Gas:

Krull Corp.'s Mirtchev discusses Russia-Ukraine supply dispute

As Russia and Ukraine continue to disagree over natural gas pricing and shipments to Europe, Russia's growing influence in the region is becoming very apparent. How will the Russia-Ukraine natural gas partnership affect Europe's foreign and energy policies? What does Russia's growing influence in the energy sector mean for the United States? During today's OnPoint, Alexander Mirtchev, founder and president of Krull Corp. and a top international consultant on energy and oil markets, discusses the details of the Russia-Ukraine natural gas partnership and explains why Europe will continue to face shipment disruptions. Mirtchev also discusses Russia's expanding influence in the energy sector and how this will affect the foreign policy decisions of European nations and the United States.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Alexander Mirtchev, founder and president of the Krull Corporation and a top international consultant on energy and oil markets. Alexander also serves as the senior economic adviser to the prime minister of the Republic of Kazakhstan. Alexander, thanks for coming on the show.

Alexander Mirtchev: It's my pleasure.

Monica Trauzzi: Earlier this week we heard that Ukraine and Russia had finally reached an agreement with their European nations on resuming the supply of natural gas from Russia to Europe. Russia claims that Ukraine has essentially shut off the pipelines that would allow this gas to go to Europe. What's the latest on where this situation stands and when we actually might see these pipelines reopening and natural gas going to Europe? What's the situation at this point?

Alexander Mirtchev: I believe, first and foremost, it's fascinating to see how this issue has been seen from the point of view of different countries in the region and you will see how they project their own political interests on the situation making it much more complex than it is. But at the end of the day, I think that the issue is more or less resolved for now. It's going to reappear and reemerge on a regular basis simply because these types of situations are here to stay. What is happening, in this particular case, is that obviously Russia is reinforcing itself, is reasserting itself in international space and granting that this is their significant competitive advantage, the energy sources. Something that is not recognized in the press here and we should live with this, we should kind of accept the realities that they view this as their competitive advantage and rightfully so and try to get the maximum benefits from the resources they have. On the other hand, lack of transparency on the process as a whole and obviously the different claims that are there from the Ukrainian side, we are going to see this situation reemerging again and again and again on a regular basis. The only end to the process would be a new type of engagement of Russia where Russia would become a stakeholder in the process. But obviously this is coming with certain political concessions that are not palatable for the West at the moment. And, by the way, there is no coherent Western policy, including U.S. policy, and coordinated U.S. policy on the set of issues that come with this particular situation.

Monica Trauzzi: You're saying that we can expect to see this situation over and over again. This greatly impacts European nations however. What can Europe be doing to sort of protect itself from not getting this flow of natural gas that it needs?

Alexander Mirtchev: First of all, it's a finite resource and, obviously, Russia is going to play a significant role in the supply. They need to diversify, but it's not going to resolve the issue. It's much more of a political slogan, at least at this particular stage. But most importantly, they need a coherent, consistent, coordinated joint policy of resolving this issue. And basically they are not speaking in one voice, not even on the same tone, all the European nations. So the result that they are getting is you should see it also from the Russian perspective, how you're going to negotiate when you don't have the other party over there. And, by the way, one could not be sure that the Russian side is that eager to negotiate. I believe that the current volatility, more or less, play within the cards of Russia.

Monica Trauzzi: So, what does Russia's expanding energy influence mean for the U.S.? I mean could this generate more hostility between our two nations?

Alexander Mirtchev: I hope not and there is no reason for this providing that we recognize that, as I have mentioned, that this is a competitive advantage of Russia and we should learn to live with this and negotiate with this in a constructive way. We shouldn't expect the Russians to abandon the premises of the equation, but we're in the position really to reach a coordinated agreement on the set of issues where one of them would be the energy, particularly this one. But the Europeans need to have a strong, united voice before anything like this happens. Second, obviously, is Russia is not just the only element of the equation. The diversity that would come with the new pipelines, with the new arrangements obviously would balance the situation. And further down the road, which is not immediate, obviously we are seeing a lot of attempts to look for a substitute for the current arrangements. Whether this is going to materialize is a matter of policy and political will. And we are about to see whether the European nations are going to unite around such a solution.

