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Gazprom and Europe

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Football in the 21st Century is not only a sport but a global brand in itself. Football allows others to feed and profit off of it as well. Global corporations have used this opportunity to leverage into newer markets and, or, improve their reputation in existing markets.

Gazprom; it is on players’ jerseys in Germany, in Russia, in Serbia, at games in England, and on side-lines in Italy. Gazprom is a Russian natural gas company. Teams make money offering jersey space to sponsors selling things like credit cards, cars, insurance companies and cell phones. But Gazprom is not like most sponsors: private companies with products football fans can buy. Instead, it is a company owned by the Russian government that makes money selling natural gas to foreign countries. It is everywhere in European football. So, if football fans cannot buy what they’re selling, why is Gazprom spending millions to sponsor games?

The answer is part of a larger story that’s changing the sport. Gazprom’s partnership with these clubs is mutually beneficial because they provide a crucial revenue stream to the football club while in turn gaining publicity and a foothold in key target markets in which they are hoping for an increasing profit margins they represent a successful confident company that yields significant power and influence.

It is a corporation that reflects the values and ambitions of the Russian state the company via a series of commercial partnerships and high-profile sponsorship deals is now firmly in the collective conscience of European football fans few are quite sure whatthe company stands for or what this foothold means and in any case they are largely apathetic which oddly mirrors the aims of Vladimir Putin and increased influence in Western culture becoming a major player in events without the stigma of political connections or ulterior motives. Foreign countries use companies they own to burnish their reputations abroad, and to understand why Russia is involved, one needs to closely observe a  map. Russia has the world’s largest natural gas reserves and most of the mare located in Arctic gas fields controlled by Gazprom. The company is led by Alexey Miller, a close ally of Vladimir Putin. Since 2005, the Russian government has owned a majority stake in Gazprom. Meaning company profits are under Putin’s control and gas sales, along with oil,account for around 40% of Russia’s annual budget.

Various maps showcase how European countries are on Russian gas and Eastern European countries are more dependent than countries further west. At the end of the 20th century, Germany represented the biggest opportunity for Gazprom. German Chancellor Gerhard Schroeder had announced plans to phase out coal and nuclear power, which meant Germany would need more natural gas to maintain their energy supply. Gazprom wanted to get it to them, but there was a problem. To get to Germany, Russia’s gas needed pass to through pipelines crossing countries charging Gazprom transport fees. And most of them went through Ukraine, a country that has a complicated relationship with Russia. Today, Ukraine still charges Russia $2-3 billion dollars every year to pump gas through to Europe. So, starting back in 2005, Russia began working on a strategy to bypass Ukraineand ship their gas directly to Western Europe.

This led to the birth of the Nord Stream pipeline,  a route through The Baltic Sea straight to Northern Germany.In late 2005, Gazprom was in the final stages of financing the project and Germany’s chancellor was preparing for an election. During his time in office, Gerhard Schroeder had become friendly with Putin and critics in Germany were increasingly concerned about the Russian leader’s growing influence.

Just a few weeks before the election, Schroeder met with Putinto sign an agreement officially approving the pipeline. Two months later, Schroeder lost his re-election but by March he had found a new job: overseeing Gazprom’s pipeline to Germany. It also came out that, before leaving office, Schroeder had approved a secret Gazprom loan that provided over a billion euros to finance the project. Soon, the story of Gazprom’s big project in Germany was becoming a story of scandal, corruption, and the creeping influence of Russia. But then the story changed.

In 2006, Gazprom signed a deal to sponsor the German team FC Schalke 04.At the time, Schalke’s finances were worrying team officials and Gazprom’s sponsorship provided money the team desperately needed. At a press conference announcing the deal, a Gazprom chairman said Schalke’s connections with the German energy sector were why they decided to become their sponsor. Schalke plays in Gelsenkirchen – a town in Germany’s Ruhr Valley, where much of the country’s energy industry is based. It’s also close to the town of Rehden, a hub for pipelines to the rest of Europe and home to Western Europe’s largest natural gas storage facilities.

Interestingly, Schalke was not Gazprom’s first deal. The year before, they had bought a controlling stake in a team on the other end of the Nord Stream route: the Russian team Zenit St. Petersburg. Gazprom’s investment made Zenit a major force in soccer. Two years after taking control, Zenit won their first-ever league championship. They’ve been able to sign expensive foreign stars, like Belgian midfielder Axel Witseland the Brazilian forward Hulk, and Gazrpom uses Zenit for marketing stunts: like having players scrimmage on the side of their offshore gas platform.

