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Dmitry Medvedev for eight years from 2000 to May 2008, has taken an
audacious initiative. It could only have happened thanks to a
strategic decision taken at the highest level in the Kremlin. In fact,
Medvedev had traveled to Ashgabat on July 4-5 en route to the Group of
Eight summit meeting in Hokkaido, Japan.

Curiously, the agreements reached in Ashgabat on Friday are unlikely
to enable Gazprom to make revenue from reselling Turkmen gas. Quite
possibly, Gazprom may now have to concede similar terms to Kazakhstan
and Uzbekistan, the two other major gas producing countries in Central
Asia. In other words, plain money-making was not the motivation for
Gazprom. The Kremlin has a grand strategy.

Coincidence or not, Russian Deputy Prime Minister Igor Sechin traveled
to Beijing at the weekend to launch with his Chinese counterpart, Vice
Premier Wang Oishan, an energy initiative - a so-called "energy
negotiation mechanism". The first round of negotiations within this
framework took place on Saturday in Beijing. There has been an
inexplicable media blackout of the event, but Beijing finally decided
to break the news. The government-owned China Daily admitted on
Monday, "Both China and Russia kept silent on the details of the
consensus they reached on energy cooperation in the first round of
their negotiation in Beijing on the weekend."

Without getting into details, China Daily merely took note of the
talks as "a good beginning" and commented, "It seems that a shift of
Russia's energy export policy is under way. Russia might turn its eyes
from the Western countries to the Asia-Pacific region ... The
cooperation in the energy sector is an issue of great significance for
Sino-Russian relations ... the political and geographic closeness of
the two countries would put their energy cooperation under a safe
umbrella and make it a win-win deal. China-Russia ties are at their
best times ... The two sides settled their lingering border disputes,
held joint military exercises, and enjoyed rapidly increasing
bilateral trade."

It is unclear whether Gazprom's agreements in Ashgabat and Sechin's
talks in Beijing were inter-related. Conceivably, they overlapped in
so far as China had signed a long-term agreement with Turkmenistan
whereby the latter would supply 30 billion cubic meters of gas to
China annually for the 30-year period starting from 2009. The
construction work on the gas pipeline leading from Turkmenistan to
China's Xinjiang Autonomous region has already begun. China had agreed
on the price for Turkmen gas at $195 per thousand cubic meters. Now,
the agreement in Ashgabat on Friday puts Gazprom in the driving seat
for handling all of Turkmenistan's gas exports, including to China.

Russia and China have a heavy agenda to discuss in energy cooperation
far beyond the price of Turkmen gas supplies. But suffice it to say
that Gazprom's new stature as the sole buyer of Turkmen gas
strengthens Russia's hands in setting the price in the world gas (and
oil) market. And that has implications for China. Moscow would be keen
to ensure that Russian and Chinese interests are harmonized in Central
Asia.

Besides, Russia is taking a renewed interest in the idea of a "gas
cartel". Medvedev referred to the idea during the visit of Venezuelan
President Hugo Chavez to Moscow last week. The Russian newspaper
Nezavisimaya Gazeta reported on Friday that "Moscow finds the idea of
coordination of gas production and pricing policy with other gas
exporters to be too tempting to abandon". The daily quoted Miller as
saying, "This forum of gas exporters will set up the global gas
balance. It will give answers to the questions concerning when, where
and how much gas should be produced."

Until fairly recently Moscow was sensitive about the European Union's
opposition to the idea of a gas cartel. (Washington has openly warned
that it would legislate against countries that lined up behind a gas
cartel). But high gas prices have weakened the European Union's
negotiating position.

The agreements with Turkmenistan further consolidate Russia's control
of Central Asia's gas exports. Gazprom recently offered to buy all of
Azerbaijan's gas at European prices. (Medvedev visited Baku on July
3-4.) Baku will study with keen interest the agreements signed in
Ashgabat on Friday. The overall implications of these Russian moves
are very serious for the US and EU campaign to get the Nabucco gas
pipeline project going.

Nabucco, which would run from Turkey to Austria via Bulgaria, Rumania
and Hungary, was hoping to tap Turkmen gas by linking Turkmenistan and
Azerbaijan via a pipeline across the Caspian Sea that would be
connected to the pipeline networks through the Caucasus to Turkey
already existing, such as the Baku-Tbilisi-Ceyhan pipeline.

But with access denied to Turkmen gas, Nabucco's viability becomes
doubtful. And, without Nabucco, the entire US strategy of reducing
Europe's dependence on Russian energy supplies makes no sense.
Therefore, Washington is faced with Hobson's choice. Friday's
agreements in Ashgabat mean that Nabucco's realization will now
critically depend on gas supplies from the Middle East - Iran, in
particular. Turkey is pursuing the idea of Iran supplying gas to
Europe and has offered to mediate in the US-Iran standoff.

The geopolitics of energy makes strange bedfellows. Russia will be
watching with anxiety the Turkish-Iranian-US tango. An understanding
with Iran on gas pricing, production and market-sharing is vital for
the success of Russia's overall gas export strategy. But Tehran
visualizes the Nabucco as its passport for integration with Europe.
Again, Russia's control of Turkmen gas cannot be to Tehran's liking.
Tehran had keenly pursed with Ashgabat the idea of evacuation of
Turkmen gas to the world market via Iranian territory.

There must be deep frustration in Washington. In sum, Russia has
greatly strengthened its standing as the principal gas supplier to
Europe. It not only controls Central Asia's gas exports but has
ensured that gas from the region passes across Russia and not through
the alternative trans-Caspian pipelines mooted by the US and EU. Also,
a defining moment has come. The era of cheap gas is ending. Other gas
exporters will cite the precedent of the price for Turkmen gas.
European companies cannot match Gazprom's muscle. Azerbaijan becomes a
test case. Equally, Russia places itself in a commanding position to
influence the price of gas in the world market. A gas cartel is surely
in the making. The geopolitical implications are simply profound for
the US.

Moreover, Russian oil and gas companies are now spreading their wings
into Latin America, which has been the US's traditional backyard.
During Chavez's visit to Moscow on July 22, three Russian energy
companies - Gazprom, LUKoil and TNK-BP - signed agreements with the
Venezuelan state-owned petroleum company PDVSA. They will replace the
American oil giants ExxonMobil and ConocoPhillips in Venezuela.

At the signing ceremony, Medvedev said, "We have not only approved
these agreements but have also decided to supervise their
implementation." Chavez responded, "I look forward to seeing all of
you in Venezuela."

Ambassador M K Bhadrakumar was a career diplomat in the Indian Foreign
Service. His assignments included the Soviet Union, South Korea, Sri
Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.