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Published: Saturday, 1/14/2006

The U.S. would do well to avoid Putin s energy schemes

Russia is offering us help with oil supply.

I don t think we should accept it.

A half-page ad placed in The New York Times last month by Lukoil, one of Russia s largest oil exporters, said, Russia Will Help Close the Growing Energy Gap.

The ad carries two large pictures of Russian President Vladimir Putin benevolently smiling at the company s executives.

But even if self-serve gasoline prices go over $3 a gallon in the United States, I will rather ride a bicycle to work than buy gasoline made from oil controlled by Mr. Putin.

If I were willing to subject myself to his graces, I would be living in a country like Russia, or even Ukraine before Jan.1. That s when the country was hit by the Kremlin-masterminded energy crisis and when temperatures in people s houses and apartments did not rise over about 50 degrees Fahrenheit for a few days.

The crisis was started by the Kremlin-controlled natural gas monopoly Gazprom. It demanded that Ukraine pay by Jan.1 almost five times the rates specified in a bilateral agreement that doesn t expire for several years.

When Ukraine did not comply, Russia limited the natural gas pumped through the major pipeline running from Russia to Europe via Ukraine strictly by the level of the European natural gas import. At the same time, Russian mass media alleged massive theft by Ukraine of the natural gas intended for Europe.

This caused near-panic in Europe, which gets a quarter of its natural gas from Russia. Unimpressed, Russia persisted in its demands, which were eventually granted by Ukraine with the help of a rather curious intermediary, a Swiss firm. It appears to be a shadow company controlled by Russia s former and/or current energy executives.

This firm now reportedly buys Russian natural gas for almost five times the price formerly paid by Ukraine and then sells it to Ukraine for about double that initial price. Paradoxically, this firm will not go belly up as one might think. On the contrary, it will do exceptionally well because it s compensated by cheap Central Asian natural gas and over-compensated by getting a good portion of Gazprom s market share.

Even some Russian media have admitted that such a sweet deal would not be possible without the Kremlin s participation.

So what was termed in Ukraine the Russian energy blackmail was motivated not only by the Kremlin s ire over Ukraine s political independence, but also by the self-interest of the Kremlin insiders, who have only one boss - Mr. Putin.

Who s behind the scheme? You do the math.

Now consider that the Kremlin is working on a merger between Russia s natural gas and oil monopolies it already controls. Some independent observers see it as Mr. Putin s presidential retirement plan.

He s forming a Godzilla energy monopoly, by heading which he would acquire more power than he has now as the Russian president, they say.

I agree.

The United States will do itself a favor by steering away from any involvement in Mr. Putin s energy schemes.

Given the turmoil the Russian president started in Ukraine, even the idea of drilling for oil in Alaska is beginning to look good.



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