Russia’s Gas Diplomacy


By Rozhin Salah, Linda Rashid, Deya Aso, Arez Osman, Ahmed Yousef:

On 1 January, 2006, Russia cut off gas supplies to Europe because of a dispute over gas prices with the transit country Ukraine; this conflict was summarized on a cover of ‘The Economist’ in which Putin, instead of a gun, holds the pump in his hands (Economist, 1).

Russia has used its natural resources to put economic and political pressure on its neighboring buyers. In other words, gas has played a major role in enhancing Russia’s diplomacy. Yet, there are questions regarding Russia’s capability in using gas as a political weapon.

How long can Russia cut off selling gas to its buyers? Can countries currently dependent on Russian gas increase their energy/gas security through finding other gas producers or reducing their gas dependency? This paper will examine Russia’s gas capability and subsequently Russia’s gas diplomacy.


Russian Internal Gas Dynamics

Russia, with around 24 percent of the world’s proven reserves, has the largest gas proven reserves in the world (Bahgat, 4). Iran and Qatar respectively hold second and third places with 15.8% and 14%. Russia is the second largest producer of dry natural gas in the world. Gazprom, a Russian national gas and oil company, has a monopoly over exporting gas. Gazprom owns the world’s largest gas reserves, controlling 72% of Russian gas reserves and 17% of global gas reserves (Gazprom). More importantly, the company with 170.7 thousand kilometers of pipelines has the world’s largest gas transmission system (Gazprom). The gas market in some aspects is different from the oil market since oil is a global commodity while gas is a regional commodity. In the gas market, having land borders with other countries is important since dry natural gas should best be transited by pipelines and through countries. Exporting liquid natural gas (LNG) is more costly compared to dry natural gas and requires more sophisticated technologies. The large Russian territory has enabled Gazprom to sell more than 50 percent of its gas for internal consumption and the rest to more than 30 countries, mostly its neighbors and European countries (Gazprom). For a gas-dependent country, finding a geographically close gas-exporting country is important because this reduces the transit costs.

The Russian gas industry is highly politicized, with positive and negative impacts. Russian energy companies like Rosneft and Novatek take part in the exploration, production, and refining of Russian gas, but Gazprom has a monopoly over exporting Russian gas and controls most Russian gas reserves. The political system of Russia is relatively autocratic and Vladimir Putin has been the key political player since 1999. The combination of Russian central political power with a somehow monopolized Russian gas industry through Gazprom puts Russia in a stronger position to influence the regional gas market since Russia’s neighboring countries are small economic entities with multi decision-making centers and less unified energy policies. However, the uncompetitive Russian gas market deters foreign energy companies from investing in the development of the Russian gas industry (Soltanov, 27-9). In other words, the political economy of Russian gas is based on win-lose externally and is uncompetitive internally, which deters foreign investments and a shift toward a win-win energy policy.

Russia’s Energy Policy towards Its Small Neighboring Countries

Russia is the largest land-based country in the world. It has fourteen neighboring countries including Azerbaijan, Belarus, Estonia, Finland, Georgia, Kazakhstan, Latvia, Lithuania, Mongolia, North Korea, Norway, Poland, and Ukraine (Rosenberg, Geography). During the period of the Soviet Union, Russia’s communist neighboring countries received Russian gas at low prices while capitalist countries in the west received Russian gas at much higher prices (Bahgat, 5). Russian gas in the Soviet era was an ideological tool, yet now it is still a political tool to put pressure on neighboring countries.

Russia tries to widen its sphere of influence through making its neighbors entirely dependent on its resources to the point where it achieves its political goals. As it stands, several states in central and Eastern Europe are finding it hard not to rely on Russian oil and gas even at the expense of compromising their political autonomy. These states include Ukraine, Georgia, Moldova, and the Baltic States.

