Gas, Guns, and Oil: Russia's "Ruble Diplomacy" in the Balkans

May 2002 - A major reorientation in Russian policy toward the Balkans is underway. For much of the 1990s, Moscow tried to keep the West out of southeastern Europe. A senior Russian official starkly outlined the choice that faced Russia in the region: "[Russia] cannot help being interested in whether [it] will have economic relations with a [Balkan] country which guarantees stability in the Balkans or a country which aspires to join NATO and is contributing to the creation of dividing lines between Russia and Western Europe."

This approach failed. Proposals for the creation of an Orthodox alliance or a "Slavic union" between Russia and the Balkans never advanced beyond the rhetorical stage.

In an August 9, 2000 editorial, the Russian newspaper Izvestiya opined: "Not a single country of eastern Europe, even the most Slavic, the most Eastern Orthodox one, will give up maintaining relations with the West for the sake of Russia."

The March 2002 appointment of Sergei Razov, who was Russia's ambassador to Poland during its accession to NATO, as deputy foreign minister with oversight for policy toward central and southeastern Europe, signals an ongoing shift in the Russian government's approach.

Razov announced that a "new algorithm" for Russian ties with east-central Europe and the Balkans is being implemented, one focused on trade and economic cooperation and grounded in pragmatic considerations.

Indeed, markets and contracts are poised to do what appeals to "shared Orthodoxy" and what veiled military threats could not do: lay the foundation for a revival of Russian influence in southeastern Europe.

Working from the assumption that "profitable accounts cement good friendships," Russia hopes to envelop the region in a web of commercial ties that will engender pro-Moscow lobbies in Balkan capitals and that will, in turn, help increase Russia's influence in the Euro-Atlantic community.

This trend is most pronounced in the energy sector. In January, the Russian oil firm YUKOS purchased a 49 percent stake in the Slovak firm Transpetrol, a gateway for oil exports to western Europe and the Balkans. In addition, Russia's Tyumen Oil Company signed an agreement with Slovenia's Petrol to refine and market petroleum products in the former Yugoslav republics.

Russia's LUKoil has made the most progress in establishing its presence in southeastern Europe. It controls the Neftokhim refinery in Burgas, Bulgaria, and the Petrotel refinery in Ploesti, Romania, and is interested in acquiring further petrochemical assets in other former Soviet-bloc countries, including Slovakia, the Czech Republic, and Hungary. LUKoil has also forged a relationship with Greece's Latsis Group to acquire assets in Greece and Yugoslavia.

A major Greek newspaper editorialized: "It is obvious that LUKoil is gradually showing a potential to totally dominate the peripheral Balkan market. It is the first time in many years that the Russian element is making such a dynamic investment in the region, especially in a traditionally sensitive sector like energy, which affects the economy as a whole, in terms of both sufficiency and prices."

Plans to construct a pipeline from Burgas to Alexandroupolis, Greece—involving a tripartite arrangement between Russia, Bulgaria, and Greece—will further boost Russian influence in the area, giving Russia the ability to export its hydrocarbons, as well as those of other Caspian and Central Asian states, while bypassing the congested Bosporus tanker route.

Moreover, the income that will be generated by the construction and maintenance of the pipeline, along with the accompanying increase in refinery and storage operations, represents a significant Russian stake in the Balkan economy. One estimate suggests that the total value of the project could range as high as $800 million.

The Russian conglomerates, however, have interests beyond oil. LUKoil, for example, has cast an eye over the chemical and telecommunications industries in southeastern Europe. Financial connections are also being forged. Both the United Bank of Bulgaria and Romania's Unirea Bank have close ties to Russian commercial structures.

Moreover, the large investments made by Russian energy firms, such as LUKoil or Gazprom, in the Balkans have spillover effects into all sectors of the economy. Speaking about this, Russia's ambassador to Romania, Aleksandr Tolkach, noted that it was in the interests of southeastern European countries to create "appropriate conditions" for Russian firms to operate.

By creating commercial ties in the Balkans, Russia hopes to reap political dividends, especially as southeastern Europe becomes more closely integrated into the Euro-Atlantic community. One such area is defense. Over the past three years, Greece has signed contracts for over $1 billion in Russian-made weaponry, including S-300 missiles and Zubr landing craft, while Bulgaria is looking to Russian firms to modernize both its stock of equipment and its defense plants.

In fact, Greek Defense Minister Yiannos Papantoniou envisions an enhanced Russian role in pan-European security. Noting that Greece is set to assume the presidency of the EU on January 1, 2003, Papantoniou declared, "We will be advocating the development of relations between Russia and the EU, not least as regards armaments," including Russian participation in the creation of a European theater missile defense system.

Since the expansion of NATO appears to be a foregone conclusion, Russia now hopes to gain greater influence within the alliance, in part by relying on Balkan intermediaries. Bulgarian Foreign Minister Solomon Passy noted that "Russia will be glad to have a friend like Bulgaria amidst NATO members."

In February, Papantoniou stated that Greece wants Russia to play a role in making important decisions together with NATO, and it also backs Russia's eventual entry into the alliance.

How does Russia's growing commercial clout in the Balkans affect the interests of the U.S.? In many ways, this is a positive development for Washington. Russia's desire for access to capital and markets gives it a stake in promoting regional stability. It is an unequivocal signal of Russia's desire to cast its lot with the West, binding its own national interests to the continued security and prosperity of Europe.

However, this comes at a price. By expanding NATO and widening the scope of the Euro-Atlantic community, Washington must be prepared to back up its rhetoric of "partnership" with Russia through genuine accommodation of Moscow's concerns. As Russia becomes more indispensable to the well-being of Europe, the United States will find it more difficult to exclude Russia as a full partner at the Euro-Atlantic table.

Russian President Vladimir Putin issued a veiled warning to western European leaders on April 9 when he noted that Europe's increasing energy dependence upon Russia requires that greater consideration be paid to Russian interests.

The Balkan countries, in particular, have no desire for an "either/or" choice between Washington and Moscow. "Bulgaria's European integration is not an alternative to our good relations with Russia. The new European security architecture cannot exclude or oppose Russia," Bulgarian President Georgi Purvanov recently declared.

It seems that Moscow has taken to heart the Romanian proverb that "paper is stronger than stone," betting that business contracts, not military forces, are the key to reviving Russian predominance in the Balkans. This is a development that, so far, the U.S. seems to have overlooked.