A hurdle for Gazprom
鈥淭hey saw : of course are going to sit up and take notice.鈥
I was both pleased and irritated by the comment from a very senior insider in the European Commission.
Pleased because it confirmed a pet theory I鈥檇 had on Monday that the court鈥檚 decision would embolden the commission to take tough measures in the energy market.
But irritated that I had ripped this thought out of my TV piece on Monday after being told by rather more junior insiders that there was no read across between the two issues.
Relations are not good between . What have we had since that last , when things were so bad that there was no joint declaration at the end? . The . Now the commission is talking the sort of language that Eastern Europeans think Russia needs to hear.
is intended to give the EU a bit of leverage and put pressure on President Putin.
For years the EU has been trying to get him to sign up to the . He rejected that at , that time in Finland. Then Georgia and the murdered Russian journalist were top of the list of irritating grit that failed to produce a pearl.
The second best thing would be if he signed up to the essential bits of it in a new partnership agreement. But there has been no progress there either.
But behind all the worries lurks the fear of a new cold war. And I mean 鈥渃old鈥 not as in lukewarm relations but lukewarm homes and baths. The Russian giant feared by Europe is not its giant army but its giant energy company.
Gazprom supplies a quarter of Europe鈥檚 energy needs and every conceivable projection shows it will supply more and more in the future. It wasn鈥檛 the cold alone that caused shivers to run down European spines when and hit Western Europe as well. There was a less publicised incident at the beginning of this year when were disrupted. The power of Gazprom to hurt Europe for political or commercial reasons is really dreaded.
The plans for energy liberalisation raised another worry. What if the commission gets its way and and all the rest of them dutifully split off their generating side from their distribution networks - and Gazprom swoops in and scoops up Europe鈥檚 grid? They wouldn鈥檛 just be able to turn the taps off, they鈥檇 own the pipelines as well.
This is the commission's answer: 鈥淣on-EU companies cannot own a controlling stake in an EU network unless international agreements are in place, which explicitly allow for this situation."
Perhaps something a bit like, well, an energy charter?
But the killer is this, a totally hypothetical company seeking to own a controlling stake would also have to be broken up, just like its European counterparts.
Another quote from the commission: 鈥淭hey will have to demonstrably and unequivocally comply with the same unbundling requirements as EU companies.鈥
This is a hurdle set so high that Gazprom cannot jump it.
No surprise then that the Russian company has issued a tetchy statement saying it will examine the implications for price and energy stability, and that the company 鈥渇eels certain that its voice will be heard鈥.
Some in the know think Gazprom has misread the runes and thinks that the German government will stop this in its tracks. One source tells me: 鈥淭hey鈥檝e forgotten it's Merkel not Schroeder in charge now.鈥
It should make for a very interesting summit in Portugal in October.
But this story of energy liberalisation shows something else about the European Union. Whether on competition or on climate change they are setting a global pace.
You may dislike that pace, and you may not regard the EU as a force for good, but you cannot deny that it is making the running. In worldwide business law it seems the highest, not the lowest common denominator is what counts.
The connection between Microsoft and Gazprom is that the European Union is the toughest regulator in the world, and like it or not, it is making rules that companies, whether based in Russia or America, will have to follow.
Listen to my interview with commission president Jose Manuel Barroso here.
I鈥檓 Mark Mardell, the 麻豆约拍's North America editor. These are my reflections on American politics, some thoughts on being a Brit living in the USA, and who knows what else? My 
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What a joke. The EU with its stupid useless laws. All Gazprom has to do is shut off the gas supply to Europe next January for a week or two and the EU will find out just how utterly impotent and helpless it is. Microsoft can do exactly the same, simply by refusing to do business in Europe. A new incompatible version of Windows the rest of the world switches to would be the frosting on the cake. Europe for all its bombast is at the mercy of forces far larger than it can possibly control or even influence. It's the mouth that roared...squeak squeak.
