Russia flexes its muscles over gas supply to Europe

published 5 June 2006

We may not have another Cold War on our hands, but relations between Russia and Europe have cooled considerably over the past few weeks. The state-owned gas giant Gazprom, the third-biggest company in the world, which is seeking to expand in Europe by taking over gas pipeline and supply companies, has said that if it is denied access to European markets, it might divert its gas supplies to Asia and the US in future.

The EU has been trying to persuade Russia to grant European firms access to its gas market in return for access to European gas pipeline and supply companies. But "Gazprom wants its side of the deal without offering anything in return", says Richard Orange in The Business. Russia is "flexing its muscles to recover its former superpower's swagger" on the world stage. US vice-president Dick Cheney last week warned Moscow not to use oil and gas supplies as "tools of intimidation and blackmail". Meanwhile, with the London flotation of state-owned oil major Rosneft looming, the London Stock Exchange has warned Russian president Vladimir Putin that unless Russian firms improve their transparency and corporate governance, they might have trouble raising money from flotations.

But amid talk of Russian oil and gas imperialism, investors see Gazprom and Rosneft as "government-favoured profit machines", says Edward Hadas on Breakingviews. No wonder, given Gazprom's tenfold rise since 2003 and Rosneft's growth prospects. But investors should tread carefully, says The Washington Post's Allen Sloan. After all, Rosneft looks promising largely because the Russian government confiscated the assets of Yukos, a rival company. With the rule of law yet to take root in Russia, there's no guarantee that the government will respect Rosneft shareholders' rights. And "when push comes to shove", it's a safe bet that Rosneft will act in the Kremlin's interests rather than that of its shareholders.

MoneyWeek

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