enclave where it now has at least 9,000 troops and 350 armored vehicles. Giga Bokeria, a Georgian official close to the president, said the ultimatum raised alarms that Russian troops would now push into Georgian territory in the west of the country.

Russia has already attacked targets in Georgia proper, including Gori. (Gori is the birthplace of Stalin, by the way.) Gori is the first major city on the road south out of South Ossetia, and it is on a main west-east road crossing Georgia. Tbilisi is east of Gori. Attacks on Gori can only be intended to divide Georgia, and prevent supplies and reinforcements from being brought up.

Now, Russia threatens a second front in Abkhazia, which has nothing to do with protecting Russian-leaning people in Ossetia. No, Russia’s goal is to punish Georgia for ever having thoughts about joining NATO, and Russia’s attacks are aimed not just at Georgia, but at the West, in three ways.

First, Russia bombed the BTC pipeline. This pipe brings oil west from the Caspian region without passing through Russia’s control. For that very reason, Russia was opposed to the BTC pipe from the beginning, and by attacking this oil supply, Russia is attacking the West, not Georgia. Russia’ message is just what it has been for several years, that for Russia energy is the same as foreign policy, and Russia will wield it as a club because Russia is a crumbling nation and has little influence in any other realm, outside of its nuclear arsenal.

Second, the United Nations maintains an observer force, UNOMIG, in and around the Kodori Gorge in Abkhazia. The Gorge is a focus of the attacks in Abkhazia. The UN’s presence sure did a lot of good, didn’t it. Russia is showing its distain for international institutions, and is not about to let diplomatic niceties get in its way.

Third, Russia is rubbing the West’s nose in its own weakness, proving the West cannot do anything about Russian aggression. The US has issue strong words, the UN Secretary_General expressed “serious concern,” but what affect will that have? None.

Georgia is being pulled down like a deer swarmed by a pack of wolves, and like the rest of the herd thinking “I’m glad that isn’t me,” the West is only going to watch.

While Russia’s attacks were intensifying, President Bush sat with Putin watching the Opening Ceremonies in Beijing. President Bush is still there. Why hasn’t he returned, to show support for an important ally in the Caucasus?

In the end, Russia will have troops in Abkhazia and South Ossetia, Georgia will have suffered many casualties, NATO will never offer membership to Georgia, and other nations like Ukraine and the Baltic states will have learned a hard lesson about the help they could expect from the West if they try to defy Russia’s bid for energy hegemony.

Just last year, Russia was awarded the 2014 Winter Olympics in Sochi, which is just up the Black Sea coast from Abkhazia. The West could call for this decision to be overturned. I predict you won’t hear more than a word or two about it.

Russia could be drummed out of the G-8. Won’t happen.

Where Russia could be hurt is in an economic boycott, especially in energy investment. Gazprom may not be able to meet the demand for natural gas without lots of foreign investment in gas infrastructure. But, European nations are too dependent on Russia to go to the wall with Russia over this.

At the Energy Security conference in Vilnius last year, Volodymyr Saprykin outlined the problem,

On the other hand, Russia on its own, without Western capital and technologies, will not be able to increase significantly its production of natural gas, which is stagnating currently.

This situation will also endanger Ukraine’s position as the largest transit partner and consumer of natural gas coming from Russia. Moreover, the clash between the EU and Russia will strengthen the Eastern vector of hydrocarbons supply, primarily, to China.
….
The USA is long way, and the majority of the EU leading members are suffering from far-sightedness, not seeing their neighbour – Ukraine. They only see Russia, because they are looking through the pipeline. Increasing dependence of the EU on Russian energy supplies deprives Ukraine of serious political support in conflicts with Russia over energy.
….
One of the key elements of maintaining security of energy supply is to diversify the sources and supply routes. Ukraine imports around 53-54% of energy resources; by international standards such a level of dependence is outrageously high.

However, the problem is that Ukraine imports the largest part of energy from a single country – Russia, either directly or transited via Russia. In this situation the dependence of Ukraine’s energy industry and the economy in general on imports of energy is critical.