The Russian government operates mainly through Gazprom, the largest natural gas firm in Russia which has a monopoly over the domestic market. Gazprom controls about 90% of Russia’s oil production, and is also associated with banks, farms, and media outlets within the country. Gazprom is state-controlled; what it does is produce gas and oil at a very cheap price in Russia in order to keep its internal monopoly, while using its monopoly of gas over its neighbors to sell for higher prices abroad (Lough John, 6). The company appears to be more focused on achieving political gains than generating economic profit and attracting foreign investments. Furthermore, Gazprom won’t hesitate to use its connections within the government to force out any potential competitors. In 2007, Gazprom forced a Russian-British oil firm to sell its gas field cheaply to them.

In the case of Moldavia, that country is entirely dependent on Russian gas as it is the poorest country in Europe. In order to weaken the government, Russia dealt a big blow to Moldova’s economy by restricting Moldovan wine imports from entering the Russian market, citing alleged health concerns. This was part of a plan to increase Russia’s influence in Moldova, as Russia was supporting an alternative regime for the country, even going out of its way to deploy 1500 troops in the region (Steven Woehrel, 10). Additionally, Russia has used Gazprom to pressure the Moldovan government into agreeing to buy the gas at a doubled price, or risk having its gas supplies cut off. Eventually, Russia and Gazprom managed to make Moldova give Gazprom an additional 13% stake in MoldovaGaz (Steven Woehrel, 11). Now, Gazprom holds about 63% of MoldovaGaz, which is a firm that controls the country’s natural gas pipelines.

Ukraine is in a relatively better position than Moldova. This is slightly due to the country having some reserves of gas, and largely due to the main oil and gas pipelines to Central and Western Europe passing through the country’s territory. Still, Russia did not stop attempting to interfere in the internal affairs of the country, supporting some candidates while pressuring the entire country by manipulating the price of its gas, which is a very valuable resource for Ukraine to use in industrial and heating sectors. For instance, Gazprom started to demand the market price of 230USD per thousand cubic meters, instead of the old 50USD (Steven Woehrel, 7). This very sharp increase in the price came following the defeat of the candidate Russia had supported for the presidential campaign. In the end, a compromise was made by both sides to settle on 95USD per tcm, on the condition that it went through an intermediary firm. This was probably to send a message and remind Ukraine how dependent it is on Russian energy. This became even more evident when Viktor Yanukovych, Russia’s ally, finally managed to win the elections. As expected, Gazprom’s negotiations with the new prime minister went much smoother than previously. Gazprom managed to get Ukraine to agree to a deal which stated that the price of Russian natural gas would gradually increase until it reaches market price in 2012-2013.

Georgia is much like Ukraine and has a major pipeline passing through its territory. This helps Georgia to be not so dependent on Russian gas for power. Georgia is in a better position than Ukraine due to its having land borders with Azerbaijan, an energy producing country. Similar to what happened in Moldova and Ukraine, Gazprom attempted to flex some muscles and demand a higher price for its gas. The pipeline was also sabotaged with a bomb, effectively cutting the supplies to Georgia. However, another pipeline going through Azerbaijan and Turkey was completed in 2007 and this helped make Georgia less dependent on Russian gas (Steven Woehrel, 11).

All of the cases discussed have a similar pattern. In all three cases, Russia/Gazprom was originally selling its gas at a low price, in exchange for more involvement in the internal affairs of these neighboring countries. Then as Russian influence was established and grew deeper, and as the people and/or the governments of these countries start to reject Russian interference, Gazprom shows up demanding the market price for gas. This is used to put pressure on the governments of said countries to agree on unfavorable deals. Lastly, Russia supports new regimes and candidates for elections, with promises of reduced prices of gas, and so on.

European Union-Russia Relations and Energy Dependency

Russia has been one of the largest gas and oil exporters for decades, and its main markets are located in Europe. Europe for its energy is significantly dependent on Russia’s natural resources supply. Russia provides European energy demand as follows: 31% of gas, 26% of coal, and 32% of crude oil. Russia provides Europe with gas and oil, mainly through the Ukraine and Belarus pipelines. On the Russian side, 70% of its energy resources are sold to Europe, which business produces half of the Russian governmental budget (Monaghan, 10). The Russian-Europe gas relationship is one of dual-dependency because Europe’s main supplier of energy is Russia, and the main market for Russian natural resources is Europe. The degree of dependency on Russian energy differs among European countries. To clarify, Finland, the Baltic States, and Bulgaria are nearly 100% dependent on Russian oil and gas, while other European countries like Spain and Britain are not dependent on Russia’s natural resources (Boguszewski, 4).