In 2006, as Gazprom logos were revealed around Schalke’s stadium, German headlines were hailing the Russian gas giant for pumping millions into the German team. To celebrate the deal, Schalke’s new jersey was unveiled in a ceremony before Schalke and Zenit played a friendly match in Russia. And, over the next few years, the Gazprom logo would become a team symbol displayed at Schalke games and printed on official merchandise. Schalke also won a championship in 2011 and by then, Nord Stream had been completed, and that year, Gerhard Schroeder, Angela Merkel and other European officials gathered to celebrate as it began pumping gas to Germany. There was also another struggling team whose jerseys started featuring Gazprom’s logo: The Serbian team Red Star Belgrade. Red Star was about 25 million dollars in debt when Gazprom signed to become their jersey sponsor.

And, again, there was also another pipeline: The South Stream would have bypassed Ukraine by going directly through Serbia to Southern Europe. That project closed in 2014, but Gazprom has continued increasing their access to Europe by building Nord Stream 2, a second pipeline doubling the amount of gas flowing from Russia to Germany. Gazprom has also expanded their empire to include energy partnerships with Chelsea Football Club[1], Champions League and the sport’s most famous tournament: the FIFA World Cup.

These sponsorships have made Gazprom’s logo familiar not just to fans in Europe, but across the world.“We light up the football. Gazprom. Official partner.”It’s in commercials before games, and on jerseys and sidelines once it starts. FC Schalke fans have also started to see Nord Stream 2 ads at home games. And, while climate activists like Greenpeace have staged protests to point out Gazprom’s threat to Arctic resources, Gazprom had no trouble renewing their sponsorships.

Now, Russia controls nearly half the gas consumed by Europe and other countries are learning from their example. Etihad, Emirates, and Qatar Airways all are owned by sovereign states in the Middle Eastwith interests that go beyond selling airline tickets. As the example of Gazprom shows, having a prominent footballing sponsorship offers a way around bad publicity by winning approval on the field. If you’re a fan, that can feel like a big opportunity: their money helps teams win major tournaments, but it’s starting to change the sport itself. Gazprom like so many others, is an opportunist who strives to be linked to sporting successes. Gazprom’s reasons for investing so heavily in sport could be compared to any global organization. It is a fascinating  means of advertising. It has become common to see a Serbian team sponsored by Russia’s gas company facing off against a French team sponsored by Dubai’s state-owned airline, it’s starting to seem like the field is hosting two competitions at once: A match between two teams, and a larger play for foreign influence that continues long after the final whistle.


[1] Owned byRoman Abramovich since 2012 seven years prior to this deal Abramovich sold his shares in Sibneft his oil-producing company to Gazprom for an estimated 10.4 Billion Euros.

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Energy

MBS Outmaneuvers Russia’s Oil Politicking

Saad Khoury

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In the wake of the coronavirus outbreak, one of the major economic consequences has been the substantial hit to the energy industry.

Ever since the virus began to spread in January, global markets have been tumbling. This set the price of oil in a downward spiral, reversing many gains  that had accumulated over the last several months. Demand for oil dropped for the first time in over a decade and forecasters at the International Energy Agency assess the decline will continue. While natural gas and coal markets have also been hit, oil demand has dropped more pronouncedly given it supports the freight and logistics sectors that have ground to a halt in recent weeks. The lack of demand for oil in China alone has had a devastating impact – Beijing’s newfound hunger for the commodity was responsible for most of the price increases recently.

However, these unique phenomena have had effects far beyond the purely economic. Politically speaking, the oil market crisis has pitted two global energy giants against each other, producing very intriguing results.

In early March, a meeting took place between the Organization of the Petroleum Exporting Countries (OPEC) and ten other oil-producing countries, known as “OPEC+”. During the conference ending on March 6, Saudi Arabia’s leader, Prince Mohammad Bin Salman Al Saud (MBS) reportedly pushed the idea of coordinating a reduction of output between Saudi Arabia and Russia. MBS planned to reduce output by over 1 million barrels per day, offsetting the major decrease in demand that had been triggered by the corona crisis to stabilize the market. The plan seemed like it was ready to go through until Moscow announced at the last minute that it would refuse. The Kremlin’s about-face came as a shock to OPEC and the international community who saw the move as an attempt to torpedo and politicize the oil sector.

Indeed, oil prices plunged by nearly 10% following the surprise move. It had been widely expected that the Russians would go along with the plan, simply because the alternative, i.e. leaving oil markets in a high-supply-low-demand frenzy, seemed much worse.

So what was at the heart of Russia’s bizarre decision? Revenge.