Russia has Europe over a barrel, or a pipe in this case, and it knows it, and so it thinks it can bomb civilians and blast a democracy to ruins with impunity. I fear the West will prove Russia correct.

Oil prices have fallen significantly since early to mid-July. However, recent events this week have edged prices back up, though maybe not as much as one might expect.

On Monday, the head of Iran’s Revolutionary Guards warned that Iran could close the Strait of Hormuz. Also, he said Iran had tested a new naval weapon,

The Guards have recently tested a naval weapon, which I can say with certainty that the enemy’s ships would not be safe within the range of 300 kilometers,” or about 185 miles, Jafari was quoted as saying. “Without any doubt we will send them to the depths of the sea.”

Tuesday a Pentagon spokesman said, in a not so veiled message that the US wouldn’t just sit by while Iran squeezes a vital oil chokepoint,

I don’t think it’s in Iran’s interest to shut down the Straits of Hormuz or the Persian Gulf, or attempt to do so. They have a very weak economy at this point, which depends almost entirely on their oil revenue. So shutting down the straits and closing off the Persian Gulf would be sort of a self-defeating exercise. That says nothing of whether or not we would tolerate such a thing to happen.

According to the EIA,

In 2007, total world oil production amounted to approximately 85 million barrels per day (bbl/d), and around one-half, or over 43 million bbl/d of oil was moved by tankers on fixed maritime routes.

Tanker traffic is a vital component of the oil market, so it is no small thing for Iran to threaten a route through which passes around 40% of all seaborne traded oil (or 20 percent of oil traded worldwide). Also, over 75 percent of Japan’s oil passes through the Strait.

Yesterday, a fire in the BTC oil pipeline halted flow, cutting nearly a million barrels a day. This pipe is of great importance. It brings oil from the Caspian Sea west to Turkey, and from there out to thirsty nations, without passing through Russia’s control. The pipe could be closed anywhere from two to five weeks.

The PKK claimed responsibility for the incident, but it’s not clear if they actually did it. The PKK has blown up other pipelines in and around Turkey, though.

Incidentally, the BTC pipeline passes through Georgia, which is in the midst of a rising spat with South Ossetia, which is backed by Russia.

All these things make the oil markets nervous, and prices have ticked up accordingly.

It’s not such a bad thing to promote stability, especially in oil-producing regions.

Prices for Central Asian gas are going to rise to match Europeans prices. The nation probably most interested in this is Ukraine, as the hike portends higher prices for that nation. The two-rail bank shot would be Russia pays higher prices for gas from Central Asia, and in turn Ukraine pays higher prices to Russia. From Kommersant,

Gazprom, KazMunayGaz, Uzbekneftegaz and Turkmengaz officially declared yesterday the transfer to the European prices for the Central Asia’s gas in 2009. No price formula has been worked out yet, but it is known that Turkmenistan is willing to hike the price from $130 to $150 per a thousand cu meters in 2008 to between $250 and 270 per a thousand cu meters in 2009. The timing of this statement is interesting. Made on the eve of another round of negotiations with Ukraine, it signals Kiev will no longer find a supplier of cheap gas.

As RIA Novosti says, Russia and Ukraine are currently meeting to talk about prices,

Russia and Ukraine launched on Wednesday a new round of natural gas talks which will be continued on Thursday, a source close to the negotiations on the long-running dispute said.

The former Soviet allies partially resolved their gas dispute last Thursday, agreeing that Ukraine would pay off about $1 billion of its debt and that talks would continue on a supply scheme for 2008. The agreement came after Russian gas monopoly Gazprom restored gas supplies to Ukraine, which were cut by 50% early last week.

However, Ukraine is drawing a line in the sand,

Ukraine will not buy Russian gas at prices higher than 179.5 dollars per 1,000 cubic meters, Ukrainian Prime Minister Yulia Timoshenko stated on Tuesday commenting on media reports saying Ukraine was ready to pay over 300 dollars.