It is disheartening that so far EU has not been able to work out and agree upon not even common defense and foreign policy, but even defense policy. Bilateral deal re Baltic gasline signed by the then German Chancellor Schroeder (now, as a reward, one of Gazprom's directors) with his cronie prez. Gazputin, without even consulting it with Brussels, is the best example of that. But there is much more efffective, free market-based mechanism to prevent putinesque Russia from blackmailing Europe if need be than formal restrictions. It's called DIVERSIFICATION, and it should have been done by EU YEARS ago. But it can still be done. France, Spain and Portugal are already assisting gas-rich Algeria, for example, in building 2nd pipepline which would supply them. Extending pipelines running from Caspian Basin and Kazakhstan and Turkmenistan to staunch NATO ally Turkey(bypassing both, Russia and Iran), so they can reach Southern and Central Europe - would be even more important step in this direction. IF EU is so sensitive to anybody's dominating position on the market as to force Microsoft to deliver to its citizens less for more, it can surely use diversification to force Russia to supply more for less, and without giving it an opportunity to turn-off spigots whenever it suits Kremlin.
Mark
1. the comission was able to prevent a merger between 2 non European multinationals. This, in itself is the proof that the comission can reach very far,,,
2. I don't know the figures, but I'd guess that MS's share of profit in the old continent is quite substantial (a market of 400 million people, only developed country, where copyright is more or less enforced). If they refuse to sell in Europe, they'd lose a huge sum of money. Corporations don't like that. At worse case scenario, if they do, there are enough computer engineers in Europe to program an erzatz.
3. For gas, it's the same idea, ok, on the short term gazprom can make europeans take a cold shower for a couple of days. But this will mean no cash flow. You'd tell me they could reroute the pipelines to China, but it would take time (the distance is huge and the environment is hostile) and during this period, this mean that Putin's Russia would not be submerged by Eurodollars, causing a financial crisis, which would jeopardize his position as Russia' ruler. And I'm not sure he wants that too...
I agree with Mark in comment #1 - a few strategic variations in gas pressure during the coming winter will soon show how effective these rulings are. Microsoft has already made similar threats:
What is needed is a break up of the monopoly situations - alternatives do exist, but they don't get the backing that they need in a market economy. Maybe there should be TWO monopoly commisioners in Brussels, in competition with each other, and paid by results.
The whole idea of blackmailing Russia with this project is a non-starter. Why on earth we should do this? To please US at the expense of our own interests.
Russia cannot afford not to sell its energy so there will not be a cut off unless there is a war or something very like it. In which case it will be the least of our problems.
HOWEVER Russia can and will sell its wares to other markets to the East if Europe continues to play silly games. The Energy Charter was initialled by the Russians within weeks of Yeltsin coming to power - what a surprise. They will never agree to it now. The EU egged on by the US may think they can treat the two problems in the same way but they are fooling only themselves. There are plenty of alternatives to Microsoft but none to the relatively stable and reliable Russians.
Finally let us not overlook the fact that nearly all countries are nationalising their energy resources not just the Russians. Are we going to tell them all to bend the knee to Brussels? I don't think so. The corrupt oil companies have had their best days. If the EU wants to provoke an energy cartel against itself it is going the right way about it.
At present the situation is unsatisfactory. Despite what may be written in an "Energy Charter" Russia owns the gas and because of the linkage between Russian State & Gazprom inevitably the taps will be periodically turned off. This strategy has already been demonstrated (Ukraine, Georgia). The EU's increasing reliance on gas supplies from Russia will further encourage this behaviour. Europe must reduce its reliance on Russian gas by 1/ seeking alternate supplies and 2/ developing renewables. By taking this action Europe will have a suitably robust energy strategy and will become an equal partner in future negotiations with Russia, a situation that will benefit all in the long run.
"The whole idea of blackmailing Russia with this project is a non-starter. Why on earth we should do this? To please US at the expense of our own interests."
