Toughness is so manly--and so effective at grabbing gas--just ask Russia

It's hard to avoid thinking that some people are stupid and that they will never learn, when they keep on proposing the same solutions over and over again, despite obvious failure in previous attempts. Trouble is, these people are still in power - or in positions of influence.

I'm not talking about the neocons on Iraq or Iran, nor about the neolibs on Social Security privatisation, labor market "reform" or trickle down, but it's the same kind of behavior.

No, in this case, I worry (again) about the growing body of institutional support for "toughness" against Russia on gas matters.

A lot of people have discovered in the past year that Europe's dependence on Russian gas was growing, and have begun to panic. The result has been increasing stridency and hostility against Russia, or coldwaritis, as exemplified by the latest opus from the CSIS (Center for Strategic and International Studies, a well known think tank), written by former ambassador to Lithuania Keith Smith.

The full text of his article can be downloaded from here, but I'll focus only on his list of recommendations for the EU. It's scary.

The following would constitute important signs that the EU is adopting a tougher attitude:

1. An EU decision to enforce its competition and antitrust rules in deals between Russian companies such as Gazprom and individual EU governments, in the same way that the Commission acted against the U.S. companies Microsoft and Honeywell.

I would hope that any efforts would be more effective than those against Microsoft, which have gone nowhere (but at least the EC has not given up like the US DoJ), but I'm not sure exactly on what grounds competition and antitrust rules would apply. All European companies are free to buy gas from Gazprom if they want to (and if they can get access to Gazprom gas, something the EC can say little about). The EC already enforces rules on third party clauses (i.e. the ability for Gazprom customers to onsell their gas to others), with unexpected consequences on European markets.... Or does Mr Smith suggest that long term contracts be ditched in favor of spot sales of Russian gas? Or that a single EU buyer negotiate with Gazprom? As I've written before, this would require to respond to a number of questions, such as who would run that body (the European Commission? EU governments? Utilities? Gas buyers?), under what decision making rules (pro rata their gas consumption? Their gas imports? Their Russian gas imports?), and what it would do with that gas and at what price it would sell it.

That proposal makes no sense unless explicited in detail - something these people somehow never get around to do... The tough posture must be enough.

2. Efforts by the EU to prevent member states from reaching deals with Russia that undercut the viability of EU plans to help construct pipelines from Central Asia that bypass Russia.

Again, that suggests to put a number of roadblocks - but on who exactly? Governments? Companies from a given country? And to prevent them from doing what?

That sounds like blatant intervention in markets to pick winners - something that I thought governments were no longer supposed to do.

Especially as I've noted before that gas pipelines from Central Asia that bypass Russia make no economic sense. The arguments I used about Afghanistan two years ago apply here too - and we actually had a real life demonstration in that point in the 90s when the US governement energetically pushed the PSG pipeline from Turkmenistan to Turkey (developed by Shell, Bechtel and Enron) and it lost the market to Gazprom's Blue Stream, a supposedly unfeasible pipeline under the Black Sea which is now in service while PSG went nowhere. Nobody has tried recently, but the outcome would be the same.

Even if the EU were to decide to subsidize the construction of such a pipeline, it would need to reach agreements with all the countries involved, and Russia has more leverage with all of them - because it does not need to pay for an actual pipeline - the link is already there and is free to use. Thus Russia will always be able to offer a better price for gas than Europe will - and earlier.

3. EU action to counter oil disruptions to the Baltic states designed to force these countries into selling their energy facilities to Russian companies.

That sort of makes sense, and the EU should indeed guarantee supplies to its more isolated members. But it should be noted that the Baltic terminals, refineries and pipelines are physically integrated with the Russian network, and there is a industrial logic in seeing these controlled by Russian companies. With the Baltic countries now paying market prices, Russia has no real motivation not to sell them oil or gas.

As an element of background, I'll note that Mr Smith, Ambassador to Lithuania, then was an advisor to Williams, the US oil company, which had bought the main Lithuanian refinery, Majeika, and then got embroiled in a tug-of-war with Lukoil over the supply and the control of the refinery, which it solved by inviting Khodorkhovski's Yukos to take a stake in the refinery - i.e. turining to Russians to fight off other Russians...

4. EU leadership in building a more secure network of electricity interconnectors between the countries of Western, Central, and Eastern Europe.

Interconnectors are a good thing. The questions are, of course, (i) who pays for them, and (ii) how do you deal with pesky locals who do not want the ugly transmission lines in their backyard (the main reason these lines, which both local governments and utilities want, are blocked most of the time)? Is the EU going to run roughshod over national and/or local permitting procedures? Are they going to subsidize construction, again putting public money where the markets apparently deem it is not worthwhile?

5. An EU effort to marshal the international banks, including the EBRD and the EIB, to take equity positions in the pipeline systems of Ukraine, Bulgaria, Moldova, and Poland. This would help these countries modernize their pipelines, provide a “neutral” party to ward off attempts by nontransparent Russian or national companies to take control of the pipelines, and increase competition in gas and oil transportation.

I am pretty sure that Russia would be quite happy to not have to deal with the problems associated with transit through these countries, and pass on the problem to the EU. Because they would get paid the full value of gas at the Russian border, and the EU would have to deal with the fact that the transit countries still physically control the pipelines, and are unwilling to pay for gas that they can simply take for free along the way. Would the EU accept to subsidize these countries' energy consumption as Russia has been forced to do (in order not to compromise its commitments to Europe)? Or to intervene more vigorously in their domestic affairs? That might get interesting really quickly...

