EU must escape Russia's grip

Published on Saturday 21 October 2006 00:34

IT IS too early to call it a new Cold War, but Moscow's determination to use its control of Russia's oil and gas industry for political leverage is a potential threat to Europe, which relies heavily on Russia for its energy requirements.

Few in the West realise that Russia is now the world's biggest exporter of fossil fuel. Coupled with skyrocketing energy prices, this gives Moscow an economic weapon far more useful than missiles or atomic bombs. Moscow has been quick to use this new-found power to break existing contracts, extort higher prices and force Western energy companies operating in Russia to hand over part of their investments.

In January, Russia cut off supplies of natural gas to the Ukraine in order to force the Ukrainians to hand back ownership of the pipeline through which the gas flowed. The row led to gas shortages not just in the Ukraine but in EU countries including Italy, France and Hungary. Shell, BP, Exxon-Mobil and Total are among the Western energy firms facing political blackmail to cede some control over oil and gas fields to companies owned by the Russian government.

Britain and Europe need to wean themselves off imported energy and - in particular - dependence on Russia for their gas supplies. That requires investing heavily in indigenous electricity production using nuclear power and renewables. It also requires building more port facilities so that liquid natural gas can be imported from sources outside Moscow's control. Greater self-sufficiency and increased diversity of supply in energy products has to be the top priority.

In addition, the EU has to stop cutting its own throat in energy matters. Inside the EU, there is no functioning market in energy due to national self-interest. Spain is trying to stop Germany's E.ON from taking over the main Spanish electricity company, while France is attempting to keep its gas supplies in national hands by blocking an Italian takeover of local firms. The EU desperately needs a free market in energy to reduce costs, improve service to the consumer and provided a united front against Russian energy blackmail.

We should also remember that Moscow does not hold all the cards in the game of energy poker. Russia lacks the cash to develop its own oil and gas fields - that can only come from the West. And Russia's gas pipelines only go to Europe. If we don't buy their gas, no-one else can.