Ausgabe 2/2006

Putin's Cold War Using Russian Energy as a Political Weapon

The Kremlin has botched its debut as leader of the G8 group of industrial nations with a bout of sledgehammer diplomacy in its dispute with Ukraine over natural gas. The compromise reached by Moscow and Kiev is classic Putin in its deliberate lack of transparency.


Russian President Vladimir Putin during the recording of his annual televised New Year's message at the Kremlin.

Russian President Vladimir Putin during the recording of his annual televised New Year's message at the Kremlin.

Moscow finally settles into a pre-Christmas peace on the eve of the Eastern Orthodox celebration of Christmas. The city lies under a blanket of snow, frozen deep at -18°C (0°F), as Muscovites turn to festive contemplation or engage in serious drinking. The editorial offices of Moscow's newspapers have been closed for more than a week.

The mood is even festive in the presidential residence, Novo-Ogaryovo, on the western outskirts of the Russian capital. Russian President Vladimir Putin welcomes two important guests to the residence: the head of the Gazprom Group and the Minister of Energy. The two have just declared an end to the natural gas dispute with neighboring Ukraine, and Putin is already envisioning warm cooperation with Russia's Ukrainian brothers on the horizon.

It's almost as if nothing had happened, as if the continent's two largest countries in terms of area had not spent weeks negotiating the price of future natural gas shipments, as if CNN hadn't aired "breaking news" over what it aptly called the "Cold War," complete with live images from chilly Ukrainian living rooms, and as if the leadership of Western countries hadn't expressed concerns about the future, conjuring visions of the distantly removed days of the oil crisis.

And it's as if, only a few days earlier, a saber-rattling Russian defense minister hadn't threatened Ukraine with "fatal" consequences if it refused to play along, and as if the powerful mayor of Moscow hadn't openly asserted Russia's alleged claim to the formerly Russian Crimea. Just before he resigned on New Year's Eve, Putin advisor Andrei Illarionov, as wordy as he is devoid of influence, said that the manner in which Russia was applying pressure to Ukraine was reminiscent of Hitler's threats during the Sudetenland incident.

But then, shortly before the Eastern Orthodox Christmas, on January 7, everything returns to normal. Russia's and Ukraine's top-ranking natural gas officials announce that Russia's Gazprom will follow through on its threat and immediately begin selling its natural gas to Ukraine for $230 per 1,000 cubic meters. Ukraine, for its part, will not be paying more than $95, just as the Ukrainians wanted. The magic formula for this bit of creative arithmetic is complicated, say officials.

The adversaries have hardly stepped off the stage, their heads held high as if they had just left a morning duel without a corpse, as the first congratulatory messages arrive. The deputy chairman of the Russian parliament calls it a "victory of common sense." The leader of the "Fatherland" opposition party says that there are winners on both sides. Finally Benita Ferrero-Waldner, the Austrian-born EU Commissioner for External Relations, lets it be known that she is "deeply satisfied."

Only 200 meters from Ferrero-Waldner's office at Vienna's federal chancellery, a man is bombarded with telephone calls. He is Wolfgang Putschek, a dapper member of the board of directors of Raiffeisen Investment AG, and his job, as his employer's representative on the management board of RosUkrEnergo (RUE), is to turn the puzzling Russian-Ukrainian deal into real money and natural gas.

As part of the Russian-Ukrainian peace treaty, RUE was awarded a contract to mix a natural gas cocktail for the Ukrainians of which one third consisted of expensive Russian natural gas and two thirds was cheap natural gas from Central Asia. RUE's challenge is to arrive at a product that dilutes the high Russian price, almost five times greater than that of Asian gas, thus enabling both parties to save face: the Russians who, in violation of valid agreements, are suddenly charging Kiev's orange revolutionaries "global market prices" for their natural gas; and the Ukrainians, who say they are in favor of a free market economy, but can't understand why they should pay a price that's five times as high as the price the Russians are charging Putin's loyal ally, Belarus.

The affair is difficult, but not impossible to explain for someone like Putschek, a banker who is always consulted when something isn't quite clear -- rumors about natural gas trading company RUE's supposed Mafia connections, illegal earnings or tax evasion. RUE's management board includes Putschek and four high-ranking executives of Gazprom, a monopoly controlled by the Russian government, as well as three of Putschek's colleagues from Raiffeisen. The board meets once a month in Zürich or at the company's headquarters in Zug, a Swiss tax haven.

Everyone knows who the men from co-owner Gazprom represent. Gazprom is the Kremlin's cash cow and Russia's biggest taxpayer. No one knows who Putschek and his colleagues represent -- their sponsors have asked that their identities be kept confidential.

"Respectable businesspeople," says Putschek, adding that everything has been checked. It's "absolutely inconceivable" that Semyon Mogilyevich or someone close to him is behind the company, as Ukrainian intelligence chief Alexander Turtchinov conjectured after an investigation last summer. It's a suspicion that created headlines, because Mogilyevich faces a 390-year prison sentence in the United States for fraud and money-laundering. Mogilyevich allegedly holds Israeli, Russian and Hungarian citizenship, and he has been widely viewed as a Mafia boss for more than 10 years. He is also on the FBI's global most-wanted list. Through his attorney, Zeev Gordon, the fugitive has denied any connection with RUE. The attorney is the same Zeev Gordon who co-founded Eural Trans Gas, RUE's predecessor, to transport natural gas from Turkmenistan to Ukraine. In 2003, the company's profits were estimated at three-quarters of a billion dollars.

  • Part 1: Using Russian Energy as a Political Weapon
  • Part 2
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