“A delegation of Naftogaz Ukrainy has got clear instructions from the government that the price of Russian gas in 2008 cannot exceed 179.5 dollars per 1,000 cubic meters. At the same time, the price of Central Asian gas cannot exceed 130 dollars,” the prime minister said.

From the Financial Times,

The announcement, made after Gazprom’s chief executive, Alexey Miller, met with top energy executives from Kazakhstan, Turkmenistan and Uzbekistan, signals that Ukraine could face a fourth stiff price increase on gas in as many years. European consumers could also face higher prices. Gazprom said the Central Asian producers had told it that “starting from 2009 natural gas will be sold at European prices”.

Ukraine doesn’t have a lot of alternative options at the moment, however, when it comes to gas supplies. It may have to bend to higher prices.

One thing is certain. Russia will continue to press its thumb on Ukraine until Ukraine gives up any notion of joining NATO.

This post mentioned the deal between Gazprom and Serbia to boost Russia’s South Stream pipeline project, at the expense of US-supported Nabucco project. The Nabucco project was planned to run through Hungary. That may be in jeopardy now.

Writing at the Jamestown Foundation, Vladimir Socor says,

On February 28 Hungary’s Socialist Prime Minister Ferenc Gyurcsany joined Russia’s outgoing and incoming presidents, Vladimir Putin and Dmitry Medvedev, in Moscow to seal an intergovernmental agreement on Gazprom’s further expansion into European Union territory via Hungary.

Hungary’s privately owned energy company MOL is staying out of this intergovernmental, politically-colored deal. MOL is a partner in the U.S.-backed Nabucco project of the EU. The Hungarian government’s accession to South Stream, however, adds to the recent series of defections from the Nabucco project (see EDM, January 24, 28, 29, February 5, 28).

The agreement just signed envisages building an extension of Gazprom’s South Stream gas pipeline through Hungary. It caps the recent series of deals rushed through by the Kremlin with Austria, Bulgaria, and Serbia, to build pipelines and storage sites for South Stream gas into Europe. These agreements are cementing Gazprom’s monopoly in parts of Europe, precluding alternatives and aborting Nabucco.

For Russia, gas means power and leverage. As yet another illustration, Russia has reduced gas supplies to Ukraine.

OAO Gazprom, Russia’s state-run natural-gas export monopoly, cut natural-gas shipments to Ukraine after failing to resolve a debt dispute, raising concern European supplies may be disrupted.

Gazprom lowered deliveries to Ukraine by 25 percent at 10 a.m., spokesman Sergei Kupriyanov told reporters today in Moscow. Gazprom will supply European consumers in full, he said.

Russia has portrayed the conflict as a commercial dispute, while Ukraine has accused Moscow of leveraging energy to maintain regional influence. The standoff echoes Gazprom’s cutoff of gas supplies to Ukraine in January 2006, which disrupted exports to the European Union. About a fifth of Europe’s gas travels through Ukrainian pipelines from Russia.

“This still doesn’t represent a crisis, just a greater degree of brinkmanship,” Geoffrey Smith, deputy head of research at Renaissance Capital Ukraine, said in an e-mail. Ukraine’s gas stores are sufficient to withstand the cut, particularly amid the current mild weather, he said.

Europe’s gas supplies are “not in danger,” European Union Energy Commissioner Andris Piebalgs said during a speech in Washington today. “Ukraine will transit, Russia will supply.”

From EurasiaNet:

The Kremlin, via its strategic surrogate Gazprom, is not standing by idly as the United States strives to revive its geopolitical fortunes in the Central Asian energy contest. Gazprom in recent weeks has gone on an acquisition and joint-venture binge in its effort to secure Russia’s dominating position as the controller of Central Asian energy exports and of European Union supplies. Kyrgyzstan’s national energy company, Kyrgyzgaz, appears to be Gazprom’s newest take-over target.

From mid-2005 through mid-2007, the United States experienced considerable erosion of its geopolitical status in Central Asia, enabling Russia to gain the upper hand in the struggle for access to the region’s energy exports. Over the past few months, US officials have sought to repair relations with Uzbekistan and woo the new leader of Turkmenistan, aiming to restore the regional balance that existed before the start of the Iraq imbroglio.

