Fact box: Population: 38 million (9 in Europe, after Ukraine and before Romania)

The EU Threatens Gazprom's Monopoly in Europe

October 15, 2010 | 1055 GMT

Gazprom Deputy Chairman Alexander Medvedev (no relation to the Russian president) used the Russian gas giant’s website Thursday to publish a strong condemnation of EU initiatives to reform the European natural gas industry. Medvedev called EU efforts to separate production and transportation assets a “threat” to both Gazprom and its European customers. Medvedev was referring to the EU’s attempts to force its member states to transfer ownership of energy infrastructure from producers, such as Gazprom, to independent regulators who would guarantee equal access to the energy infrastructure for other, smaller producers — a process that the EU refers to as unbundling.

At the heart of Medvedev’s comments is the Russian-Polish long-term natural gas deal negotiations, held up since February 2010 by European Commission — the union’s bureaucratic wing — insistence that the unbundling of production and transportation be applied to the deal. The episode has pitted the EU against Poland and Russia, leading the two countries, traditionally suspicious of one another, to join in vociferously attacking the commission’s meddling.

The natural gas deal itself is a rather mundane affair. Poland needs natural gas — a lot of natural gas — and Polish consumption is expected to rise as the EU pushes Central European states to use less coal based on environmental grounds. Warsaw was therefore attempting to pre-empt the shift from coal to natural gas by looking to secure supplies from Russia, particularly as Gazprom’s Nord Stream pipeline under the Baltic Sea threatens to divert a considerable amount of Russian natural gas to Germany. Until Poland develops alternatives to piped natural gas — such as its liquid natural gas terminal set for completion in 2014 or development of potential domestic shale deposits — it has no where to turn to but Russia. It therefore begrudgingly decided to sign a long-term deal through 2037 expanding its consumption of Russian natural gas from 7 to 11 billion cubic meters (bcm) annually.

The story at this point would be over were it not for an apparent difference of opinions inside the Polish government between the Foreign and Economic Ministries. The Foreign Ministry — led by Radoslaw Sikorski, not known as a friend of Russia — forwarded the deal negotiated by the Economic Ministry to the European Commission for review, unsatisfied by the terms to which Poland was agreeing, according to STRATFOR sources in Poland. The commission then sent the deal back to Poland, telling Warsaw that the transportation infrastructure — in this case the massive 33 bcm capacity Yamal-Europe pipeline — had to be placed under the supervision of an independent regulator as demanded by the unbundling rules. This highly irked Gazprom and Polish state-owned energy giant PGNiG, which jointly own the Yamal-Europe pipeline, as well as Polish Economic Minister Waldemar Pawlak, who was hoping to use the successfully negotiated deal to resurrect his slumping political fortunes.

The domestic dynamics of the story end here, with Warsaw’s staunchly pro-EU forces vying with far more ambivalent actors for political points. But there is a geopolitical angle as well.

Both Russia and Poland have maintained that the European Commission is unfairly applying the unbundling regulation to their deal. There may be truth in that claim. The commission, which first proposed unbundling legislation in 2007, has since been forced to water it down due to lobbying from Europe’s own powerful utility companies and to allow producers to keep the proposed independent regulator on their books as an asset. That way utility companies would not feel that they were simply donating their pipelines to regulators without compensation.

However, Russian and Polish negotiators have expressed angst that the European Commission is forcing on them the “strictest” interpretation of the unbundling rules, with hints that they are not being offered the compromise solution. This frustrates both Poland and Russia. For Poland, it means that the EU is apparently applying double standards, letting German and French utilities keep ownership of assets while Poland is forced to turn over the pipeline completely to the independent regulator. Gazprom feels that by giving up control of the pipeline — regardless of whether it gets to keep it on the books as an asset — it is losing control over who gets to use it, which means that non-Gazprom producers in Russia or eventual Polish shale gas producers could have access to its pipeline. What annoys Gazprom even more, and Medvedev alluded to this in his critique, is that Yamal-Europe was originally a $15.6 billion Russian investment. To now have it offered to other producers seems tantamount to — ironically — Soviet-era private property appropriation.

The battle lines being drawn between Russia and Europe go even further, beyond just this deal. If Europe demands that energy infrastructure be made available to all producers via an independent regulator, then Gazprom’s planned pipelines such as Nord Stream or South Stream may need to be opened to competition, including potential competition from fellow Russian producers one day.

This is exactly the EU’s intention, since it would break Gazprom’s monopoly over Europe’s natural gas imports from Russia. But as Gazprom and the EU draw their lines in the sand over the issue, Poland is dealing with far less grandiose concerns, namely its natural gas supply. If the natural gas deal with Gazprom is not concluded by Oct. 20, Poland will begin to experience natural gas shortages. Simply put, Warsaw wishes Gazprom and the EU would take their fight elsewhere.