So far, in case you haven't noticed it is Russia, who blackkmails others in the absence of unified, comprehensive EU energy policy based on diversification.
As for US, I think EU would be better off not criticising America but following its example.
After 2nd Arab oil embargo in the late 70s, US has significantly diversified its sources of imported oil, with imports from the whole Middle East being now merely 13% of the total. As a result US is basically immune now to any blackmail/embargo attempts. And with oil prices approaching $80.00 p/b extracting the brown goo from oil shales (of which US and Canada have huge quantities) is finally becoming economically viable.
As usual, when going gets tough, tough get going, while weaklings whine.
This is what the EU should be about. Ordinary people need this kind of protection from and regulation of multinational corporations.
If you think that Gazprom turning the gas supplies down temporarily, or MS suggesting they'll delay releases of software, are serious threats to what the EU Commission is doing, then I think you're crazy.
MS cannot afford not to release major software in the EU. Gazprom and Russia cannot afford the political and economical fall-out incurred if they turn off the gas supplies. Think about it - what would the reaction be if Gazprom, a company and nothing more, were able to hold the entire population of Europe to ransom? You talk of the EU "blackmailing" Russia and Gazprom (interesting, by the way, how these two seem interchangeable in this discussion) - surely it is the other way around??
So this is the EU doing what I wish governments would do more - curb the excesses of the "free" market without stifling opportunity and growth.
The truth is Gazprom & Russia need the EU just as much as the EU need them.
The Chinese market is both remote in geography and time, and any prices will be lower than they would receive in the EU. It really only makes sense for East Siberian / Sakhalin gas and other countries such as Turkmenistan.
The other piece of the jigsaw is that Gazprom cannot simply shut off the gas - especially a volume of that magnitude whilst still maintaining the pressure for Russian industry and citizens (which incidently costs Gazprom money)
They also need the hard currency to fund the maintenance and renovation of 50yr old pipelines & facilities as well as for developing new fields to balance the decline they see in their exisiting giant fields. Add to that, high steel prices, huge cost inefficiency and new fields being much smaller, it's no wonder Gazprom barely pays out any dividends.
So assuming the EU stands firm on its 1-for-all & all-for-1 policy and doesn't let Russia snuggle up to Germany whilst harrassing Estonia for example, then I think the whole thing will eventually settle down, especially if Putin becomes Gazprom chairman in Apr 08 as I suspect he might.
Oh? Russia has to follow the EU's rules? What does the EU intend to do if Russia refuses? They can't stop Gasprom from selling, because Europe needs the oil too badly. How is the EU going to make Russia follow the law?
Russia did not sign the Energy treaty because it was unfair - it suggested that both Russia and EU open energy markets to each other, pipelines, as well as gas and oil. Both sides have pipelines, but EU has no oil and gas to share. It would be a UE win - Russia lose scenario, clear even to a schoolboy.
The new proposal to split companies would no change that equation, since there will be no more gas in Europe. The good news to Russia are that now the EU pipelines will have to cut supply to those cheap who do not want to pay market price and EU will lose the ability to blame Russia.
"Why on earth we should do this?" asks Cologne [#5]. The answer is: to avoid EU to be treated by the Russians in the future like e.g. Poland nowadays. Take for example the case of Mozejki - the big refinery in Lithuania, cut off from the Russian oil pipeline more than a year ago, after being acquired by a Polish company against the will of Kremlin. Do you want this case to be the model of EU-Russia economical relations or should we rather insist on other standards?
It is not blackmail, Cologne, when competition law is enforced in Europe, like in the Microsoft case. The economical independence of EU is at stake. Everyone will benefit from it, as we all here benefit from political freedom. But we Europeans must have the spirit to fight for both our economical and political independence. Unfortunately, this is not the current mood in Europe, especially in Germany, as the Gas-Schroeder case shows. Do you Germans plan one more "escape from freedom", as Erich Fromm caled it?
