Kremlin reasserts control of oil, gas

Experts say the Kremlin aims to blunt international criticism of its takeover of the energy sector by offering a few symbolic management positions to prominent foreigners such as former German Chancellor Gerhard Schröder, who has reportedly agreed to head the new North European gas pipeline project, which will carry Russian gas directly to Germany. Earlier this month, Putin personally offered former US Secretary of Commerce Donald Evans the post of Rosneft chairman, a job Mr. Evans turned down.

Putin has appointed some of his top aides to run the Kremlin's newly acquired empire.The daily Nezavisimaya Gazeta estimated earlier this year that seven people from Putin's inner circle now control nine state companies with total assets of $222 billion, which is equal to 40 percent of Russia's GDP.

Some experts argue that the unregulated "oligarchic" capitalism of the 1990s brought on a public backlash and made the state's return to economic intervention necessary. "Many private oil companies were not serving the national interest, and those mistakes had to be corrected," says Nazit Boikov, an expert with the official Institute of World Economy and International Relations in Moscow.

Others allege that a new Kremlin elite is simply helping itself to Russia's riches, much as the oligarchs of the past decade did. "Just ignore all that rhetoric about returning resources to national control," says Stanislav Belkovsky, director of the independent Center for National Strategy. "A certain group of people are using nationalization as a mechanism to enrich themselves; that's the bottom line."

Last week Kremlin economic adviser Andrei Illaryonovslammed what he called the transformation of Russia into a giant corporation. "The main outcome of this year is the formulation of a new corporatist model for political, economic, social, public, and international life," said the outspoken Mr. Illaryonov, who Tuesday offered his resignation. "Until recently, no one put any restrictions on me expressing my point of view. Now the situation has changed," the Associated Press reported him as saying.

While there may be confusion over the long-term domestic impact of Putin's policies, there seems little doubt that direct control over Russia's vast petroleum resources offers the Kremlin substantial foreign-policy clout in an increasingly energy-starved world.

At a meeting of the Association of Southeast Asian Nations in mid-December, Putin pledged to ramp up oil deliveries to Asia, from the present 3 percent of Russia's total exports to 30 per cent by 2020. In a joint statement, leaders of the 10-nation group pledged to build a "comprehensive partnership" and boost trade and security cooperation with Russia. A new Siberian pipeline should start pumping crude in 2008, with early deliveries going mainly to China.

"Russia has been seeking a more active role in the Asia-Pacific region, and it's been recognized that only oil that can facilitate this," says Yury Sinyak, head of energy studies at the official Institute of National Economic Forecasting in Moscow. "It's an open question whether Russia actually has enough oil to fulfill all the political promises."

If the Kremlin is demonstrating that energy supplies can be dangled like a carrot, it has also realized they can be wielded like a stick. Ukraine, which broke free of Moscow's orbit in last year's "Orange Revolution," was hit last month with more than a quadruple price hike for natural gas supplies - from $50 per 1,000 cubic meters to $230. Kiev has protested that it cannot adjust to such a rapid price hike, but Gazprom has threatened to shut down gas deliveries to Ukraine on New Year's Day if it doesn't comply. Ukraine announced Tuesday an agreement had been reached but a Gazprom spokesman in Moscow denied the claim.

Meanwhile Belarus, Moscow's most loyal former Soviet ally, has contracted with Gazprom to pay just $46 per 1,000 cubic meters of gas.

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