Poland Tests U.S. Security Relationship

October 1, 2010 | 1948 GMT

Summary

Poland is pressuring the United States to deploy troops in the country and reaffirm its commitment to collective self-defense under NATO. Warsaw sees Washington in an uncomfortable position in its dealings with Russia and entanglements in the Middle East. Poland is applying pressure both because it sees an opportunity to extract concessions from the United States and because it wants to test just how much it can rely on the United States to fulfill its security commitments.

Analysis

Polish Defense Minister Bogdan Klich told Polish media Oct. 1 that his Sept. 30 talks with U.S. Defense Secretary Robert Gates involved discussions on the expansion of U.S.-Polish military cooperation, including a potential U.S. troop deployment in Poland. Klich also said he stressed to Gates the need for the upcoming NATO Strategic Concept — to be unveiled at the November NATO summit in Lisbon — to reaffirm and emphasize NATO’s Article V of collective self-defense.

Klich brought to the United States a long wish list that Washington will find very difficult to fulfill. The United States is currently attempting to extricate itself from a complex situation in the Middle East, where it is not only trying to end two wars but also dealing with post-war arrangements, specifically what to do with Iran’s growing influence in the region. The last thing the United States needs is to upset Russia, which has shown a willingness to back Washington against Iran for a price, by positioning troops on the borders of the Russian sphere of influence.

This is exactly why Poland is applying pressure: It wants to see where the United States stands when it is most uncomfortable for Washington to meet the demands of its allies. Warsaw has reasons to be doubtful of the U.S. commitment. Polish history is replete with geopolitical failures prompted by allies breaking their promises to Warsaw. The fundamental Polish problem is that it is nestled between two European heavyweights, Germany and Russia, and as such, any alliance commitment places a great burden on its purported allies: facing off against Moscow and Berlin essentially in their own territory for the sake of Poland.

Moreover, and more contemporarily, Poland has faced U.S. dithering on its commitments to place ballistic missile defense (BMD) and Patriot missile batteries in Poland. Warsaw was stunned in September 2009 by the U.S. decision to replace the planned deployment of 10 Ground-based Midcourse Defense interceptors (the so called Bush-era BMD plan) with a more “phased” approach of deploying Standard Missile-3 (SM-3) interceptors on U.S. BMD-capable Aegis-equipped cruisers and destroyers. Washington tried to allay Polish fears of abandonment immediately after the change of BMD plans by offering to deploy a Patriot missile battery to Poland, but this quickly became a fissure in U.S.-Russian relations as well. The deal was only finalized in May 2010 and only in a non-permanent training deployment capacity. Ultimately, the United States has redrawn its BMD plans to include deployments of ground-based SM-3 interceptors in Poland by 2018. However, from Warsaw’s perspective, the U.S. decisions to alter BMD plans and only temporarily commit Patriot missile deployments clearly were more of a message to Russia than they were a gesture to Poland, aiming both to secure alternative shipping routes to Afghanistan via Moscow’s sphere of influence in Central Asia and to pressure Russia not to deliver the S-300 air defense system to Iran.

Thus, Poland is testing the U.S. commitment to the continuation of this close bilateral security relationship. Klich said he talked with Gates about the potential stationing of U.S. troops and aircraft in Poland, including F-16s and Hercules transport squadrons. These moves would be significant enhancements of the Polish-American security relationship; in fact, the deployments of U.S. troops and aircraft in Poland would be a significant geopolitical step by the United States to encroach on the former Soviet sphere of influence — and Moscow would definitely see it as crossing a line.

However, Klich also hinted at two other suggestions that may be far easier for the United States to meet. First is to readdress NATO’s Article V on collective security in the upcoming NATO summit, an issue Poland worries about along with the rest of the Central and Eastern European countries fearful of the ongoing Russian resurgence. Second is to enhance Polish-U.S. cooperation on special operations forces. Poland, according to STRATFOR sources in Warsaw, wants to see the United States give it a major command in the NATO Special Operations Headquarters (NSHQ). The United States is currently the NSHQ’s “Framework Nation” — the nation that provides the strategic impetus and logistics for a particular command — and Warsaw wants to see the Polish military in that role.

In the short term, Poland may be aiming high (troop deployment) to get something lower (NSHQ leadership) out of the United States. However, in the long term, Warsaw wants a clear commitment from the Washington — as it has throughout its history wanted from its allies — which certainly would be demonstrated by long-term troop deployments. Poland is specifically choosing a very uncomfortable time for the United States to prove its commitment in order to gauge just how much it can rely on Washington for security cooperation in the future.