Russia Wields Its New Arsenal: Fuel

WARSAW —  In the crowded hallways of the Polish Parliament, there is talk of a new Cold War in which the weapons have changed from nuclear warheads to oil and gas.

The rival in a widening game of pipelines and corporate strategy is Russia and its empire of energy resources. Ninety percent of Poland’s oil and much of its natural gas flow from Russia. Such equations are distressing for Poles as they rise in stature in the West while remaining in many ways subject to the political and economic whims of their past oppressor.

“Russia is exploiting its control of oil and gas as part of its foreign policy,” said Jerzy Marek Nowakowski, a former national security advisor. “This is an extremely dangerous political instrument. Oil and gas are more effective for Russia today than its nuclear weapons were during communist times.”

The quest for energy resources in Poland and throughout Europe is unfolding in tales of untapped reserves, frozen outposts and labyrinthine financial deals involving historical foes and new world alliances. Since the Cold War ended 15 years ago, resource-rich Russia has become crucial to a continent wary of the political chaos and unpredictable markets of the Middle East.

The changes across Eastern and Central Europe, especially the democracy movements in the former Soviet bloc, are politicizing the dynamics of energy distribution. Many analysts and legislators say Russia’s agitation over democracy’s eastward expansion, and its long-standing unease with the North Atlantic Treaty Organization at its borders, has persuaded Moscow to exert power through oil-and-gas diplomacy that rewards friends and punishes foes.

Such a policy, especially if it led to price increases or cuts in service, could be disastrous for the fragile economies of Poland, Ukraine and other nations trying to slip further past Russia’s shadow. This week, Russia’s state-controlled Gazprom natural gas monopoly threatened to cut off service to Ukraine on the first of the year if Kiev did not agree to higher prices. Russia supplies about one-third of the former Soviet republic’s natural gas, and Gazprom has proposed hiking rates from $50 per 1,000 cubic meters to about $220.

Higher prices would put Ukraine more in line with rates worldwide, but an immediate fourfold increase would stun a nation whose costs have been kept low because of its former ties to Moscow.

Russia informed the Polish government in early November that it would dramatically raise natural gas prices in 2006. With 18% unemployment and an economy struggling to modernize, Poland would risk recession if energy costs escalated too quickly.

Russia and the U.S. have crucial political and energy interests in Poland and countries to the east and south. Moscow and Washington are competing for influence with governments from Eastern Europe across the Caucasus and in the oil capitals of the Caspian Sea region. Polish politicians say Warsaw’s close relationship with Washington should help in its pursuit of energy sources to reduce its dependence on Russian oil and gas.

Moscow’s grip on the Polish market was strongly felt in September, when Russia and Germany signed a $5-billion deal for a natural gas pipeline to run under the Baltic Sea. The pipeline will bypass Poland and the Baltic countries and give Russia access to new markets. Polish political leaders compared the deal to the 1939 Hitler-Stalin nonaggression pact and complained that Russia could play political blackmail.

The pipeline is an “attempt by Moscow to divide the European Union by bypassing Poland and other Central European countries,” said Marek Jurek, speaker of the lower house of Parliament. “Russia needs to accept that old Soviet bloc countries are now part of the EU. It has to accept that these changes are permanent and not revert to the revisionist tendencies of a fallen empire.”

Relations between the nations are at their worst point in years. Former Polish President Aleksander Kwasniewski suggested that Russian President Vladimir V. Putin’s gas deal with Germany was punishment for Warsaw’s support of the democratic revolution in neighboring Ukraine. Russia is also irritated by Poland’s new right-leaning government and its close ties to the U.S.

The mood already was strained in July, when Moscow accused Polish politicians of stoking anti-Russian sentiment that led to the beatings of three children of Russian envoys in a Warsaw park. Weeks later, two Polish diplomats and a journalist were attacked in Moscow.

Polish newspapers have swelled with commentary that Putin, a former KGB intelligence officer, is mired in the conspiracies and geopolitics of the past.

“I can’t remember such practices against diplomats, even in Berlin when Hitler was in power,” Jaroslaw Kaczynski, leader of the Law and Justice Party that controls Parliament, told the Polish media. More ill will surfaced Nov. 4, when Russia celebrated a new holiday: the anniversary of the 1612 uprising that drove the Polish army from Moscow after years of occupation.