Monica Trauzzi: So, is Ukraine sort of the loser here? I mean are their actions in response to things that Russia is doing or are they acting on their own cue? Are they a player in this game as well?

Alexander Mirtchev: Of course they are a player, but one shouldn't see it one-sidedly. From Ukrainian point of view, of course, they want to kind of live with the arrangement where they are getting the resources on a significant discount. And who doesn't? It's a nice thing to have. Having said so, the real issue here is they should go and, I believe, negotiate a long-term solution that they ensure. And Russia is their neighbor and vice versa and it's the mutual interest of the two countries to have an arrangement that would make sense for both of them. On the Ukrainian side, let's not forget that this is quite a transparent process. It has been inherited from the 90s, early 90s and kind of you have a lot of improvements, adjustments of the process, but the basics, the basics of the formula, one could see the roots of the formula in the 90s, in the early '90s. And obviously we're living in the 21st-century now, so basically they need to wake up and, more or less kind of determine how they should deal with the numerous vested interests in this equation. As you understand, a lot of economic interests are there. At the same time, put the national interest on the top and find a solution that would make economic as well as political sense.

Monica Trauzzi: So, the U.S. is swearing in a new president next week, President-elect Obama, and he has a strong emphasis on clean energy and energy efficiency. So how do you think that will tie into the foreign-policy challenges that we might see it moving forward with Russia?

Alexander Mirtchev: Russia is hardly going to be the biggest policy challenge in front of the ...

Monica Trauzzi: Of course.

Alexander Mirtchev: ... that your nation is going to face. At the same time, rightfully so, Russia, more or less, is building, or wants to build not only a prosperous society, but a great state. This is a bit of a different equation that we are accustomed to here in Washington, dealing with. And to what extent this is ... in a certain sector this is going to become competitive and competition with our own interests. And we believe that we are better and there is a constructive dialogue to take place. So, in general, I think that from a strategic perspective, from the point of view of the history, we are on the same page.

Monica Trauzzi: You mentioned before that this is a finite resource. Demand is rising throughout the world, so what do you think some of the long-term impacts are of those increasing demands in these emerging markets? I mean can the demands continue to be met?

Alexander Mirtchev: No. In a word, no, under the current arrangements. At the same time, at midterm we're just fine simply because the demand in the developed economies. Obviously, we have a global slowdown and this is going to take care, for a while, of the incoming problems. At the same time, you know, at the end of the day, the term emerging markets has been tailored in the early 90s. And, to a large extent, this is not the single class of assets as has been treated probably from a lot of reasons at this period. These are totally different countries. It has nothing to do economically, politically with each other and they are going to react on the current pressure in different ways. Like China probably is going to slow down a bit, not a bit, it's going to slow down, but at the same time certain segments of the economy are going to grow. So, on general balance, it's going to be a pretty checkered picture. On the other hand, the emerging markets are not decoupled from the rest of the world. It was a notion that was kind of a run-of-the-mill thesis that was around for quite awhile. But just alive, proven that it's not true. And the emerging markets are going to be under the same pressure as the rest of the world, but they're going to react a bit differently and differently from each other. So it should make much more sense, the analysis of each and every one of them. Having said so, obviously the demand is going to increase. It's going to increase dramatically. It is going to turn a lot of the notions that we have today as simply lacking any basic facts behind them. We are going to reevaluate a lot of hypothesis, a lot of concepts, a lot of ideas, a lot of facts because simply they are not there. And we see that every day in the press, the analysis of the general public and lots of general public are operating with these clichés I would say, but it's not true. They are not true. Probably a long time ago they've been true, but today they are not. So we're going to see not just increasing demands, we are going to see a lot of attempts to deal with this. And I believe that here is going to be a trial and error process, nothing wrong with this. Most importantly I believe that the movement toward the green technologies has certain right connotations to it. At the same time, we should really be looking about the technologies of the 21st-century. And this crisis and the shortage that is going to come with energy sources should be probably utilized for us to look really what would make us a leading economy for the first part of the 21st-century? Like after the Second World War, a lot of new technologies have been utilized and they have given a boost to the developments that we are seeing up to this day. So something like this should occur.

Monica Trauzzi: All right, we'll end it right there on that note. I thank you for coming on the show.

Alexander Mirtchev: Thank you. It was really a pleasure, Monica.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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