Washington imposed sanctions on Russia’s oil giant, Rosneft, a month ago over the company’s continued support in selling Venezuela’s oil. In an effort to retaliate, and perhaps prevent future American sanctions, Moscow was hoping to get Riyadh on its side in a plan to inflict economic pain on US shale producers. Moscow has for long felt American shale has been getting a free ride on the back of OPEC+ production cuts. For Moscow’s plan to work, it would still need the support of OPEC+ to ensure that price drops remained temporary and sustainable, since Russia’s oil economy cannot support its country playing oil politics for too long or for too much.

MSB on his part refused to take Russia’s actions lying down.

Almost immediately after Russia’s decision, Riyadh cut its official selling price for April down to $8, from a previous $14, in an effort to pressure Russia back into a deal. Days later, the Saudi government said it would begin increasing oil output to reach a record 13 million barrels per day. The decision came after authorities had already announced they were planning to increase output to 12.3 million. In a statement, Saudi Aramco, the largest energy producer in the world, stated, “it received a directive from the Ministry of Energy to increase its maximum sustainable capacity from 12 million barrels per day to 13 million.”

In essence, MBS has outmaneuvered the Russians in their attempt to hurt the global market and circumvent the effects of sanctions. In other words, MBS called Russia’s bluff by lowering prices even further so that the Kremlin could not dictate terms to OPEC. An impressive example of standing up to Russian manipulation, something that Western powers have been struggling to do for years. 

Russia on its part has been reeling from the effects of the Prince’s decision. 

On March 10, Russian Energy Minister Alexander Novak sought to project confidence, but acknowledged there was a decrease in prices and an increase in volatility. Novak also seemed to have admitted that his government made a mistake and had sought to reach out to the Saudis to “scheduled further meetings to estimate the situation.”

It is important to highlight that Russia was very likely thrown off balance by the Saudi reaction here. Moscow is not used to having its highhanded moves being responded to in kind, and almost certainly did not expect MBS to respond the way he did.  

While the future of this fallout is still unknown, one thing is certain: MBS has demonstrated his country will not be another pushover to Russian aggression.  

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Saudis’ price war or a Russian plot against U.S. shale?

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Since early Monday, the announcement of a “price war” between Saudi Arabia and Russia, two biggest OPEC+ allies, hit the headlines of almost all of the world’s news agencies and outlets and released a wave of panic across the markets all around the world.

Following the two sides’ bitter break up on Friday, oil markets started the week with a free fall; prices plunged nearly 30 percent on Monday to record the sharpest one-day fall in the past 29 years when the first Persian Gulf War was started in 1991.

Brent crude futures fell to nearly $30 on early Monday, the prices, however, bounced back later that day as the impacts of the event faded.

Energy experts and analysts are suggesting two completely different scenarios to explain the series of events that led to the Friday decision.

In one scenario, the one that is broadcasted globally, Saudi Arabia which wanted higher prices or at least wanted to maintain the current price levels asked for more cuts but Russia was OK with the current prices and even was ready for lower ranges so they didn’t agree and the OPEC+ deal ended.

The second scenario, which is more intriguing and more controversial, says that there is no “price war” between Saudi Arabia and Russia, and what we are witnessing is, in fact, Russia declaring war against the U.S.’s “global energy dominance”!

To learn more about the issue, the Tehran Times conducted an interview with Mahmoud Khaqani, an international energy expert. What follows is a summary of the expert’s views on the matter.

Saudis and Russia

Obviously, these days Saudi Arabia is not experiencing its best days. The Kingdom is under pressure both economically and politically.

According to Khaqani, the plunge in oil prices due to the sharp decline in global demand following the spread of coronavirus and its impact on the global economy and transportation has added significantly to the crown prince’s problems causing the young prince to call for deepening of the current 1.8 million cuts.

When faced with disagreement from its biggest non-OPEC allay Russia, the angry Saudi immediately lashed back by offering huge discounts for their oil prices and announcing that they would boost their production to more than 12 million barrels per day (bpd).

Russia, on the other hand, has maintained a calm attitude, saying that its oil industry is resilient enough to keep its market share and withstand even higher price downturns, he said.

Russia and the U.S.

Khaqani believes that the Russians are in fact at war with the U.S. oil industry, and Washington’s use of oil as a strategic asset.

What they call “price war” has already hit the U.S. oil industry hard since Friday and the persistence of the situation could damage the U.S oil industry and dethrone the U.S. from its position as the world’s largest oil producer.

Russia has targeted not only the U.S. oil industry but also the country’s bigger strategic programs for using oil and energy as leverage for applying corrective sanction policies, which Kremlin is already under.