6. EU decisions to promote international financing for the proposed Nabucco natural gas pipeline from the Caspian basin through Turkey to Bulgaria, Romania, Hungary, and Austria, which would increase energy security in Central and Eastern Europe, and to push hard with Kazakhstan and Ukraine for the construction of the Odessa-Brody oil pipeline system.

Nabucco is being prepared, and is likely to be financed by the private sector. Why should it be subsidised? Again, picking winners and losers, or supporting corporate welfare?

As to the Odessa-Brody oil pipeline, it is actually already in service - but the Ukrainians have found it more profitable to use it in the other direction, for transport of Russian crude to the Black Sea, rather than for transit of crude in the Black Sea (presumably from Azerbaijan via Georgia, or from Russia itself) to central and Northern Europe... Should they be paid to change the flow? By whom?

Efforts by Central and Eastern European countries to improve their security by increasing domestic energy storage, boosting indigenous supplies of gas and oil, and creating a welcoming and transparent environment for foreign investors.

Indigenous supplies of gas and oil is so ridiculous that I won't even comment on it (if the resources were there, I'm sure they would be exploited). Storage makes a lot of sense, and indeed Central European countries have been building up strategic oil reserves as per the EIA recommendations. Gas storage is harder, as it requires the right kind of facilities, which cannot be built just anywhere. Central Europe has some, but they are geared up for distribution of Russian gas; in any case, gas storage is mostly needed to deal with the seasonality of demand (which is 3 times higher in winter than in summer) which requires large storage buildup during the warm months.

And the liturgic reference to the "welcoming environment for investors" will be translated as "give US energy companies tax breaks to invest"...

8. EU insistence that the opening of European downstream assets to Russian ownership is contingent on Moscow’s implementation of the Energy Charter Treaty and, particularly, the Transit Protocol.

That's already been made clear (against all marker precepts which state that the nationality of the owner of assets is irrelevant) and is pointless as Russia will not ratify the Energy Charter which brings it no advantage whatsoever. Why would Russia give up control of its pipelines to Western oil companies with no compensation?

Thus, we have the same mixture of bluster and wishful thinking as always, an absolute incoherence with the otherwise pushed for liberalisation drive, and an insistence to paint Russia as the evil empire trying to withhold (our) energy from us.

And we have absolutely no mention of what would actually make sense and be within our control: stop building new gas-fired plants (something structurally encouraged by the liberalisation of the markets, which favors the kinds of plants which are easiest to finance by the private sector, i.e. gas- and coal-fired plants), and try to otherwise focus on energy savings.

But no, confrontation is so much more fun, and so much more manly.

But Jerome if there is no threat of competition, then there is no assurance that the corruption of monopoly would not prevail



Your essential point is correct however, the EU as GAZP's second largest customer and most profitable customer, has a right as customer to seek some changes to the way that GAZP does business.

You have written (ad infinitum?) that GAZP has plenty of gas in the ground. Which is not entirely useful when it sits on the wrong side of 30 year-old (5 year over design life) pipeline bottlenecks. Despite a number of price liberalization steps at the end of 2006 the key to ensuring a supply / demand balance to around 2015, when Shtockman will be just around the corner, will be ensuring that it is worthwhile for non-GAZP gas producers to put their gas in to UGSS - hopefully on the right (western) side of the bottlenecks.

Posturing from the likes of Smith, or indeed Piebalgs at Davos, clearly does not help. But neither does supine acceptance of the status quo. Quite what the correct route to the needed undoing of the current status quo is not entirely clear. It would be good if TOD contributors and readers could add positively to the debate rather than always pointing out the idiocy of our masters voice.

There's a number of issues here:

- one is the talk in the West about Gazprom's inability in the medium term (say, to 2015 or 2020) to bring gas on stream when needed (hint: let our boys in bog oil do it): that's bunk

- another is the issue of long term availability of gas, between the possible peak of their production and their increasing domestic demand: that's a real issue, which requires that we work on our side on demand

- another one you raise is that of pipeline capacity: on this I disagree with you: there are enough pipelines to carry over all the gas we're willing (or we need) to buy from Russia, and they are actualyl building those that will be needed in the next 10-15 years (with Nordpipe). The pipeline network is in good condition, it's the only thing where Gazprom never stopped investing during the 90s

As to the EU being Russia's largest customer, and having "rights" to see changes in Gazprom, I have to say: "huh?". Why? We have a right to see contractual obligations fulfilled. We have a right to try to negociate better terms, but currently, the balance of power is not really on our side, especially not with all the bluster around.

Of my three points I would say that 1 and 3 are absolute givens.

- The supply / demand balance is marginally in balance
- The entry points to the Russian pipe system in and around Nadym are at maximum capacity. Nordpipe and Bluestream don't address the key bottlenecks, they address the ex-FSU transit issue.

The rights to see a contract obligations fulfilled are precisely the rights to which I refer. If the supply / demand equation looks tight then within the terms of contract negotiation with GAZP you have a reasonable right to understand that GAZP is addressing a. production and b. transportation. Long term (though I hesitate to believe that Europe thinks this way) take or pay contracts have to supply won't suddenly be siphoned off for energy inefficient Severstal or RusAl because the producer got his sums wrong. That is the right that purchasers have. The seller has the right to know, and for that to be enshrined in a contract, that having developed a field 800km from landfall in inhospitable terrain that the buyer will still be buying gas. If these two rights were mutually acknowledged, without histrionics, then there is half a chance that there could be a reasonable debate over Russia and Europe's future energy co-operation.

On the subject of getting sums wrong - I have no reason to believe, and a certain amount of empirical evidence against, that any of "our boys" will be any better at getting big, difficult projects executed on time and anywhere close to budget.