Mark,
wether people like it or not, the EU is indeed trendsetting in a number of global domains. On Microsoft, one point people forget is that it were mainly US companies that brought the amunition against MS, and I've read many rather positive comments about the ruling in US media. Here's another area, namely the Euro currency and a quote from another US source:
"Breaking the $1.40 barrier has long been viewed by analysts, and markets, as a key turning point in solidifying the euro's position in global currency markets and will provide more impetus for its competition as the currency of choice, a position long held by the now weakening dollar"
I really don't like the antagonistic comments, as reality is that the US and EU are between themselves the largest trading partners. So let's behave as partners.
Whether we like it or not, Russia has set itself as Europe's greatest enemy. It derails the Kosovo process, it attacks Georgia, it targets missiles at EU targets and resumes bomber patrols, it assasinates citizens in our cities and its uses gas supply as a politican weapon.
Putin is not someone we can afford to be weak with; we need a strong and unified response here and even the most raving Europhobe should be able to see that.
Oh dear, life is full of paradox it seems.....
Presumably, such problems are bound to arise if one first destroys one's own local industry by constructing an economic system based on buying in as cheaply as possible from anybody willing (or forced) to deal at that price -and then go throwing one's weight around, claiming that "people are iether with us or against us" (when we wish to ignore international law and take over a few countries to enable our own corporations to profit from the reconstruction).
Perhaps EU (anti-monopoly) law has been clever enough to exclude external (non-EU) take overs.... but still the case for energy and transport liberalisation, etc. might need to be re-exmined. Didn't the 麻豆约拍 recently have an article suggesting that (monopolistic?) German public transport might be better than (privatised?) British public transport?
Is there a logical/rational optimum for "disconnection" between components of an integrated system?
Does the same logic apply to all connected systems -or do different (concrete) systems involve different (practical) circumstances, each of which require their own specific treatment?
What would be the logical result of looking at a single (bundled or unbundled) computer operating system (irrespective of who produced it) in the same way as one looks at a "bundled" or "unbundled" energy/transport system?
I seem to remember that Commodore helped pioneer "open systems" (and plug and play) by publishing their own system specifications so that third party suppliers could integrate their products into the Commodore Amiga system. How might this compare (potentially) with the components of an energy/transport system? Presumably, Commodore didn't "unbundle" their system (in the way British Rail was unbundled) -but users could still run products from other sources on their Amiga system...... Admittedly, its probably a bit tricky if the public wish to start running their own (individual) trains on a busy train network -but perhaps less problematic for (small-scale) producers who might contribute electricity to a (bundled/unbundled?) power supply system.
I seem to remember that in Holland, fairly recently, some (local) power companies paid local farmers who contributed surplus windmill energy to the net -while others actually charged them..... However, I've no idea how privatisation has worked in practice -as I'm no longer in Europe. I do remember that the Dutch slowed down their plans for privatising the railway system when the (Railtrack) mess in Britain started to reveal itself.
In any case, One can only hope that an increase in muscle power will not result in a EU as arrogant and selfish as the US. Propagating "survival of the fittest" is not a good way to make friends and influence people in positive ways -and certainly doesn't help to make the world a nicer, or a safer, place.
Is there really a need to be using hysterical terminology like "blackmail" and "cold war"?
100 years ago this would have been settled on the battlefield, perhaps, but we have come a long way, and so has Russia.
What we see here is simply business, and as long as the war mongers and the fear merchants who build their political careers from destructive hype are kept on the leash, business will continue.
Russia will not "cut off the gas" for the same reason that OPEC had to give up its attempt to use energy as a political weapon. That is, they need the business as much, even more so, that we do.
Make no mistake, Russia needs the cash. They may try to do business hard man style, but Europe can hurt Russia badly simply by becoming more energy efficient, whereas all russia can do is force the price of Arab and Venezualan crude even higher.