These two graphics show the European dependency on Russia based on countries:



Moreover, the price of oil and gas varies based on each country’s dependency on Russian energy. Germany pays Gazprom only €24/MWh while Lithuania pays €38 and Bulgaria pays €43 (European Parliament). Here the main conclusion regarding Russia’s gas diplomacy: the more a European country is dependent on Russian energy the less chances it has to negotiate on the price.

Even though Europe is largely dependent on Russia for energy in general, gas is the main problem due to the difficulties involved of transporting it. Therefore, finding alternatives to gas is difficult for Europe. Their great demand for gas, and gas’ transportation difficulties created an atmosphere in which Europe has become addicted to Russian gas, while on the other hand has great enthusiasm for finding other suppliers that can provide a large volume of gas. Russia uses its gas as a political tool to put pressure on Europe. One recent example of Russian gas geopolitics was the case of Crimea. Russia invaded Crimea and Europe could not do much beyond verbal pressure because they were afraid that, if they went further, Russia would stop supplying them gas and oil as it did in 2006.
Although Russia has gas as a political weapon, it still could not threaten the EU in the long term because half of its budget comes from selling oil and gas to the EU. Russia tries to increase the EU addiction to its energy through diversifying its pipelines all around southern-east, east, and northern-east Europe. New pipelines are planned for construction through the Black Sea. Also, they have aimed to put other pipelines through Slovakia and Turkey in order to reach Italy, Hungary and Austria. The Turkish pipeline may no longer be possible due to the tensions between both countries after the shooting down of the Russian military jet, but there are still plenty of border lines across which they can pump oil and gas to Europe.

The EU has plans to decrease its energy dependency on Russia by importing gas and oil from Norway but the Norwegian natural resources capacity is limited, and so Europeans are trying to get liquefied gas from Qatar even though it is more expensive. Furthermore, there are plans to get gas from middle-eastern countries such as Iran and the KRG through Turkey. Also, Algeria can be another source but recently its security is not stable which makes it an unreliable alternative. Azerbaijan is a big hope for Europe but not presently because the designated pipeline there will be finished by 2020 (European Parliament). To counteract Europe’s efforts to find alternatives to Russian natural resources, Russia is trying to find other markets to secure its supply by constructing a pipeline to China and signing a 30 years contract to provide China with 30 billion cubic meters of gas per year, but still this amounts to just 20% of the Russia-EU supply (European Parliament).

These two graphics show the present and planned main pipelines:


Russia in the short term has a dominant role in supplying gas and EU energy security, and so it can put great pressure on EU. In the long term, the EU can probably find alternatives and escape the Russian energy pressure.

Russia’s Gas Exportation to China

Due to the decrease in global energy prices and the uncertainty hanging over China’s economy, Russia is likely to scale back volumes of gas exports to Europe and send more to China later this decade (Miller). Putin’s strategic gas shift policy towards the east, especially China, involves completing a pipeline project that is very expensive. Although, Moscow’s deal with Beijing reached $400 billion in May 2014, they acknowledge future sales to China will be lower (Perlez, 1). By relying on this expensive pipeline,Moscow is keen to “Pivot to the East,” since it will be a huge step for Russia to reduce its reliance on exporting to Europe. However, the gas trade has caused concerns in China, because it might cause internal movements for autonomy or independence in regions like Tibet and Xinxiang. Gazprom’s need to move away from dependency on Europe as its key gas export market has increased as Russia-EU political relations have soured the Crimea and Ukraine. The deal with China might cause alarm in Europe, but China cannot fully replace Europe given that Russia relies on the high prices and volumes the European market offers. The deal will, however, push Europe to identify alternative gas sources and develop a long term energy plan. With this deal, does China replace Europe for Russia? The answer to this question is very unlikely to be yes since the volume of exports to China are still relatively small: 38 billion cubic meters annually compared to the 161.5 billion cubic meters that Russia exports to Europe.

