Associated Press
Henry Meyer
January 14, 2006

MOSCOW (AP) – German Chancellor Angela Merkel heads to Moscow next week on a trip that offers the two nations a fresh start after a gas dispute raised questions about Russia’s reliability as an energy partner.

The dispute wasn’t between Russia and European Union countries – which buy a quarter of all their gas from Russia – but with Ukraine, through which some 80 percent of Russia’s gas shipments to Europe pass. Ukraine was refusing to meet Russia’s demand for a fourfold price increase and when the Russian natural gas monopoly shut off deliveries to Ukraine, shortages further down the line quickly appeared.

Pressure from EU governments appeared to be a key factor in Russia’s restoring full shipments to Europe a day later and striking a complex payment deal with Ukraine. But although the shortage was brief, it prompted urgent thinking on how to reduce Russia’s role as the bloc’s main energy supplier by diversifying supplies.

The dispute also demonstrated how Russia under President Vladimir Putin’s rule has become a force to be reckoned with after years of humiliating post-Soviet decline.

“President Putin intends to use Russia’s energy might the same way that Soviet leaders used nuclear might. If nuclear warheads once put Moscow on an equal footing with the United States, then today oil and gas lifts it to the same level as western nations,” said Dmitry Trenin, deputy director of the Moscow Carnegie Center policy institute.

For recent EU additions Poland and the Baltic states, these events exacerbate fears that Moscow may exploit its energy dominance to manipulate its former vassal states.

The gas war with Ukraine, which many observers called punishment for the former Soviet state’s efforts to integrate with the West under Ukraine’s reformist President Viktor Yushchenko, also acted as a wake-up call to older EU members.

The gas dispute also revealed how much the 25-member European Union – which is expanding to include nations in Moscow’s former imperial backyard – relies on Russia for energy and how vulnerable this makes it.

Nearly half of EU gas imports and almost a third of its oil consumption come from Russia. Some EU members – notably Slovakia, Finland, Poland and Hungary and the three small Baltic States – are 90- to 100-percent reliant on Russia for gas.

“In the medium term, Russia is going to continue to be an important supplier of gas to European countries,” said William C. Ramsey, deputy executive director of the Paris-based International Energy Agency.

But ultimately, both sides remain heavily interdependent. Merkel, in an interview published last week, reiterated that Germany – which gets 30 percent of its gas from Russian imports – “needs good, stable relations with Russia” to ensure the continued flow of natural gas.