Excellent points, excellent comment. Thanks for the insight on the Nadym side, although I admit that it surprises me, with Urengoi and Yamburg in slow decline, that this would be a problem.

Do you have more info on this that you can post or email? Thanks!

I see the hand of the USA in this. Conquer and divide. The US must prevent the EU and Russia to maintain closer ties at all costs, because it would threaten their 'full spectrum dominance'.

It would be the best interest of Europe to cooperate with Russia, but it is not the interest of the US.

Here is an enlightening article:

My opinion is that the US strategy will ultimately fail or it will end in a nuclear war. The declared full spectrum dominance already forced China and Russia much closer - and behind the curtains also brought closer Germany and Russia (this may not be true though).

re Engdahl.geopolitics

Perhaps the following scenario will help explain events and predict others.

These are core facts of the Petrogame that drive events:

Consider: A desert chieftan in the 1930's discovers that his territory has tons and tons of gold laying in countless veins just 100 meters under the sand. Almost unbelievably easy to access it merely with big shovels. As such desirable treasure is impossible to exploit secretly, what would be the single, over-riding consideration dominating his thoughts...from the moment he verified the fact of that gold?

Clearly his next-tentflap neighbors will be at once dazzled and obsessed with plans to make him the main course for their dinner .
As the lucky chieftan, he has certainty that he must obtain an overwhelming military force to squash the appetite of neighbors, before their plans mature and overwhelm him. All his attention goes to securing both the new wealth and his ownership of it.

Here lay apparent contradictions. Until late 1970's, Saudi Arabia had no real military forces at all ! No Army...No Navy...No Air Force...Only police and internal security forces. That defies sensibility because the chieftan in the late 1930s, and surely by 1941, had Standard Oil engineers verify the data demonstrating that huge pools of oil were in fact there. Knock a pipe into the sand, screw on a valve, make lots of new friends. Does not even need a pump.

It is impossible that there was no huge, military force immediately established to protect those deposits. But there was none...or was there?

There had to be, but it was hiddden. A powerful partner was there. There was a quid-pro-quo created where each partner held exquisitely equal leverage. If either party renegged, the other could cause disaster. The key to workability was the equal leverage which ensures durability of the arrangement.

The Oil Powers [dominated first by Standard and soon RoyalDutchShell and later BP ] were able to guarantee that the now RoyalChieftanFamily stayed on the Royal Throne, in exchange [1] for the Chieftan depositing his oil revenue monie$ into the Oil Power's banks; and equally strategically, [2] the Oil Powers led by Standard would retain overriding control of wholesale and retail distribution policy to extent of who would/would not receive the ultimate use of the petro products [oil and gas] and at what terms.

What was the OilPowers' guarantee? The US Military was [somehow under the control of The Standard] to be made available to guarantee continuity of the Royal Throne as long as the Throne deposits the bulk of their revenue$ in OilPowers, banks and does not withdraw said deposits; and obeys any production/distribution/marketing directions. Oil became denominated in US Dollars. As for the Throne's leverage, just their mere hint that $ deposits would be withheld or withdrawn would undermine credibility of banking systems. As the magnitude of flowing oil rose, the partners next agreed the USDollar would be the exclusive trade-currency. Each party had equal and credible leverage to enforce its position.
That is what happened in Saudi Arabia.

"Oil Powers" identities change over time, but are essentially Anglo-American. "Oil Powers" are not companies; they are individuals with similar goals who use oil/gas as a tool to enable strategy.

Petro-oleum = Rock Oil. Until 1859, it was thought to exist only as slow seepage from inside rock, in non-commercial quantities. By 1859 petroleum was discovered to exist in underground pools. This was quickly recognized by some as the ultimate source of Heat/Light/Power [HLP], in terms of cost, quality and efficiency.

Silliman at Yale University had done the first major chemical analysis of crude oil within months of its being found to exist in commercial quantities. Note the first use for petroleum, in commercial quantities, was lamp-oil for light [nearly white, non-smoking, portable and cheap] and the demand was worldwide, overwhelming even from Asia. Demand for light was later followed by demand as lubricant. Still later as fuel for steam production [e.g. ships]; later still as source fuel for combustion [gasoline] engines, space heating and electrical generation.

Wherever oil was made available, it could easily dominate as the source of HLP demand. Thus he who controlled its distribution could control whoever needed it...or whatever nation needed it. You want Heat? You want Light? You want Power? Either be compliant or be coldly in darkness and powerless.

A super tool to compel cooperation from any ruler. Or to find another who will. Control the ruler or create the new ruler, and let the ruler control the population. Best to select a Royal Family, as that means a predictable line of succession. The plan is old, but the plan has had many successes.

Early on, Standard's Rockefeller and Royal Dutch' Dietermann and the English Crown understood all of this. [England's Shell and RoyalDutch merged about 1900.]*

It is critical to include the fact that the OIL-game was merged with the BANKING-game. * *

As with Saudi Arabia, the similar deals made with Kuwait and other ruling-family-type governments. He who partners with the family controls the oil/gas as long as that family stays on the throne.

The deals all involve Standard [American] and Royal DutchShell/BP [Anglo] et al, who have similar, effective, covert control over their respective governments' forces [military and/or other contributions to the required force] to guarantee longevity of the ruler's status and similar production/distribution/marketing rights from the ruler.

So explains the saga of Iran's Shah. Democraticly booted out in early 1950's, quickly reinstalled by Anglo-American force, then booted again 25 years later. No more Royal Line = end of deal = OilPowers attempt in ANY WAY to stop/ruin any oil production/marketing they cannot control.

So explains the saga of Saddam. Non-cooperating [e.g. not denominating exclusively in USD] and no Royal Line.

