Vladimir Putin’s most effective weapon is gas – but not the poison kind

At face value, Russia’s $400 billion deal to supply natural gas to China National Petroleum Corporation, via the state-controlled energy behemoth Gazprom, sounds like a coup for Moscow. But according to recent analysis, the deal is strongly tilted in China’s favor. Gazprom will be lucky to break even on the contract and may even lose substantial amounts of money.

While the deal may not make economic sense for Gazprom, it does fit with Vladimir Putin’s broader geopolitical “tilt to Asia” strategy, and represents “a desperate geopolitical gambit trumping all economic rationale,” according to analysis by the Chatham House, a UK policy institute. In fact, the CNPC deal is just one example of how Gazprom operates more as an instrument of Putin’s political ambitions and Russian state power than as a rational profit-maximizing corporation. While Gazprom trades on both Russian and American stock exchanges, it is majority-owned by the Russian government and takes its marching orders directly from the Kremlin.

Gazprom is first and foremost a tool of Russian foreign policy, which Putin is not shy about wielding to pursue Russian interests. During Putin’s years in power, the Kremlin has used its control over Gazprom — increasing or decreasing the cost of energy — to maintain influence over Russia’s neighbors. Putin once described Gazprom as “a powerful political and economic lever of influence over the rest of the world,” and a team of Russian foreign policy experts noted that “if the leaders of this or that country decide to show good will towards the Russian Federation, then the situation with gas deliveries, pricing policy and former debts changes on a far more favorable note to the buyer.” (by Josh Cohen, Reuters)