Some countries want to use energy as a political weapon. That is harder than it looks

Getty Images

FOR a man such as Vladimir Putin, who calls the collapse of the loathsome Soviet Union the greatest geopolitical catastrophe of the 20th century, using Russia's energy riches to pamper or punish its former vassals according to whim must seem like a natural thing to do. But the decision of Russia's president this week to cut off gas supplies to Ukraine over a price dispute, on the very day he became president of the G8 rich-nations group, was a shock nonetheless. And although Russia resumed supplies after only two days, following an outcry from the wider world, it sent shivers far beyond eastern Europe. Is the “oil weapon” of the 1970s—the withholding of energy for political ends—coming back in a new guise?

Russia says it is simply asking Ukraine to pay the market price for its gas, not the subsidised rate it paid as a former Soviet satellite. But by seeking to quadruple the price for democratic Ukraine (and not, for example, for the pro-Russian dictatorship in Belarus), Mr Putin looks to be punishing the Ukrainians for having taken a pro-western direction. And it is not just Ukrainians who were put at risk. By pumping less into Ukraine, Russia also hurt customers in central and western Europe, at the pipeline's other end. It was their anger—and immediate complaints from America and the European Union—that caused the Russian climbdown.

The affair has given a new spin to what were already intense global anxieties over energy security (see article). One reason for the present twitchiness is a tight market for all forms of energy. High prices, and the absence of the usual cushion, have made the global economy vulnerable to disruptions, be they natural disasters such as Hurricane Katrina or political fumbles such as Russia's in Ukraine. Adding to the nervousness is the conviction of some producers that controlling supply offers a path to national greatness. Mr Putin plainly believes this. So does Hugo Chávez, Venezuela's president, who proposes to use oil as a weapon against the United States and to spread his “Bolivarian” revolution. And there is also a longer-term worry about the depletion of energy resources when two new industrial powers, China and India, are rising.

On the face of it, dangers galore. But look closer. The oil market is tight, but price is a wondrous mechanism, and rising prices have spurred investment. Oil production may increase in 2006, and start to reflate that missing cushion. Though high prices may persist for several more years, the danger of disruption will recede. As for using energy as a weapon, this week's Ukrainian affair is a reminder of an old lesson: that sellers depend on buyers just as much as buyers on sellers. With oil, as Mr Chávez well knows for all his huffing and puffing, aiming this “weapon” is especially difficult, since oil, unlike gas, can be loaded on tankers and sold into a single world market. As ever, the Middle East is volatile. But as we report in a survey, Saudi Arabia, the biggest producer, has for now seen off an al-Qaeda insurgency and looks poised for a period of prosperity and reform under a new king.

China's growth is sucking in energy. In 2003 it overtook Japan to become the world's second-biggest consumer of oil after America. Energy security therefore plays a growing part in China's foreign policy. China is making alliances with oil producers regardless of the democratic or human-rights credentials of these regimes. That has already brought conflict with America. The Chinese are helping to prevent Sudan and Iran from being held to account by the UN Security Council for suspected genocide in the one case and nuclear cheating in the other. With two-thirds of the Gulf's oil exports already flowing to Asia, America will face more such challenges. But though this will be a source of friction, it need not be the catastrophe some think inevitable as the established superpower and the rising one fight it out for a dwindling resource.

In fact, oil independence is a chimera for America and China alike. Both have an interest in the security of the Gulf—but also in depending less on its oil. If the Ukraine story has a moral, it is that energy security depends on the existence of a global market free from political interference, plus maximum diversity of supply. But where energy is concerned, China distrusts the market, putting greater store on state-to-state deals and the direct control of foreign supplies. By scaring off CNOOC, a state-owned Chinese oil firm that wanted to buy America's Unocal last year, America foolishly strengthened this mercantilist instinct. Meanwhile, by failing to impose the carbon tax that would present consumers with the real cost of energy, America rejects the best way to kick its own addiction to oil and make greater use of alternatives. What a pity.

---