Analysts believe that Russia is trying to thwart the U.S. sanctions that have been intervening with the completion of the country’s Nord Stream 2 pipeline project, which would take natural gas to Europe, making Russia one of the biggest energy players in the world.

The U.S.

In response to the mentioned scenarios, The U.S. Department of Energy (DOE) has said that the U.S. will take all necessary measures to maintain its role as the world’s top energy producer and in fact, the country is not going to step back from its “global energy dominance” strategy.

Khaqani believes that the U.S. is seeking to take Saudi Arabia’s role in the oil market becoming the new swing producer capable of regulating production levels to control oil prices.

“These attempts by state actors to manipulate and shock oil markets reinforce the importance of the role of the United States as a reliable energy supplier to partners and allies around the world. The United States, as the world’s largest producer of oil and gas, can and will withstand this volatility,” the DOE said in a statement.

Final thoughts

Whatever the real reason for the rift between Saudi and Russia is, its impacts on the oil market are undeniable.

If the “war” is just between the kingdom and Russia many believe that the impacts will be short-lived and in the near future, we would witness the markets getting back to a more stable status.

The fact is that now after the break-up Saudi Arabia is going to flood the already oversupplied market with oil and eventually Russia which is not able to increase its production as much as the kingdom will have to step back.

If the second scenario is correct, however, we should expect more complications.

From our partner Tehran Times

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Energy

Oil Wars: Russia and Saudi Arabia in the forefront

Sisir Devkota

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Recent developments in Italy and the stock market have things in common. Both came as an alarming surprise; while Italian authorities took stringent measures to lock down the entire nation due to Covid-19 fears, oil prices plunged remarkably in the past week. Rather shamelessly, Russia and Saudi Arabia are exploiting the international epidemic; in order to eclipse a once in a lifetime opportunity. As Saudi Arabia and Russia fought against each other to increase production, oil prices spiraled down in years. The oil giants are looking to consolidate losses from the past. Primarily, both the nations are looking to keep American oil supply arrested, amidst the pandemic uncertainty. As OPEC nations agreed to limit production in order to maintain oil prices, Russia disagreed, prompting the kingdom to counter a bizarre monopoly. The virus has kindled new age energy wars; at the epicenter, are two nations, displaying dreadful nature of international responsibility.

History is key here. Saudi Arabia is sluggishly recovering from an oil field disaster while Russia is eyeing years of forfeited trade advantage caused by western sanctions. International effort is concentrated towards containing the virus, whereas handful of interest agencies along with both nations are seeking an unlikely triumph. A true windfall has caught Russia by surprise, a rare opportunity that will not slip from Putin’s hand. On the other hand, Saudis, rather egoistically are pursuing their godsend place in the international energy market. The scuff is undoubtedly interesting, however; consequentially, it will also determine fortunes for some and famine for others. OPEC’s decision to lower production in order to maintain current oil price is not a samaritan effort; nevertheless, it would have saved capital over-indulgence that could have instead concealed humanitarian efforts to contain the pandemic. For now, management is key and stock market health can prove to be momentous. A lively market is key to ward off unprecedented economic stress.

Russia and Saudi Arabia’s naivety has led to extreme stock market resistance. The world is watching the fight closely, waiting and hoping for the standoff to deflate. It is not the stalemate that is most worrying; unusual market activity is quietly manufacturing an enormous bubble waiting to crack. Market resistance is tipping at a dangerous degree; world markets are sincerely counting on each other for support. For instance, consider how markets would plunge lower than they otherwise would, as oil prices keep decreasing uncommonly. A sinking ship is resisting, waiting for water levels that can only drown by all rationality. Hence, the analogue.It would have taken Russia and Saudi Arabia a great deal of conscience to withdraw national interests for the sake of global welfare. Just in case the virus does not cease to pare, we are in for a truly global disaster. As more nations will testify infected population, the stock market will increasingly face nervous breakdowns. Then after, it will be impossible to guess directions.

Reduced oil prices will complement some and destroy others; the relationship is so disturbing that daily economics might just have to re-invent itself in the face of unpredictability. Imagine the aviation industry exhausting oil demands, in the face of historic low prices. Russia and Saudi Arabia understand the tradeoffs, yet national interests have blindfolded competing energy giants. In the long run, Russia and Saudi Arabia would have stored enough barrels to dictate oligopoly. Alluringly, the case does not rest there. Both the nations will also be hoping for which now looks like a miraculous recovery from the pandemic; future profits will uncharacteristically depend on a healthy market. The risk has been taken despite of all uncertainties. For a change, both Putin and Bin Salman will also be praying, nevertheless.

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