So explains the saga of Kuwait when Saddam briefly took over. Who reacted very forcefully to put the Sabah family back on the Royal Throne? You can bet the Saud family was watching nervously to see if, in fact, Standard et al would make good the guarantee; after all, the Saud clan held the same guarantee with the same partner. The Saud clan breathed easy when Kuwait's Sabah family was returned to their throne [followed by abrupt end of military operation].

So explains some of the Czar's troubles. The Czar would not relinquish control of Russian oil [e.g. Baku] which really crimped Rockefeller's [Standard] and Dietermann's [Royal Dutch/EnglishShell] world-monopoly dream, and not-so-oddly, WW I did not end in Russia until 1922/1923; then government that followed the Czar was not ruling-family type, thus no predictable line of succession.

WW 1 ? Have a look at the territory of the Ottoman Empire at that time. Then, locate the known oil resources within that perimeter, factor in England's Lawrence of Arabia and promise of self-government to their Arabian allies for expelling the Ottoman rulers. Then watch what happened when the the Ottoman armies were expelled.

WW 2 ? Surely Krupp, I. G. Farben et al in oil-less Germany knew well the prize of Baku/Caspian. There's an old bio of Dietermann who, in 1920's, was quoted in English newsmedia, claiming that the resources of Russia would be the "greatest commercial prize in history", and that "Baku is the finger that points East" as he promoted another war. But the world depression from 1930 delayed the acquisitive Dietermann's-and-others' plan to jointly invade Russia.

So explains the saga of Vietnam. Offshore, oil/gas deposits were surmised because the geography fit the oil industry's working model of Continental Shelf theory [just GOOGLE "vietnam + oil" to see who/what is happening post-1975] but, after the French left, there was no possibility to control a petroleum industry. And certainly no ruling family after failed attempt to create a Diem clan. The thought of oil being independently developed and marketed was indeed a threat.

So explains the saga of all non-ruling-family-type governments' attempts to develop and market their oil. In the case of Mexico, albeit without a ruling-famly, Marines were sent into Veracruz and the oligarchs coalesced to rule extended-family-style since then; and being right on US border facilitates control. Those oligarchs who did not agree were visited by unlucky events.

So explains the saga everywhere a ruling-family has oil that can be produced and potentially marketed.

So explains a lot of other observations from circa 1880 to present time.

So explains why the petrogame of "I hold you by your heat/light/power arteries" is getting interestinger and interestinger. And wilder.

So explains the addiction. Oil addiction was created by low-cost, high quality, efficient and readily available fuel supply. The addiction was/is maintained by intense suppression of alternative HLP sources [e.g. by legislation; denial of funding; misdirecting R&D], along with theOilPowers closely monitoring all aspects of their game.

The petrogame is the means to World Domination by a small group who coincidently share similar goals.

Only petroleum [as oil and gas] can be harnessed in a way that precludes unwanted-others from joining the group.

No other HLP resource can be globally monopolized; or exists in sufficient quantity. The others are merely technology based, and technology cannot be monopolized. [E.g.-- a nuclear club to monopolize enrichment/extraction is a work-in-progress, but has only short-term and spotty workability that can be bypassed. Also there are local monopolies, such as control of hydro-power, that are not scaleable to global scope. As for coal, technology has not resolved enormous pollution aspects, and coal has potential only to crimp or tweak the petrogame.]

The above is a minimal framework to make sense of many events, especially since late 1800's, that otherwise seem crazy-quilt.

* In late 1500's, the English Crown realized its very survival was as seafaring-traders/sea-controllers and began (1) building a global navy and (2)collecting data, in earnest, of all known, global resources, first compiled by England's Hakluyt team. [Just 1 example so the reader gets the urgency: On 2,500 mile voyages across open ocean, lack of potable water caused entire crews to die and their ships become derelict. Thus sources of potable water in mid-ocean and the route for longboats to get safely ashore on the "unknown" islands, became vital secrets to be learned.] That viewpoint and project primed many subsequent adventures from gold-buccaneering, fleet-building and wiping-out the Spanish Armada on up to The East India Company and into more modern, more covert tactics. Long-range planning always evolving by trial and error and very covert. The small island-nation of England learned well its limitations as its Empire collapsed. Surely by the 20th Century, survival depended on correctly analysing its failure to control that Empire. The island-nation needed a giant proxy-nation to front for its Empire rebuild. Whoever might it be?

** By 1890, it was apparent that Big Oil, primarily Standard's combine, had the cash volumes and cash flows to actually rival and threaten the banking game. In late 1890s, Rockefeller and JP Morgan teamed to buy Carnegie's steel behemoth and form the US Steel combine. The cash price was about $490 Million, in 1890-era dollars ! The peculiar nature of the petrogame's grip on HLP offerred real assets versus the paper of banking, breaking the banker's peculiar clout that depended on being allowed to monopolize paper money. Further, while paper money dealt with sovereign currencies on a nation-by-nation basis, oil was a global tool.

Nice tale!

I really don't know why so much posturing has to go on. It is a bazar out there and moaning about the supplier is not the way to get the best deal.

Read my post and read the article at the link and then it will be clear.

Look, the problem comes back to the elephant in the living room, the one everyone pretends is not there...

The EU has no REAL POWER to enforce anything. Going back to the birth of the Euro currency, anyone who asked how this organization would be able to enforce policy was called "out of touch" with the new modern idea of the Uber Europe, which of course could enforce it's will by simply proclaiming, and did not need real enforcement. Beside, Europe had the Charters (voted down by a fair number of Euro states), it's constitution (never accepted by a fair number of Euro states, it's "economic understandings" (ignored by most). Europe has no real military power, no home base of resources, a slow to non moving economy, rapidly approaching social welfare obligations it cannot possibly meet, and an aging demographic that makes our social security issues look like a cake walk.