Russia seeks to grow economically, and we in europe should welcome that desire and use it to foster more trade. We should use diplomacy to do mutually beneficial business, and strengthen our position in the deal by sorting out our own problems. Blaming the Russian bear for the woes of tomorrow is cheap politics and shallow thinking. Let us leave it behind.
"Breaking the $1.40 barrier has long been viewed by analysts, and markets, as a key turning point in solidifying the euro's position in global currency markets and will provide more impetus for its competition as the currency of choice"[#13]
Sorry, but the only tangible result of this trend has been strengthening US export, and weakening EU export.
[vide, e.g. Airbus' woes]
Unless, of course, you have some secret data proving the contrary.:-))
Great article Mark.
It's great to see Europe standing up and making itself noticed. Many multinationals and non EU countries (Russia, US, Iran, Israel just to name a few) see Europe as weak and cowardly. They confuse soft power and attempts of diplomacy and appeasement with weakness and seem not to realize that once alternatives are spent and push comes to shove, the EU is more than able to push back hard.
I specially like your last comment:
"The connection between Microsoft and Gazprom is that the European Union is the toughest regulator in the world, and like it or not, it is making rules that companies, whether based in Russia or America, will have to follow"
To all of those who complain the EU is bureaucratic and should not tell corporations what or what not to do, I've lived on both sides of the Atlantic and I know that when compared to Europe, consumer rights in North America are a joke.
It is no coincidence that NAFTA membership is a race to the lowest common denominator, whereas EU membership requires joining members to increase their standards. In EU, citizens and consumers have precedence over tax payers and corporations, and that is as it should be.
Thomas Patricio
Toronto Canada
tokvil #3;
You're funny. You tell Turkey they can't join the EU because they aren't European in one breath and then expect them to let you build a gas pipeline across their country to keep Europe from freezing to death in the next? If they do allow it, it will only be so that they get to put their own hands on the valve that freezes Europe out if they fell like it and the Russians don't. Europe will become their hostage too. Turkey is in NATO because the US wanted to protect it from invasion by the USSR, it has no love for Europe, especially now. Even if a pipeline were agreed to, it would take years and buys Europe NOTHING, it would still be dependent on hostile outsiders.
You think the EU can develop an Erzatz version of Windows? Isn't that what Linux was supposed to be? Another Euro-techno-bomb like the A380 and the Beagle II. Even if they actually had the smarts to do it, how long would it take and why haven't they done it already. Another Euro-fantasy.
You can't break a monopoly in another country if they have sufficient economic clout to play hardball and cut profits until you surrender. Gazprom backed by the Russian government has just such clout and so does Microsoft. In an all out war, the EU doesn't stand a prayer in its war on either front.
BTW, the EU's panic over gas and oil proves not only just how vulnerable it is, but what a joke its promise to cut back on burning fossil fuels to reduce GHGs is. Just think of the gas and oil cutoff as forcing the EU to live up to its rhetoric on global warming. You thought it was going to be painless and the rich EU could buy its way out of massive sacrifices by paying poor countries to cut back CO2 emissions for you instead? Think again. The US has a 250 to 500 year supply of coal which it will figure out how to convert to the equivalent of petroleum distillate substitutes if it has to.
Ignace #13;
Domestic hatred in the US among some foolish technogeeks for Microsoft is based on the fact that the company is located in Washington State and not in Silicon Valley. It ate their precious Apple Computer Company alive. In the software wars, the small percentage of holdouts not withstanding, Microsoft took game, set, and match a long long time ago. Most Corporate IT departments will not support Apple networks, hardware, or software. In the company I worked for in 1994, they told anyone who had a company owned Apple computer, they could take it home and keep it for themselves for free.