In response, Vladimir Putin’s Kremlin evidently believes that the best way to defend Russia’s interests is to go on offense. With skyrocketing energy prices acting to fill the Kremlin’s coffers, Gazprom since the start of 2008 has struck deals to solidify its hold on the European market. Gazprom’s most important acquisition was the purchase of a majority stake for Slavic-sister Serbia’s oil-and-gas monopoly. Gazprom also negotiated a deal with the Austrian energy company OMV to jointly operate Europe’s third-largest gas trading hub. The announcements of those deals came on the heels of a strategic coup, in which Russia induced another state with which it has a close cultural connection, Bulgaria, to join the so-called South Stream pipeline project. South Stream is widely seen as a Russian bid to block construction of the EU-supported Nabucco route.

A briefing from Energy Intel had this little nugget:

Acute shortages of natural gas have forced Iran to stop reinjecting gas into its onshore oil fields to aid recovery and have led to a slight drop in oil exports, which averaged around 2.4 million barrels per day last year, Iranian oil industry sources say.

Iran has been experiencing natural gas shortages this winter, despite sitting on some of the world’s largest reserves. This sort of thing tends to lead to an unhappy populace.

Iran has been in a dispute with Turkmenistan. At the beginning of the year, Turkmenistan ceased gas exports to Iran in what looks like a bid to extract a higher price from Iran. Yigal Schleifer explains at EurasiaNet why Russia may benefit:

For European observers, the Iranian-Turkmen dustup is raising concerns about the two countries’ ability to play a role in the proposed Nabucco pipeline, which would bring Caspian gas to the European Union. “It makes a Nabucco that would take gas from Turkmenistan via Iran less likely,” said Charles Esser, an energy analyst with the International Crisis Group, a Brussels-based policy and research organization.

Although still struggling to get off the drawing board, the proposed pipeline is designed to diversify the EU’s gas supply, in particular by bringing Turkmen gas online, either by funneling it to Azerbaijan and then to Turkey via a trans-Caspian pipeline, or to Turkey via Iran. [For background see the Eurasia Insight archive]. In Turkey, while there is some understanding for Iran’s predicament, questions are also being asked about Iran’s reliability as an energy supplier, considering Tehran has cut gas supplies to Turkey on previous occasions.
….
The Iranian-Turkmen dispute has enable Russia to reinforce its image as the most reliable source of energy for the EU. When Iran cut off its gas supplies to Turkey, Russia helped offset some of the decrease. And, at the same time that the dispute between Ashgabat and Tehran helped put question marks around the possibility of Caspian gas coming to Europe, Russia signed a major deal with Bulgaria, laying the groundwork for a pipeline running under the Black Sea which would bring more Russian gas to Europe.

“The message for me is that you can rely on the Russians to supply more gas and that all this talk about diversification is good in theory, but very hard to do in practice,” says the Oxford Institute’s Stern. “The reality of when things go wrong is that mostly Russia can be relied upon to supply more gas. That strengthens [Russia’s] hand.”

I mentioned the Nabucco project the other day, as a rival to the South Stream project. Gazprom is now looking at Hungary to boost the importance of the latter.

Following the signing of agreements with Serbia and Austria on Friday, Hungary now remains the last hurdle to the South Stream natural gas pipeline project. In the view of analysts, it “can fix any price” in such a situation, especially with the United States sharply criticizing the European countries’ loyalty to Russian gas giant Gazprom.
…
The last remaining obstacle to South Stream is an agreement with Hungary. Although partnered with Hungary’s MOL, Gazprom has been unable to implement a single project in the past few years with the company, despite talks on acquisition of some of MOL’s transport and trading assets and its preparation of feasibility studies for South Stream.

Mikhail Korchemkin, director of East European Gas Analysis, said that in a situation when Hungary, which is traditionally disloyal to Russia, remained the last link in the South Stream chain, Budapest “could charge any price for its section.”