Bahruz Abdolvand: "Europe's foreign policy decisions and economic interests are contradictory"

Interview by Orhan Sattarov, the head of the European bureau of "Vestnik Kavkaza" 

Events in eastern Ukraine, which results in sharp contradictions between the West and Russia, may have unintended consequences affecting the energy map of Europe. The coordinator of the Berlin Center for the Study of the Caspian region, an associate member of the German Society for Foreign Policy, PhD Bahruz Abdolvandof shares his ideas about risks posed by the Ukrainian crisis for Europe's energy security, as well as about the sanctions imposed by Europe against Russia. Below is the first part of our talk with the German political scientist.

- Mr. Abdolvand, the issue of energy security is once again on the European agenda in relation to the Ukrainian crisis. Do you think that European energy interests are threatened by this situation? 

- The crisis in Ukraine and observed tensions in relations between Russia on the one hand and the United States and the EU on the other hand have once again raised doubts about the reliability of Russia as a major gas supplier in Europe. The fact that Moscow has used the issue of gas supplies to achieve its foreign policy goals will also be remembered by the Europeans, in particular the announcement made by Russia about the possibility of increasing gas prices for European consumers in response to the recently adopted anti-Russian sanctions. Thus, it seems that the European energy security hangs in the air. The EU Energy Commissioner, Guenther Oettinger has proposed to develop an energy strategy for the next decade. Federal Chancellor Angela Merkel has announced that the "common energy policy" will be re-examined to reduce dependence on Russia. 

When the conflict in the east of Ukraine started to escalate, Russia introduced the question of restring gas supplies to Ukraine. Russia claims that Moscow can stop gas exports to this country, if Kiev does not pay off its previous debts for Russian gas imports. According to Gazprom, in order to survive the coming winter, Ukraine will need to get 18.5 billion cubic meters of gas in its storage. Currently it is only half full. At the same time, the Deputy General Director of Gazprom, Viktor Markelov assures that the supply of gas to Europe will be stable as it has always been.

- How dependent are Russian gas exports on the Ukrainian transit system? 

- In 2013, the EU imported about 130 billion cubic meters of gas from Russia. With the help of the Nord Stream pipeline with the annual throughput capacity of 55 billion cubic meters and the gas pipeline through Belarus and Poland with the annual capacity of 33 billion cubic meters Russia is able to provide the EU with nearly 90 billion cubic meters of gas, without using Ukraine's transit system. But the remaining 40 billion cubic meters have to be exported via the Ukrainian territory. Thus, restricting the supply of Russian gas to Ukraine, especially in the winter months, may have an adverse affect on some EU countries in the short-term perspective, especially in eastern and southern Europe. As the recent years have shown, the Ukrainian gas debt has frequently been the cause of "gas wars" between Moscow and Kiev. As a result, European consumers were faced with the restriction and interruption of Russian gas supplies in 2006 in 2009. Factors due to which natural gas supplies to Europe may again be threatened are the difficult financial situation in Ukraine, particularly of the Naftogaz energy company; an increasing pressure from Gazprom, dictated by the political crisis and financial requirements; and, in fact, the dependence of the Russian Federation on the Ukrainian transit system. 

- In 2006 and 2009, Ukraine was engaged in illegally retrieving the Russian gas passing through its territory and aimed at European consumers. Gazprom has the right to demand the debt to be repaid, and if it does not happen, cut off the gas supplies to Ukraine. In a situation like this, can we talk about the unreliability of Russia as a supplier of natural gas, or, after all, should we talk about the unreliability of Ukraine as a transit country? 

- Yes, it is true that Ukraine has been an unreliable transit country in the recent years. The EU Commissioner for Energy, Gunther Oettinger already at the early stage of the crisis warned about the "possible consequences that a large-scale Ukrainian crisis might have for European gas supplies." He noted that it was necessary to avoid a gas crisis and ensure the supply of raw materials for the next winter. "If we do not prompt Kiev to pay its outstanding gas debts amounting to more than $ 2 billion dollars, there is danger that Russia will cease to provide Ukraine with gas. It can result in a hardly controllable process, which could also affect Germany," Oettinger said. 

