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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.