Jerome A Paris makes one very astute remark:
"A lot of people have discovered in the past year that Europe's dependence on Russian gas was growing, and have begun to panic."

The last four words are very accurate, "have began to panic". But it is not the gas situation alone that is causing this panic. The gas issue simply makes visible the full magnitude of Europe's complete lack of power in the world, and the EU's "black hole" of real enforcable policy. The EU has about the clout of the old Trilateral Commision, and now fears the world will begin to see the truth of it's situation. Then what? Easy answer, money begins to leave a currency that has never been anything more than a glorified travelers check. Only the Americans are still completely bought into the cult of European superiority. Compounded by America's own almost blinding self hatred, and the utter disgust and disdain we hold for our Administration, we have been easy suckers for the Uber Euro scam, and many Americans who invested in Europe simply to spite our own nation stand to be wiped out when the reality of the world situation hits.

I want to make a VERY IMPORTANT disclaimer as I close here: I do not say these things as in anyway insulting or disdainful of the European nations. I am of German descent on my mothers side, own two European cars, have many European friends and business contacts, and wish ONLY THE BEST OUTCOME for the people of Europe, who have suffered through more than most Americans would have the strenth to bear over the last century. My respect for the individual cultures and nations of Europe is very great, they have been lights to civilization in many ways. It is this bizarre concoction that is the "EU" that I have grave doubts about, and in fact in my own mind have never found a logical way to accept as a valid and viable governmental or organizational entity in the world. Sorry. I just don't think they have accomplished anything, and I don't think they have been logically consistant, nor been able to demonstrate any evidence of organizational competence. The EU is an organization in search of a mission, printing money with no backing, and issuing proclaimations of no usefulness. They are the classic definition of a "Paper Dragon".

In the end, Vienna, Rome, Paris, Bonn, London and all the rest, finally including Brussels, will sigh, and go back to making their deals and planning their futures without consulting with the old out of touch folks in Brussels at the EU. Which of course is what they should have been doing all along.

What should the Americans do vis a vie the Europeans? Simple. Deal honestly, directly, straightforwardly with the individual European nations in matters of open and cooperative trade and mutual education and assistance, and pretend for all practical effects that the "EU" does not exist. Because facts on the ground are, it really doesn't.

Remember, we are only one cubic mile from freedom.

I agree with most of what you write.

BUT, the most important goal of the EU is to stabilize Europe and to prevent wars breaking out. It stabilizes the continent that was embroiled in wars for centuries. This is the main point of having the EU - to give nations a place to discuss their differences instead of going to war. And this works. If it were not for the EU, the break-up of Yugoslavia could have lead to a larger war including many countries in the region. Many-many countries have minorities in other countries in Europe and this is a possible source of conflict.

Also at the current time, the EU is divided over many issues and there is no hope yet to make a more centralized federal government (like the USA). But this could change with time. It is utmost of importance for the USA to prevent a more centralized European state. They use the UK and other means of 'divide and conquer' strategy to slow down the integration of Europe. Why? Because Europe then could become a major international player (which currently it is not).

As for the Euro, it is considered by many a safer currency than the dollar. The US prints the dollar limitlessly and this causes its value to fall - an eventual collapse of the dollar is also possible. European nations do not have very high debts and trade deficits, even though the Euro is not backed by gold reserves either (which is a weakness).

You make good points regarding the "stabilization" function, although one wonders why the UN or a "World Court" funtion at the Hague would not work to do that for cheaper...but no war in Europe for over a half century has been a victory for all and for the people of Europe.

ON the issue of: "European nations do not have very high debts and trade deficits", I frankly do not know how anyone would know. The U.S. accepts that all European nations are running close to the "Memoranda of Understanding" of the EU members, but most of the big players have never been in compliance witht the EU "Memoranda" and have shown no real effort to get there.

When American debt is counted, we count the debt we owe ourselves in upcoming social contractual obligations (Social Security, projected Medical obligations, etc.), do the Europeans count in this way? I would have to learn more on that, real statistics are hard to find on Europe, surprisingly. If the EU proclaims a goal, most Americans simply assume this has the force of law, and they have met it. That is in no way the case in most instances.


Dear RC
As a Citizen of a small sovereign state (1300 years) in Scandinavia, I can tell you that for many of the 450 million EU zitiens, the EU project is primarily a stabilisation project after the fall of the iron curtain and secondly a fair trade arrangement.

The much critizised EU "bureaucracy" is actually much smaller than the administration of a small city like Copenhagen.
The most important work, being done at the moment is the harmonisation of trade and environmental rules, making trade flow easy, without barriers.
The coming REACH chemical/environmental regulations is another example.
This part of the EU is running smoothly and is integrated in national legislation, because all involved see the use.
On the other hand a lot of countries, mine included see the EU as a loose cooperation, and we do not really want it to be a union or a state. Maybe we should have have an constitution - but not too much.

We have done our business for 1300 years- occasionly being invaded by large neighbours and we like the idea that the EU makes this impossible. And we like to keep it that way.
Similarly , most Europeans (maybe not journalists)see clearly that our security lies within NATO, for the same reason and are thankful for the support we have had from the NATO nations.

You could imagine the problems You would get in integrating North and South America in the same level of close cooperation like the EU. Just think.

And please dont embrace the EU in one.
The just published EUROBAROMETER investigation warning- large file. will show the wery different attitudes towards the EU from member states.

In terms of energy the EU has a growing import problem. But we are tackling it rationally. On all EU- and national levels this is sinking in at the moment and the plans for energy efficiency, biofuels etc published this spring is just a small image of what to come.