But at the same time the delivery of Russian gas to European borders is primarily Russia's concern. If Russia is not able to provide its gas exports to Europe via existing routes, then eventually the EU will  raise the question about the reliability of Russia as a stable supplier of gas. From the Russian point of view, such an approach, of course,  may seem unfair, however Europe requires stable gas supplies.

- How important are the sanctions imposed on Russia by the EU?

- At some point European countries decided to adopt a tougher line on Russia in response to the ongoing Ukrainian crisis and the Russian threat. It seems hard for the Europeans to begin an open confrontation with Russia as Europe still depends on the Russian energy resources. Until now the sanctions imposed by the EU have been rather moderate. The EU has only frozen bank accounts of Eastern Ukraine's rebel leaders and Putin's closeassociates. However these measures have not affected Russia's most influential politicians and businessmen.

The situation changed dramatically after the downing of the passenger's jet in Eastern Ukraine, which has become a battlefield. After this incident envoys of the EU member-states agreed to impose more painful sanctions on Russia. Now the sanctions are indeed affecting Russia's banking and energy system as well as defense industry. Access to European financial markets is now limited for Russian banks, the EU also banned arms exports to Russia and restricted exports of technologies necessary for successful extraction of oil. The effect of these measures is believed to be very serious and to affect the whole economic system of the country. However their affect is also going to be limited since the sanctions will only last for one year and will not affect the deals, which have already be signed. The sanctions imposed on the energy industry are restrictions rather that an actual ban. Moreover the sanctions will only affect the extraction of deep-water and shaly oil rather than the production of gas.

- What is the public approach to the sanctions in Europe and in Germany in particular? How do European politicians find a balance between the political goals and ecpnomic interests?

- German Foreign Minister Frank-Walter Steinmeier, who has been criticized for his readyness to deal with Moscow many times, in fact contributed very much to making the final decision to  impose additional sanctions on Russia. He said: "Russia does not give us a choice." Still he has always stressed that the EU was ready for dialogue. If Russia is ready for talks as well, the sanctions may be lifted, the German minister says. "We are committed to our course. On the one hand we continue increasing targeted pressure on Russia. On the other hand, we are ready to hold serious talks with the country," the minister said. These words show that the federal government is in a very difficult position. The cabinet has to find some kind of balance between the desire to damage Russia's economy and the attempts to minimize the harm these measures may make to Europe itself.  Such German companies as Siemens, Deutsche Bahn, Wintershall, Volkswagen, producer of agricultural machinery Claas, as well as head of the bankers' labour union Jurgen Fitschen and president of the Industrial Union Ulrich Grillo have all warned the EU against imposing tougher sanctions on Russia, saying such measures may have an unpredictable results for the European economy.  Even president of Economic Research Institute Hans-Werner Sinn has warned against further isolation of Russia and stressed the importance of close economic ties and successful trade with Russia. Sinn has also reminded about President Putin's proposal to establish a free trade zone by Russia and the EU, a zone, which could also included Ukraine.

In addition to that managrs of German trusts E.ON, Metro, BASF and Daimler, which took part in St. Petersburg economic forum this year, voiced their interest in continuing cooperation with Russia. While the US administration urged American companies not to attend the forum, the German cabinet issued no warning. The German federal government does not object the possible selling of DEA, a subsidiary company of RWE, to Russian tycoon Mikhail Friedman and is not going to veto the already planned Russian-German deals. The scepsis of the German society towards economic sanctions against Russia was also noticable in Bundeskanzlerin Agela Merkel's interview, which she granted in May. Merkel confirmed that the annexation of Crimea is illegitimate from the point of view of the international law and agreed that additional sanctions may be necessary. Still she noted that such measures are a tool rather than a goal and stressed the necessity of enhanced ties with Russia.

The fact  that European governments adopt new sanctions on Russia, but do not prevent new deals signed by private companies, shows that European foreign policy and economic interest differ greately from one another. The sanctions imposed so far demonstrate that the European Union is pursuing its political goals rather thei following its economic interests.

To be continued