The US and EU are practically at war in every way except militarily. The anti-American rhetoric Europe wallowed in a few years ago has had enormous reprecussions it has not even begun to fully feel yet. Don't expect any concessions from American firms or from the US government on any issues involving trade. Had Galileo been launched successfully, there is not one shadow of doubt that the US Department of Defense would have shot it out of the sky as quickly as it was deployed. Don't expect any relief in the food wars either. Where was the EU's partnership in facing down the threat during the lead up to the invasion of Iraq? All it had to do was cast a vote in the UN, even an abstention would have mattered. Simple, its governments including France and Germany were preoccupied with keeping illegal profits for its friends who circumvented the UN sanctions while its populations were preoccupied with their jealousy and hatred for America. The French have no concept of how widespread and intense Americans' hatred for them actually is right now and there is nothing Sarkozy can do about it. Partners? What another joke. Europe wanted to oppose and "challenge" America, remember what Chirac said? Well they've done it, now they have to live with it.
Well, folks, it seems we have a choice.
Live in the US of America - where all the power is held by unelected corporations, and if you have a beef with them you need lots of money and a smart lawyer.
Or Live in the EU of Europe, where all the power is held by an unelected EU Commission who make all the decisions, and if you don't like it - tough !
Isn't democracy wonderful ?
Wow, the EU and the Eu media keep positioning Russia as an enemy. In my opinion Russia should actually do something antagonistic and close all taps to Europe for a year or two, and watch those whiny Europeans come crawling back with apologies.
I'm struggling to understand what interest some EU officials and middle-aged-stuck-in-cold-war journalists have in inflating occasional disagreements with Russia? Russia wants PARTNERSHIP type of relation with the EU and that's where its ambition ends as far as Europe is concerned. The sooner you get over your irrational, tabloid-induced paranoia towards Russia - the better for the whole continent. The more biased and distorted reports by your 'guardians' of the Western values about anything Russian - the worst response you'll get. Treat Russia with respect and partnership and you'll get much more in return. Difficult?
Mirek Kondracki wrote: "As a result US is basically immune now to any blackmail/embargo attempts. And with oil prices approaching $80.00 p/b extracting the brown goo from oil shales (of which US and Canada have huge quantities) is finally becoming economically viable."
This statement assumes that having different "pockets" of oil sources actually increases your security. Although this notion is widely (incorrectly)believed, its based on the premise that oil is not an extremely fungable commodity. Embargoes not only raise the price for that one country, but also for everyone else as well. While it makes both commercial and political sence to not put all your eggs in one basket, the oil market is essentially one large pool. Importing oil from Canada does not necessarily make the US any more secure than importing oil from the Middle East.
Microsoft will never withdraw its software from EU markets. Why? Because they aren't suicidal.
It's easy to guess what would transpire if Microsoft software was suddenly unavailable in a huge and highly developed market.
At first, nothing much would happen. Existing software would keep working. But companies and individuals could not buy new versions of Microsoft software. They'd start looking for alternatives. They'd quickly discover that - horrors! - alternatives in fact do exist.
Apple would absolutely love this as their sales would go through the roof. Linux would take over the business/server sector, possibly backed by European companies, possibly by the likes of IBM.
The long term effect would be the creation of viable competition for Microsoft with large enough customer base. The competition would likely be better and/or cheaper than Microsoft, potentially creating huge headaches for Microsoft in non-European markets.
That's exactly why Microsoft will never withdraw its products from European markets. Microsoft needs Europe far more than Europe needs Microsoft.
It is high time that the distribution networks for all energy media (electricity, gas, petroleum) were split off from the energy producers. This has already been implemented in the EU in the electricity market, thereby breaking the national monopolies and allowing TPA (Third Party Access)to country networks.
Gazprom is a State-owned non-EU total monopoly organisation, used as an economic weapon by the Putin regime. It has NO REALISTIC alternative market to the EU for its gas product. Therefore it will have to abide by the rules set by the EU. It will NOT be able to own or control the network, just as Gaz de France and E.ON (Germany) will have to divest. Electricite de France was forced to divest its network control. The rules are clear: Those who break them WILL be fined and stopped! That is great news for us consumers!
