Russia's curtailing deliveries of natural gas to Ukraine goes far beyond the bounds of a common commercial dispute between an energy supplying and an energy consuming nation. It is indicative of Russia's foreign policy vis-à-vis the Soviet Union's former allies spread across Central and Eastern Europe not to mention a warning shot across the bow of Central Asian energy exporters.

While Gazprom has a legitimate right to demand a market price for its product regardless of destination, the present dispute is lodged principally at the level of bilateral relations between Ukraine and the Russian Federation personified by the leaders of both states. Ukraine's Orange Revolution which catapulted Viktor Yuschenko to power was highly unwelcome in Moscow adding further evidence of Russia's declining influence in fully independent states it once dominated. This is contrasted by President Putin's moves to recentralize control over Russia's energy and power sectors reminiscent more so of a growing authoritarian regime rather than the expanded liberalization of a purportedly emerging democratic state.

Russia unwisely chose the eve of its assuming the leadership of the G8 to exercise energy brinksmanship while concurrently insisting on fair and competitive market practices in the energy trade which if pursued would in and of themselves promote Russia's competitive advantage as Europe's most significant provider of energy resources. With Russian influence smoldering in Georgia in the wake of President Shakashvili's assumption of power, and in view of the growing independence of Azerbaijan as a small but not insignificant competitor not only for Russian oil to the West but also as a viable and vital transit state for Central Asian energy resources, Gazprom decided to draw the line in Kiev. Russia insisted that as of January 1, 2006 Ukraine begin paying market prices for its gas effectively quadrupling the $60 per 1000 c/m price it had been paying under the terms agreed to by former Ukraine President Kuchma whose political persuasions were far more acceptable in Moscow than those of the present Ukraine administration. This price increase must be seen against the backdrop of Gazprom's prices to states across the neighboring Caucasus region: $64 per 1000 c/m to Georgia and reportedly $56 to Armenia. The rouge regime in Belarus, under the tutelage of Lukashenko, finds its price for Russian gas even more advantageous at $50 per 1000 c/m despite the fact that the Belarussian president has long refused to relinquish state control over that state's branch of the former Soviet northern Druzhba pipeline, a key asset for the transit of Russian gas to its downstream European customers. And while the price charged to Georgia appears inconsistent with its democratization movement, a closer look at that situation reveals considerable downstream investment by Russian RAO UES in Georgia's electricity network which depends on imported Russian gas to power their turbines coupled with Russian interest in gaining control over Georgia's main gas pipeline which, if it occurred, would tie Russia directly to its strongest Caucasus ally Armenia.

In the interim, the international community appears dumbstruck by this flurry of activity as if the issue of energy security remains a back-burner issue traditionally relegated to individual states and entirely disconnected from national security concerns. The fact is that energy security is not only a pressing issue for each and every sovereign nation, but because of the interdependencies that transborder energy transit generate energy security is a regional if not global defense-security concern. The United States knows this only too well, but NATO has yet to respond to this challenge. It should. And on this note, Russia should be held accountable for its destabilizing actions not only in Ukraine but also in its present leadership role of the elite G8 where it has already placed energy at the top of its agenda.

Having said this, productive negotiations in the run-up to the St. Petersburg Summit can occur based on known modalities that work. The OECD's process of peer-to-peer dialogue to promote open markets, financial transparency, and respectable competition policy should be the basis for discussion. Hence, a first step in avoiding the unnecessary destabilization of one state by another purportedly over a disagreement in the price charged for energy would be a frank discussion on leveling the playing field in the energy sector itself. Insistence on the principle of developing alternative energy transit routes and corridors unencumbered by the overt foreign policy interests of one state over the national security interests of another would be one step forward. This discussion could easily accommodate and recognize national interests in retaining control over vital critical energy infrastructure as a national security priority and concurrently insist on transparency in the privatization of energy infrastructure so often opaque and shrouded in mystery throughout Central and Eastern Europe. This plays to the interests of both energy producers and consumers.

Second, aligning to world energy prices - as abhorrent as one or another state might find them - is a reasonable rule to which all states need to be persuaded to aspire. Accepting this unpalatable medicine is the most efficient catalyst for diversifying primary energy supply by both country of origin and energy source. Finally, doing so would energize the development of alternative fuels and efficiency alternatives which have been long standing back burner issues not only for the countries of the G8 but for China, India, and the developing world as well.

Third, in particular the EU, the United States and Japan need to stop cowering under the fear of Russia as an energy giant. Russian oil reserves represent %6 of proven world resources at best. While Russian gas is much more pronounced hovering around %30 of proven reserves, gas is becoming a fungible commodity with the development of transportable LNG making alternative suppliers like Oman a major competitor for Russian gas in European, Japanese, and American markets discounting in the longer term the present strategic importance of land-based pipeline systems. While the price differential between Russian and Middle Eastern gas is pronounced introduction of some competition may be the only solution for taming the Russian bear and in doing so bring some stability to the European gas market. In short, Russia needs to begin treating their clients including the Ukraine like customers not as subservient to their pronounced national resource endowments. For their part, the G7 should begin to speak to Russia as it often speaks to them: bluntly and to the point.

Finally, NATO needs to continue to transform and to address present and future risks to state stability in the Euro-Atlantic region. The NATO-Russia Dialogue is partly designed for this purpose. Without undue exaggeration NATO's credibility rests on its ability to address in real terms those risks and challenges to its members' and partners' national security. Energy is the lifeline that binds all of these states together as an essential life support system for the civilian populations that have placed their trust in an Alliance that has successfully secured the peace in Europe for more than 40 years. It is obvious that peace and stability cannot be achieved in the Euro-Atlantic region without the cooperation of the Russian Federation. This is particularly true in the energy sphere. And while Gazprom may have drawn the line in Kiev, it is appropriate that the Alliance now draws its own line unless similar instabilities are allowed to be perpetrated elsewhere.

Dr. Kevin Rosner is a Senior Fellow at the Institute for the Analysis of Global Security (IAGS) and director of the upcoming NATO Forum on Energy Security Technology.

Top