IMHO, the EU will in a few years be world leading in conservation, in power supply, in energy efficiency, in domestic energy use and industry, doing more with less energy, and will be eminently placed to show the rest of the world how to powerdown. Some Nuclear and some Coal and a lot of renewables will help us get along.
Kind regards And1 :-)

I really don't think you have any idea what the EU is about. Stop reading the UK press to have information on the EU, seriously.

The EU has no REAL POWER to enforce anything.

I'm not sure I understand what issues you are talking about here. Are you saying the EU is unable to enforce regulations within member states? Could you give some examples where that is the case?

The last four words are very accurate, "have began to panic". But it is not the gas situation alone that is causing this panic. The gas issue simply makes visible the full magnitude of Europe's complete lack of power in the world, and the EU's "black hole" of real enforcable policy.

Complete lack of power? It's certainly true that the EU nations lack the ability to project military power around the globe US style, but then again, Europe pretty much gave up on the whole empire idea in the second half of the last century, so there is really no need for that kind of military power. You also seem to overlook the small issue of economic power. Or are you saying that the EU has no economic power?

Only the Americans are still completely bought into the cult of European superiority. Compounded by America's own almost blinding self hatred, and the utter disgust and disdain we hold for our Administration, we have been easy suckers for the Uber Euro scam, and many Americans who invested in Europe simply to spite our own nation stand to be wiped out when the reality of the world situation hits.

For a scam currency it seems to be surprisingly popular in the world, even or especially outside the US, following your logic I suppose those countries must have their share of unpatriotic suckers who buy it just to spite their respective governments.

What should the Americans do vis a vie the Europeans? Simple. Deal honestly, directly, straightforwardly with the individual European nations in matters of open and cooperative trade and mutual education and assistance, and pretend for all practical effects that the "EU" does not exist. Because facts on the ground are, it really doesn't.

Whoa, now the EU doesn't even exist? Care to elaborate what these fact on the ground are?

I removed this comment as being not relevant.


The facts on the ground are that the biggest members of the European Union ignore the provisions of the core documents of the European Union, these being the Maastricht Treaty, the Growth and Stability Pact, and of course, do not now care about the Constitutional issue, since they abandoned it with the complete collapse that was the "non" votes of a couple of years ago. (Has anybody noticed how the Constitutional Referendum, which were "critical" to the future of Europe back then, well, really don't matter too much now?) This begs a question: Upon what legal standing does the European Union now exist?

The Growth and Stability Pact, dead?
"The Growth and Stability Pact was designed to guarantee that the euro would become and remain a strong and reliable currency. Accordingly, the 12 countries of the 'eurozone' were required to aim for balanced domestic budgets and, in any event, not to allow their national deficits to exceed an upper-limit of three percent of Gross Domestic Product.

Breaking the rules
As it turned out, that proved to be a pipe dream. When both France and Germany strayed beyond the three-percent norm a few years ago, they managed - as the eurozone's two most powerful nations - to exert enough political pressure to cause most of the other countries to grudgingly accept the situation. Contrary to what the rules prescribe, they were not penalised for their transgressions, and the European Commission (EC) - charged with monitoring compliance with those rules - appeared powerless to change the situation. It was at this point, in fact, that the pact was dealt the deathblow."

"Nevertheless, the finance ministers resolved that the pact needed to be relaxed and modified, if only to maintain the impression that some rules still apply to safeguard the stability of the euro. And that is precisely what has just happened."

I will venture to say that not 1 in 10 Americans (or other non-Europeans for that matter) are aware of this, or are aware that the currency they are investing in is in this condition. I often hear Americans say that all European nations MUST HAVE a balanced budget, and when they give the debt numbers for Euro nations, they accept the 3% number as ACTUALLY ENFORCED, which of course Europeans know it is not (by the way, Russians being closer to the scene know that it is not). This is the "greater fool" theory....If I can get in early, and sucker my clients to come in behind me, then I make a killing, no matter how idiotic the currency being invested in actually is.

From the Economist:
European government finances

Sep 2nd 2003

GERMANY and France, so long the European Union’s head partnership, have become partners in crime. Last Friday, Germany confessed to the European Commission that its budget deficit for 2003 would breach the stability and growth pact for the second year running. The pact, a largely German creation, is meant to stop members of the euro area undermining the single currency through fiscal irresponsibility: countries are permitted to run deficits of no more than 3% of GDP.…

Somebody check for me please...has Germany or France ever bothered to return to compliance? Or after the "non" votes on the Constitutional charters across the EU, have they, like everyone else, pretty much decided to go their own way while talking EU support. The Russians are being asked to give up big volumes of EXTREMELY valuable natural gas in exchange for handfuls of paper backed by this?

There are also the social justice issues. The EU is by it's nature a VERY secular organization. But there is a growing non secular population in Europe, in the Islamic minority who have NO history of or experience with secular government. And even the Christians of Europe see conflicts: The EU Charter and Maastricht Treaty have provisions getting into the heart of the social justice issue. For example, if we accept the idea of absolute equality of gender, is it still legal to have a church with a male priesthood? We won't even go into how dangerous this all becomes in relation to the Muslim population. (France has seen an inkling though, and the EU of course could do nothing but sit to the sideline and watch the riots like everyone else)

EU workers abroad, do they go by the rules of the EU, the rules of their country of origin, or the rules in which they are working?
You guess...

So from just after the WWII, we go from the Treaty of Paris to the Treaty of Rome, and then an almost 35 year gap to Maastricht, Treaty of Amsterdam and Treaty of Nice, none of which are any more enforcable than the last, and then the great triumph (extreme irony intended) of the Constitutional Referendums....and so much good will had been built up by 50 years work, we saw what happened there.

