The turmoil in Ukraine shows that Moscow can't always get its way by being an energy bully.
Under Vladimir Putin, Russia's massive reserves of natural gas have increasingly become a weapon -- one the Kremlin has not hesitated to use to cow neighbors and boost Russian influence. Moscow has used threats of gas cut-offs or outright cuts more than 50 times since the end of the Soviet Union, analysts say.
But judging by the roiling turmoil in the Ukraine, Russia's use of the energy weapon may have backfired, undermining some of its foreign-policy goals and sparking a resurgence of Ukrainian nationalism.
Moreover, and more important for Russia's aspirations, its ability to wield energy as a geopolitical tool is waning and will likely continue to do so, thanks to a spate of changes that are rocking the energy world: new supplies of gas, especially from the United States, greater seaborne gas trade, and a gradually unifying European gas market.
The ongoing popular protests in the Ukraine, the largest since the Orange Revolution a decade ago, came about after Ukrainian President Viktor Yanukovych pulled an abrupt about-face in late November on forging closer ties with Europe. That sudden reversal came about because of a deluge of Russian economic pressure -- and Russia's control of Ukraine's and Europe's natural-gas supply was a huge part of that pressure.
Russia used both carrots and sticks to make Yanukovych drop his plans to move Ukraine closer to Europe. The sticks included threats to make Ukraine pay in advance for both its own gas and the gas it transships to the rest of Europe, something Kiev simply could not do. The carrots included a hint of cheaper gas prices and some relief for Ukraine's outstanding gas debts to Moscow.
In a limited way, Russia's ploy worked. Ukraine abruptly dropped plans to sign the Association Agreement with the European Union. And Yanukovych, who hasn't been Moscow's favorite since he began flirting with Europe, faces a popular rebellion ahead of elections in 2015.
But more broadly, Russia's heavy-handed tactics backfired. Ukraine hasn't joined the Moscow-led Customs Union -- one of Moscow's main goals -- and there doesn't seem to be any way it can in the near future, given the depth of outrage in the streets of Kiev. Putin said Thursday that Russia hadn't pressured Ukraine, and insisted that country could still join its Customs Union.
In response to the protests, Yanukovych has even suggested he might sign the Association Agreement with Europe after all, European Union foreign policy chief Catherine Ashton said Thursday. That agreement would spur reforms in Ukraine, such as boosting the rule of law and human rights as well as economic reforms, while offering Ukraine greater trade access and cooperation with European Union countries.
Even weakening Yanukovych could be a mixed blessing.
"Since Yanukovych came back to power, he has been anything but a Russian puppet, to the Kremlin's great consternation. They certainly don't have any love for him," said Jeff Mankoff, deputy director of the Russia program at the Center for Strategic and International Studies.
"At the same time, you have to ask yourself what would replace him," Mankoff added. There's the very real possibility of getting new leaders who are "ideologically committed to getting Ukraine out from Russia's thumb."
Of course, Ukraine is still in flux. The European Union has offered plenty of strong words for the government's crackdown on protesters, but little yet in the way of economic support that could offset Russia's threats. Ashton acknowledged Thursday that short-term economic challenges are the biggest problem for Kiev. Failing a sharp financial boost, Moscow could ultimately yank Ukraine more fully into its orbit, essentially by default.
But it won't necessarily be due to Russia's ability to use energy for leverage, as it has in the past. And that, in part, is due to Russia's own behavior.
Big producers of natural gas -- and Russia is about the biggest, behind just the United States -- have a geopolitical advantage over oil producers: Oil moves freely while gas largely travels in pipelines. Those fixed links, with long-term contracts, mean that buyers of natural gas don't have nearly the leverage to shop for other suppliers that oil buyers do. And gas exporters have greater ability to turn the screws.
