Russia’s behavior over the past decade has puzzled Western politicians and commentators, who have swung from proclaiming a new Cold War with Russia to calling for a “reset” in relations. Russia’s perceived attempts to blackmail Ukraine, Belarus and Moldova over gas supply, imported goods, presidential elections and political splits followed by military invasion of Georgia in August 2008 vexed many diplomats in the West. It is assumed that Russia is trying to recover its influence in the region by advancing its geostrategic interests. Such conclusions should be drawn with caution. Russia’s foreign policy is constructed by the most influential monopoly in Russia – Gazprom, rather than independent political elites.
In States, Firms and Diplomacy, Susan Strange argued that since the collapse of USSR, the understanding of power has shifted from military capabilities to wealth, implying that companies responsible for the majority of state’s revenue posses significant leverage over domestic and foreign policies ratified by the political elites. In the case of Russia, this shift in power can be traced back to the emergence of oligarchs who steered macroeconomic policies during Yeltsin epoch. Woods and Gould-Davies demonstrated such interdependence in, Russia and the IMF, indicating that Yeltsin administration lost its power to the small group of oligarchs who directed Russia’s domestic and foreign policies creating favorable conditions for their businesses until Yeltsin’s resignation in December 1999.
Since 2000, Gazprom’s interests turned into Russia’s interests. The concept of crony capitalism, once coined by the former Managing Director of the IMF Michael Camdessus, still holds true in present day Russia. Foreign policies proclaimed by the Medvedev (and earlier, Putin) administrations are focused on increasing Gazprom’s revenues, which is one of the primary sources of the national budget.
The energy industry accounts for about 20% of Russia’s GDP, approximately 64% of its export revenues, 30% of foreign direct investment, and well over 40% of the government’s fiscal revenue. The Russian government, heavily tied to the largest money making machine Gazprom, has shifted from diversification of the national economy to controlling the largest pipeline network in Eurasia. Consequentially, if neighboring countries such as Ukraine or Belarus have problems paying their invoices and/or cause constant disruption of gas supply to the European clients, Russia takes it as an opportunity to blackmail the transit state in hopes that eventually the accumulated debt will be covered by transfer of energy assets (pipeline networks) from the indebt state to Gazprom.
There is no reemergence of the Cold War. Instead, it is a puppet show where Gazprom, headed by Prime Minister V.V. Putin, pulls the strings of the political elites. To constrain Russia’s scramble for pipelines, the West needs to ensure that neither Ukraine nor any other transit state accumulates large debts with Gazprom. The rules of this game are straight forward, although they have been neglected by the Western powers for a decade. Perhaps, these rules got lost in translation when Gerhard Schroder, former Chancellor of Germany, started lobbying for Gazprom’s project in Europe - the North Stream pipeline…