But noticably, the ONLY real accomplishment of the EU was to push through this currency. NOTHING else seemed achievable accept the printing of money. Does this make anyone suspicious? Do foriegn investors in Euro currency really have ANY clear understanding of the construction and legal standing of the....what, nation, confederation, organization, alliance, exactly what is it anyway (?), that they are investing in? I have friends who have proclaimed the U.S currency unstable, and called one of the new generation of "international brokers" and asked to be put in the Euro, it's the greatest thing around! When I talked to them I found out they had NO IDEA what the Euro currency or the European economy involved!

And for folks here who are fascinated by the energy situation, I DARE you to ask any of your savvy friends (not TOD readers now!) what the state of European energy is. See how many of them are aware of the North Sea decline and Europe's absolute reliance on Russion natural gas.

By the way, see how many of them know that Europe's unemployment rate is higher than the U.S.'s, or that Europe has a much higher percentage of population getting ready to retire. Just ask them.

We could go on with this for days, and I always feel like I am seen as being unfair or cruel to Europe. That is not the intent. But let's look at from another viewpoint. Just after 9/11, when America most needed it's own citizens to support it, when everyone was hanging a flag out, and when we most needed friends abroad, and everyone was sending us good wishes and flowers, we have to admit, Bush managed to pizz the world off at us.

That's o.k., Bush is not America. But, it was fascinating to watch how our so called "allies" and our "patriotic" business and investing class found any excuse to pull money and support out from under the U.S. just when we were at our weakness. Frankly, it has been sickening. The cultural self loathing that the Americans are capable of is astounding, a true cultural illness. These are the people who on the evidence of "Soviet Life" magazine, see that the U.S.S.R was a roaring success compared to the U.S., that the Japanese are incapable of error, that the Chinese are soon to rule the Earth, and of course, that Europe has ALWAYS been able to best an American in great philosophical, political and social constructions. O.K., fine, we know who our friends have been, and how quickly they will turn on us. But what has been surprising is how they will put their own money and future at risk to be spiteful and vengeful, and invest in schemes that with any analysis would be so suspect as to be obviously bogus.

On the other hand, the Russians do not seem to accept the myth so easily. They are being asked to give up something valuable (natural gas). They are being told they should be glad to give it over to the obviously superior Europeans, who know best how to run these things, and willingly take whatever volume of Euro currency the Europeans are willing to give them, because after all (the great motto of a bubble) it will always be worth later.

Gee, I wonder why they are doubtful? :-)


The primary goal of the EU is solving problems that member states have in common by aligning their interests. In the 1000 years before its foundation, common problems (Access to shipping routes, resources, land etc) were usually solved through war, with the last two having devastating consequences. In that sense I would say that the EU has so far been very successfull, and the statement that its only real accomplishment is the introduction of the euro is laughable.

True, we don't have military power, but even if we did, what would you like us to do with respect to Russia? Threaten to invade or nuke them if they don't supply us with gas and oil on our terms? We all remember the fates of the armies of Napoleon and Hitler, and the Russians remember very well their 20 million dead from WWII. No one is interested in war over resources on the European continent, and the EU was not intended to provide a framework for imperialist military adventures.

With respect to the euro, if you have a problem with it, then I say it's our euro, and your problem. If other states prefer the euro over the dollar for their oil and gas payments, then so what? Even with the shenanigans that are going on with respect to the growth and stability pact, how do European deficits compare with the US deficts? Like you said, difficult to estimate, but I don't buy the idea that somehow the euro would be worse because its controlling entity is a central bank shared by 13 nations, instead of a central bank controlled by one government.

And hey, we pay Russia full market price for their oil and gas, they are not being ripped off, so we have a right to insist on reliable supplies. And I believe the EU leaders in general are very aware of our problematic energy supply situation, which is why proposals have been made to cut energy use 20% by 2020, and to diversify into renewables. even the nuclear debate is heating up again, even in the countries that already commited themselves to abandon their nuclear plants. So I would say that steps are being taken in the right direction.

Post moved up thread

Re: about unemployment
I've heard that there are different rules for unemployment stats calculations (US vs. EU), so no direct comparison apply.
Re: Russians
They are trying to start trading in Roubles (Urals brend) wanna trade roubles?:)

About the whole post: emotions prevail, do You really feel so about EU? Did it take Your lanch?:)

Bloody good post, Jerome.


Very good Jerome, thanks.

wide, dodgy, one pov:

This kind of stuff falls under the heading get those lazy Europeans off their asses and make them face reality and get tough.

Get them to fear and oppose Russia, and force them to re-affirm EU-US alliance (politically, the First World) beyond the rather lame and legally confused NATO operations (e.g. in Afghanistan) and ultimately join in the war, or wars, or various destruction / occupation operations, in the Middle East.

The US is rightly afraid of a Russia - EU alliance; see its major efforts to get the parts of the FSU under a nominal ‘EU’ umbrella, those rainbow revolutions, all that, and/or to break up countries that might have provided a join (Yugoslavia.) In a way, the cold war never stopped, Russia is still a power to be reckoned with but that is not really admitted - Iran is evil, etc. - the enemy of choice has shifted because the resources that are, it is thought, takeable, are in the ME.

All the guff about banks and pipelines and so on is window dressing, but dressing designed to provide excuses for the EU bowing to the US. As it seems clear by now, they will do, if reluctantly, dragging their feet.

Hi, I realise it naughty, but when I was cooking dinner this evening I heard an amazing thing on the radio. It was from a report about the Soil Associations annual meeting in Cardif, Wales.