Russia has used threats of gas cut-offs or outright cuts more than fifty times since the end of the Soviet Union, analysts say. In the last decade, Russia has wielded gas threats to pressure neighbors such as Belarus and Moldova not to forge closer ties with Europe. And it's worked. Belarus, for example, has indeed drifted closer to Moscow, and joined the Russian-led Customs Union.
This fall, Russia leaned on Lithuania, which was leading talks on closer European ties with former Soviet republics. In past years, Russia has also threatened Azerbaijan over its development of alternative pipelines to ship natural gas west.
Countries that are fully reliant on Russian gas often have little choice. When Russia cut off gas supplies to Ukraine in 2006, for example, Ukraine had to buckle to Moscow's demands. It had no alternatives for its own supply, and downstream European customers, such as Germany, were feeling the pain, too.
But all that is changing in a host of small but important ways that nibble away at the power Russia can wield with natural gas. Since energy might stands alongside its nuclear arsenal as Russia's main claims to great power status, anything that weakens its ability to use energy as a weapon is a big deal.
"I think Russia's energy leverage is waning," said Mankoff of CSIS. "One of the challenges they face is, then what?"
Europe is on the cusp of getting new sources of gas supply, and is finally becoming a more unified and less fragmented gas market, reforms that came about in reaction to Russia's heavy-handed dealings with energy. Both make Europe the buyer potentially stronger and Russia the seller potentially weaker. With Europe (including Ukraine) accounting for about three-quarters of Russia's gas exports, that matters. It also explains Russia's urge to find new markets in Asia, where there is a seemingly natural partnership to be had feeding China's appetite for oil and gas.
One surprising threat to Russia's energy arsenal is the big U.S. boom in natural-gas production, unleashed by the hydraulic fracturing revolution. While U.S. exports of natural gas to Europe and Asia are still four or five years away, and questions still remain over how much gas the United States will ultimately export, plenty of lawmakers want the United States to fast-track exports of natural gas to allies in Europe and Asia. European officials have swarmed on Washington in recent months to urge lawmakers to tweak rules so that NATO allies can get access to cheap U.S. gas.
But even before exports begin, the U.S. glut is having an impact overseas. Liquefied natural gas cargoes once destined for the United States went to Western Europe instead. Armed with an alternative source of supply, and at cheaper prices, about a score of European utilities such as Germany's EON and RWE, France's GDF Suez, and Italy's ENI have managed to renegotiate their contracts with Gazprom, the Russian natural gas giant, and get price reductions.
Some European countries, and Ukraine, have started trying to replicate the shale-gas revolution. Chevron and Shell just inked deals in Ukraine to drill for gas. Exxon has tried in Poland. Britain is eager to tap its own resources. While any European shale production is years away, that's another potential source of supply to balance out Russia's dominance.
Another source of supply on the horizon: long-awaited projects such as the Trans-Adriatic Pipeline, which will ship gas from Azerbaijan to the Balkans and Italy. It's not quite Nabucco, the pipedream of a pipeline that Europe toiled on for years, and which would have brought gas into Central Europe, but it does provide another alternative to Russia.
At the same time, and largely as a result of Russia's own behavior over the last decade, Europe has finally tackled its own energy market by liberalizing the gas market, increasing physical interconnections between countries, and building more gas-transport infrastructure. It sounds boring, but binds countries closer together.
Shortfalls in one place -- due to Russian antics or supply problems elsewhere -- can increasingly be addressed by moving gas around the continent. And that becomes even more useful the more additional gas finds its way there, whether from LNG tankers, domestic production, or the Caspian.
"I think there used to be gas dominance (from Russia) but the rapid increase in spot gas pricing, and the rise of shale gas creates absolutely new market conditions," said a Central European diplomat who works on energy issues.
Russia won't lose its energy leverage overnight, of course. All these changes in the gas market will take years to play out; some, such as European shale-gas production, may never fully live up to expectations.
But the seismic shifts rocking the energy world, and especially gas markets, make it increasingly difficult for Russia to use its well-worn playbook to keep scoring geopolitical victories.
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