Poland is finding that the pipelines of today are as potent as the armies of the past. The 720-mile conduit to be built by Gazprom and two German corporations strategically cuts Poland out of a sprawling energy grid. Russia had planned to complete the second leg of a pipeline through Poland to reach markets in the West. This would have allowed Poles to collect millions of dollars in transit fees, which will be lost to the Russian-German project that began construction this month.

Poland has raised the “biggest ruckus,” Sergei Kupriyanov, deputy head of Gazprom’s information policy department, said in a recent interview. “Its rationale is simple, that the construction of such a pipeline on the [Baltic] seabed rather than on land through Poland deprives it of possible profits.” He added that the German deal gave Gazprom better links to a wider consumer market in the West.

Some analysts see a more veiled hand at work. “Russia’s current government is pathologically incapable of speaking to the countries of the former Soviet bloc as equals,” said Vladimir Milov, president of the Moscow-based Institute of Energy Policy. “It wants to be a big brother and dictate its terms.”

Milov said that bypassing Poland was “extremely unsound economically” and was done for the “sake of political objectives.” He said politicizing energy policy risked destabilization of the market.

The German-Russian deal also underscored the European Union’s lack of an energy security policy for its 25 members. The EU seeks to have its members act in unison, ensuring that one nation does not hurt another. Negotiations for the new pipeline showed that Berlin, desperate for cheap energy to invigorate its economy, put national benefits over the interests of its EU partners to the east.

It illuminated how energy needs often become the driving force of politics. Former German Chancellor Gerhard Schroeder and Putin had grown close, and Schroeder was often criticized in the media for not condemning Moscow’s military campaigns and human rights abuses in the separatist republic of Chechnya.

Analysts in both nations viewed the pipeline deal as partly a reward for Schroeder’s reticence. The lucrative pact was signed when Schroeder needed it most -- 10 days before the election that nevertheless failed to win the chancellor a third term.

“There’s clearly a concern on the part of some EU countries that one or two countries temper their comments about Russia because of their energy dependency,” said Stephen O’Sullivan, co-head of research for the United Financial Group in Moscow.

Schroeder’s relationship with Putin was further scrutinized this month, when it was disclosed that the former chancellor had been appointed to head the shareholders of the consortium overseeing the pipeline’s construction. It was not announced what sum, if any, Schroeder would be paid in the post, but several German politicians have complained of a conflict of interest.

Antoni Podolski, deputy director of the Center for International Relations in Warsaw, said: “Schroeder taught us a painful lesson. He showed us how not to be naive and to act in the national interest. Sometimes we Poles are too naive, and we believed too much in European solidarity. But because of the unstable Middle East, Western Europe likes Russian oil and gas even if this policy is a threat to Poland.”

Recent history shows, however, that Russia is not shy about reminding its neighbors that it controls much of Europe’s energy flow.

At the October EU-Russia summit in London, Putin pointed out that Russia provided 90% of some Western countries’ natural gas. “No one’s complained so far,” he said.

The president added that new energy projects would allow Europeans to “control everything from production to the final consumer.... This creates a completely new situation. So the rumor of Europe’s possible loss of its independence in terms of energy is hugely exaggerated.”

Disputes over prices and politics have led to disruption of the natural gas supply in the past, however. In 1992, Moscow severed gas supplies when Lithuania ran afoul of Russian political interests in the region. The hardships that ensued helped the Communists make a stunning electoral comeback.

More recently, in October, the Lithuanian government briefly detained a Russian pilot whose fighter jet crash-landed on its territory. Russian protesters marched to the Lithuanian Embassy in Moscow, carrying signs that read, “No Pilot, No Gas.”

Poland is looking for new energy sources, although it will remain dependent on Russia for years. They include the possibilities of imports from Norway and Iran and tapping into the $3.4-billion Caspian Sea oil pipeline that will begin in Azerbaijan and bypass Russian territory to supply Western markets.

“We have to coordinate with U.S. companies,” said Nowakowski, the former Polish national security advisor. “There are possibilities opening in Kazakhstan and gas fields in Turkmenistan.”

Times staff writers Kim Murphy and Natalia Yefimova in Moscow and special correspondent Ela Kasprzycka in Warsaw contributed to this report.