Silvio and Vladimir, dangerous liaisons

Many of the leaked US embassy cables reveal the close personal ties between Vladimir Putin and Silvio Berlusconi. For Washington, suspicion is growing that Russia is using Italy as a Trojan horse to influence – by hook or by crook – Europe's energy policies.

Published on 9 December 2010 at 17:51
Goodfellas. Silvio Berlusconi with Vladmir Putin at his dacha in Zavidovo, near Moscow.

Washington is warning of the risk of a tried and tested NATO ally like Italy sliding down a dangerous slope. The Americans recall that Italy has always had plenty of autonomy in its dealings with Russia and the Arab world. Which is quite understandable given our geographic position and political factors on the domestic front such as our once having had the largest communist party in Western Europe. Then, it was a game that didn’t scare America because it could be interpreted – and therefore controlled – by geopolitical and geo-economic criteria. But the present-day picture has changed.

Intimacy with Moscow at the expense of European unity

Eurasian Energy Security, Jeffrey Mankoff’s report for the Council of Foreign Relations, a bipartisan think tank that has abundantly inspired the foreign policy of Republican and Democratic administrations alike, is regarded as the bible of US strategy on energy issues between Russia and Europe. Mankoff’s analysis looks at the role of Gazprom, a company partly identified with the Russian government itself, which serves Putin’s designs on managing relations with Europe by playing one country off of another.

This is the strategy Putin painstakingly built during his eight years in office, from 2000 to 2008, with gas as a key power tool. Italy was the linchpin in this strategy because, along with Germany, it accounts for nearly half of all Russian gas imports to Western Europe. Together, these two countries generate 40% of Gazprom’s total profits. Gazprom is a colossus which, by its very nature, is exempt from EU regulatory and judicial oversight.

From the American viewpoint, this is the danger: For the European Union, growing dependence on energy supplied by a single company that is at times indistinguishable from a foreign government raises problems related to supply security, transparency, and potential political manipulation. Countries like Italy that end up in an intimate political relationship with Moscow run the risk of abetting its designs, at the expense of European unity. The suspicion that the Italian multinational oil and gas company ENI might be used as a tool in relations between Berlusconi and Putin is linked to several decisive chinks in the armour of Russia’s energy power.

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Systemic corruption in the Russian energy sector

Mankoff points out how "during Putin’s second term, the Kremlin dramatically stepped up the process of bringing both oil and gas production under the control of the national champions Gazprom and Rosneft […]. Oligarch-owned firms were swallowed up, such as Mikhail Khodorkovsky’s Yukos, by Rosneft, and Roman Abramovich’s Sibneft, by Gazprom.” That selfsame Yukos was the object of a financial operation by ENI and ENEL. Very few Western groups are allowed into this game, observes the US State Department, recalling that BP and Shell were forced to relinquish their major energy investments in Russia during Putin’s presidency.

Now that he has consolidated his energy empire, in which politics and business are indistinguishable and only tractable foreigners are admitted, Putin is moving on to the second stage of his strategy. As Mankoff explains it, the object is to block Europe’s “direct access to the energy riches” of Russia’s “one-time satellites in the Caspian Basin – primarily Azerbaijan, Kazakhstan, and Turkmenistan – a vital source of Europe’s energy in the foreseeable future”. “Russia’s stronghold on the transit corridor bringing Caspian energy, especially natural gas, to the West has increased Europe’s dependence on Russia as a supplier. This dependence has a range of consequences for Europe and for transatlantic relations, increasing Russian political leverage and leaving Europe to face the threat of shortfalls from both technical and political causes."

Once again, this strategy is entrusted to “a small number of non-transparent, often state-run corporations such as Gazprom, Rosneft, and RosUkrEnergo that promote corruption and distort the functioning of markets”. This is the crux of the problem for the White House and Secretary of State Hillary Clinton. The worrisome part in Mankoff’s analysis that is likely to increase the State Department’s wariness runs - "Systemic corruption in the Russian energy sector reduces Russia’s capacity to follow through with planned projects and injects corruption into European politics in ways that undermine the EU’s capacity to pursue a common energy policy.”

South Stream would cost twice as much as Nabucco

So it’s legitimate to ask: who has yielded to this sweet-talk, and in what way? Washington recalls the case of ex-German chancellor Gerhard Schröder, co-opted as chairman of the board of the Nord Stream consortium: the northern complement to another Russian project, the South Stream pipeline. And it is worth noting that an offer to become chairman of the board for this second project was recently turned down by former European Commissioner Romano Prodi.

The State Department goes on to reiterate the main accusation formulated by the United States: to wit, that Nord Stream and South Stream will serve to reinforce Russian influence in Europe -- a fear that has been heightened by increased evidence of corruption in the Kremlin. South Stream is a direct competitor to the European Union supported Nabucco pipeline, which is the only project that will result in an energy supply route that does not cross Russian territory.

If the choice between these two competing projects were to be decided solely on the basis of economic criteria, it would be a simple one: "South Stream would cost approximately twice as much as Nabucco," notes Mankoff. For this reason, the Americans are wondering why ENI is so eager to be involved in an uneconomic project. Washington is convinced that there is something fishy behind the Italian company’s attitude.

Italy may now be a pawn

In 2008, the reliability of the future Nabucco pipeline was also called into question by the war between Georgia and Russia: for Nabucco to function efficiently, there will have to be stable conditions in Georgia and a number of other forme Soviet Republics. In this regard, the State Department’s concerns about Berlusconi were heightened by the pro-Russian position adopted by the Italian Prime Minister, which was in direct opposition to the line taken by other members of NATO. For the first time, Mankoff’s report raises the suspicion that along with their Russian counterparts, Berlusconi and his associates may have a personal financial interest in the outcome in of the competition between the two pipelines.

The seriousness of the war in Georgia should have provided the impetus for greater cohesion on the level of Europe and a more determined effort to reduce its energy dependence on Moscow. But this attitude was nowhere to be seen in Italy. Now that we have reached this turning point, Washington is very eager to find out all it can about the personal investments of Berlusconi and Putin, which may be exerting a determining force in Italian foreign policy.

The obvious danger is that Italy may now be a de facto pawn in Putin’s bid for power, which aims to divide and sustain division in the European Union, so as to take full advantage of the relative weakness of European member states in their bilateral relations with Russia. As Jeffrey Mankoff explains, European countries dependence on the what amounts to Russian semi-monopoly on natural gas supplies “leaves them in a position where resisting Russian political demands could have serious economic and political consequences.”

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