September 24, 2012

Is Russia’s Geopolitical Influence Waning in the Wake of the Shale Gas Boom?

The Washington Post published a must-read report this morning on the decline of Gazprom, Russia’s state-owned natural gas company.

Gazprom has long been Moscow’s instrument of choice for exerting influence over former Soviet bloc states in Eastern Europe, like the Urkaine, that have been moving too close to the West. But that could all be changing as a result of major structural shifts in global natural gas production, with hydraulic fracking jumping from the United States to Eastern Europe.

Last week, The Wall Street Journal reported that Central and Eastern European energy companies are exploring joint ventures with Western companies in order to develop the region’s potential shale gas resources. The move by these Central and Eastern European countries is in part driven by the need to diversify their own natural gas supply so that they are not as easily held hostage to Russian influence. In recent years, for example, Russia has used disputes over transit fees with countries like the Ukraine as the basis for cutting of gas supply during peak winter months.

Of course, developing and benefiting from those shale gas resources will prove somewhat difficult for Central and Eastern European countries, according to The Wall Street Journal. “Moscow controls the region's pipelines. Many buyers in Eastern Europe are also locked into supply contracts of as long as 25 years with Russian gas giant OAO Gazprom—making it uneconomical in some cases to seek a new supplier,” the report said. Nevertheless, though, the developing shale gas projects in Central and Eastern Europe could take a toll on regional gas prices and impact Russia’s economy.

Indeed, more than just a foreign policy tool, Gazprom has been a significant source of Russian state revenue. According to The Washington Post report, “An extraordinary 60 percent of Russia’s revenue comes from taxes and income from fossil fuels, economists believe; Gazprom alone accounts for 12 percent of all Russian exports.” And yet “Gazprom’s exports of natural gas to Europe, which form the mainspring of its wealth, are falling, and a potentially major fight is brewing over price fixing.” 

Although it is too early to tell how all this will affect Moscow's long-term geopolitical influence in the near abroad, this is an important developing story to watch. For more, read the full Washington Post story here

Photo: A Gazprom facility sits across the Moscow River. Courtesy of flickr user Greg Westfall.