There was an interview with the head of the association about sustainable agriculture. Suddenly in the middle of it he starts on about the dire consequences of Peak Oil and what a truly momentus challange this is for British and world agriculture - will we be able to sustain modern industrial agriculture post peak and so on. Anyway, I almost choked on a peice of carrot when he asserted that we were on the very edge of peak in world oil production and it was all rapidly downhill from here! He appeared to think that we were in for a steep plunge in world oil production, and that in fifteen years time oil production could well have fallen by 75%!!! That was why we had to urgently prepare and radically alter British and world agricultural production methods for this new paradigme!

Gosh, I thought, this chap is really alarmist, or perhaps he knows something I don't! What also surprised me was the almost blithe and casual way he brought the subject of Peak Oil up, as if everyone with half a brain knew that we were on the edge of a cliff and ready to topple over!

Then, through the waves of static on longwave, another participant at the conference popped up. He was a youngish professor of agriculture and had made a detailed study of Cuba and how they had coped with having most of their oil cut-off after the fall of the Soviet Union, and how we could learn a lot from the Cuban experience of having to rapidly produce food with radically less oil, and how we were all going to have to learn to live very differently in the post fossil fuel environment!

Well, I was amazed by all this, and how confident they were that our way of life was all, over bar the shouting, so to speak.

Personally, I believe they are being uduly alarmist in relation to how close we are to the peak and how rapidly the decline in production will subsequently be. I've read almost everything for a couple of years about this issue and I don't see evidence for anything like what these guys were talking about. Unfortunately we just don't know do we? Maybe the great Saudi fields are ready to plunge, maybe oil production will fall by 75% in only fifteen years! If this was to happen, I think one could reasonably assume that civilization as we know it would collapse, the timescale is just way too short for us to adapt in time.

In my opinion the guys from the Soil Association are drastically underestimating the "challange" posed by Peak Oil to the whole of our civilization and not just agriculture. Cuba, whilst an interesting case study, is not Western Europe or the United States. Expecting American suburbia to adapt to a Cuban standard of living without massive and potentially disasterous, social and political dislocation is, in my opinion unrealistic. Our Western standard of living is just so much richer we use so much more of everything, than Cuba ever did.

I then remembered that Prince Charles has lots of sympathy for the Soil Association. It struck me that perhaps he'd been chatting with one of his Saudi royal chums about farming, the environment and Peak Oil, as one does; and one of them whispered in his ear that Saudi oil production was about to take a dive, and Charles passed this friendly advice on to his people at the Soil Association! Fanciful, I know, but one can't help wondering!

Hi Writerman,

Thanks and I'm a little confused by what you say here. You believe
"Personally, I believe they are being uduly alarmist in relation to how close we are to the peak and how rapidly the decline in production will subsequently be..."
And at the same time "In my opinion the guys from the Soil Association are drastically underestimating the "challange" posed by Peak Oil..."
Can you explain further?

In any case, I'm wondering...when you say "...maybe oil production will fall by 75% in only fifteen years! If this was to happen, I think one could reasonably assume that civilization as we know it would collapse, the timescale is just way too short for us to adapt in time."

1) What timescale do you think is needed in order to avoid collapse?
2) What lesser percentages would result in a different scenario?
For example, take a 50% fall in 20 years...what scenario? Do you see what I mean? 75% in only 15 years = collapse,
65% in only 20 years = ?
And so forth...

3) How would one come up with a realistic assessment?

Dear Aniya,

I don't think the guys from the Soil Association can make such dramatic statements, about how close we are to Peak Oil and probable falls in production, based on currently availble data. Without accurate data from Saudi Arabia relating to field by field producion, water-cut levels and transparent reserve information, it's impossible to tell when we'll reach Peak Oil. So, unless the Soil Association has access to "secret" data that we don't, then their statements about the timescale are "alarmist" and not very helpful.

It also surprised me that they appeared so relatively "relaxed" about the consequences for civilization of such an eminent and catastrophic collapse in world oil production! If they are correct we are in for really interesting times in the coming decades.

Basically I think we should have begun to think and act about the consequences of Peak Oil and our use of the Earth's resources twenty or thirty years ago. I think we've "wasted" the last quarter of a century when we should have been carefully managing a transformation of our way of living and production methods and patterns of consumption.

So, basically, I think/believe/hope they are wrong about the timescale, based on current data, and at the same time they are underestimating the negative consequences of such a transformation for Western society if they are correct.

The longer we have to adjust to a "post fossil fuel world" the better. If it's just around the corner, then we really are in big, big, trouble and we may be dealing with the "collapse" of "civilization" as we know it. The idea that we can deal with such a rapid and drastic plunge in energy production and consumption, without truly massive social, economic and political disruption is unrealistic.

So, let's hope these chaps are wrong, although hearing about the possible "collapse" of the world's second largest oilfield in Mexico, doesn't make one feel particularly optimistic!

It seems to me that what is not understood outside of Russia is that Russia's does not want to be a "Petrostate."

The EU hammering away at Russia to invest heavily in oil and gas sectors is met with resistance within Russia because they have other priorities. The Russians view that there is only so much capital to go around and Russians prioritize development of industry and services higher than natural resources.

Russia want to develop its services industry such as software -- there are a lot of very bright Russians -- other services and surprisingly -- if a bit unrealistically -- wants to develop its industrial base (despite the fact that it would have to compete with low wage China and Asia). As despite the fact Russia has a large current account surplus, it still has huge costs to moderize its industry and services base.

Hope that You are right (I'm a software eng. from Russia).
My biggest gripe with lawmakers here - not enough laws against smoking.