In the short term, the gas-price dispute between the Ukraine and Russia may disrupt Russia’s ability to supply its large market in Europe, as one important transit route for Russian gas runs through the Ukraine. In the long run, Russia’s privileged role in European energy markets looks less secure because Europe may seek to reduce Russia’s pricing power and expand its imports from other suppliers.

China’s energy demand continues to grow in the long term and energy security is one of the top policy goals of the Chinese government. China prefers Russia’s gas compared to Iran’s or Qatar’s because its supply is more reliable compared to the geopolitical upheavals seen in the Persian Gulf. Gazprom’s recent agreement to build a pipeline to China is likely just the first step in a strengthening energy relationship. The second sign for improving this deal is military relations. China has long been an important arms export market for Russia, but the Kremlin’s recent decision to sell S-400 surface-to-air missiles to China marks an important shift (Sarah, 2). In the past, due to the geopolitical rivalry between Moscow and Beijing, Russia’s arms exports to China were limited. Now the Kremlin is ready to supply China with advanced weapons to help enhance the Russian-Chinese energy relationship. Stronger Chinese-Russian relations were boosted by Beijing’s refusal to condemn the annexation of Crimea. China is usually wary of border changes. For instance, China opposed Kosovo’s independence because it has a handful of sticky border disputes of its own. Nonetheless, Beijing did not openly criticize Russia’s seizure of Crimea, which some have interpreted as evidence that Beijing is prioritizing its relationship with Moscow. The fourth factor is that both countries share some ideologies for their domestic political systems. They are both against the west and western-style democracy. Thus, there are several factors pushing Russia and China towards stronger energy ties, although developing these ties will need time and lots of investment, and the world of politics is complex and has some unknowns.

Japan-Russia Gas Relations

Japan is known as the world’s fourth energy consumer and one of the countries that doesn’t have natural resources such as oil and gas. Earthquakes happen a lot in Japan, which can destroy industries and nuclear plants, and so this country has to import oil and gas from other countries that have large natural resources. Russia is one of the countries that Japan imports most of its natural resources from, especially gas. At the same time, Japan’s geographical location is suitable for Russia, and so it can get natural resources there and they are trading and sending resources to each other via the sea (warm-water). “In 2013, 7% of Japan’s oil and 10% of LNG were imported from Russia” (Motomura). There are some agreements and projects between the Russia’s natural gas (LNG) companies and Japan such as the Vladivostok project. Japan gets most of its natural gas from the Sakhalin Project. Sakhalin is the largest Russian island and it has been developed to transit natural gas from Russia that helps Japan to secure its gas demands at lower cost. This project and others help Japan to get natural resources; however, they also have disadvantages and cause problems, for example, to Japan’s environment.

The economic relationship between Russia and Japan is based on the oil and gas trade and their relative geographic proximity has encouraged other trade and investment too. The Russian-Japanese relationship is based on getting mutual advantage, which could be called a win–win situation (Motomura).

North Korea-Russia Relations

Russia’s relationship with North Korea is designed to get the U.S’s attention and improve its relations with other powers especially the United States and China. Plus, the North Korea relationship helps Russia politically, economically and security-wise. Over the past decades, their relationship was not good but then Russia decided to deliver natural gas into North Korea, but with Russia in charge of the pipelines.


To sum up, Russia’ gas diplomacy has been successful in putting pressure on Russia’s small neighbors because these countries economically are small and their dependency on Russian gas is very high. In the case of Russian-European relations, Russian gas has made European countries more cautious, yet the Russian economy is not strong enough to be able to maintain reducing gas exports for a long time. Developing the Russian gas industry requires attracting foreign investment, yet the uncompetitive Russian economy deters foreign energy companies from investing in Russia’s natural gas industry. The future of the Russian gas industry is not clear, yet it has at least enabled Putin to talk big in international politics.

Works Cited

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  • This is a lightly edited version of a paper produced by the authors for the American University of Iraq-Sulaymani

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