Yee Gods and little fishes - I hope you are right. In the meantime, the Baltic States are preparing plans for a new - safe - reactor to replace the one now being closed in Lithuania. When I visited Ignalina last year with a group of students, the most compelling reason given for putting up a new reactor is independence from the Russians. Well it couldn't hurt - could it?
Possession is 9/10 of the law.
I LOVE the pic of the monkeys taking a hot spring bath. In Japan?
To tie in with another topic - a greater EU reliance on nuclear energy, in combination with or apart, from renewables, would make this argument theoretical. How far reaching would it be politically and economically if Europe was NOT dependent on energy from the outside? Completely self-reliant. We would not need the Russians or anybody else.
Reminds me a bit of the mouse that roared. Discarded politicians, which is what the EU Commissioners are, talking nonsense and acting foolishly. Russia is not likely to take away the benefit of owning oil and gas from the Russian people to give it to foreigners. And Europeans emphatically do not want to have to depend on Islamic Asiatic Turks and Islamic Arabs even more. And the growth of India and China and their enormous populations make it a sellers' market not a buyers'.
Europeans would do well to spend less time talking about gay marriages, gay right to adopt, illegal migrants welfare,a second Albanian Moslem state and more time producing - especially more goods, not more regulation and civil servants.
Instead of talking about "wonderful Turkey" and civil servants who cannot do anything apart from breaking up traditional and beloved European customs and objects that worked, Mark would better direct his energies at matters which are really threatening Baroso'a Europe(who he?)- population decline, low GNP increase, Islamic invasion, preoccupation with trivia etc.
Russia and the other BRIC countries is where the action is.
"The whole idea of blackmailing Russia with this project is a non-starter. Why on earth we should do this? To please US at the expense of our own interests."
I agree with Cologne. We should not let Americans spoil our relations with Russia we need them as triad partners and vice versa. Now it has become easy for US to put a spoke in EU鈥檚 wheel by using Poland and other new members with old grudge against Russia. It鈥檚 obvious that this 鈥渂rilliant鈥 idea to blackmail Russia was born in Washington. France and Germany should use their economic muscle to remind Poland and other new comers that they joined EU not US and they should behave adequately towards Russia 鈥 Europe鈥檚 important trade partner. Russia is back its influence will only grow and we should be clever enough to adjust our policies and benefit from the fact. Americans are good at using others for their ends but we should not let them fool us. Europe should pursue its own economic interests.
Cologne is right we should not jeopardize our economic relations with Russia by this unfeasible scheme. It鈥檚 just common sense. If US have problems with Russia it鈥檚 their business. As far as Poland and EU鈥 Well I have always thought that the dog wags his tail not the other way round.
It鈥檚 high time to teach crummy polish twins a good lesson by cutting EU subsidies. Money talks as they say
"Russia is not likely to take away the benefit of owning oil and gas from the Russian people to give it to foreigners" [#30]
I hate to destroy your illusion, but that oil and gas does not not belong to Russian PEOPLE. It belongs to a dozen of OLIGARCHS (many with KGB roots) who support Mr. Putin and finance his reelection campaigns (like Chelsea owner, Abramovitch).
Oligarchs who oppose Mr. Putin end up not with gas and oil but bread and water in Russian labour camps (like Mr. Khodorkovski). Russian PEOPLE generally have still next to nothing: zero, zilch, zip, nichts, nic, nada, niente, nichevo.
"This statement assumes that having different "pockets" of oil sources actually increases your security. Although this notion is widely (incorrectly)believed, its based on the premise that oil is not an extremely fungable commodity." [#24}
You somehow missed, Michael, the part of my post refering to huge oil shales deposits US itself has aplenty. You also, it seems, haven't noticed new huge oil discoveries
in American part of Mexican Gulf, as well as a fact, that for the first time since Chernobyl disaster, new nuclear plants (37 of them for a start) will be build in the US, while Chancellor Merkel (blackmailed by SPD's left wing and Greens) is obligated to close even existing ones in Germany.
Before fat dog gets skinny, the skinny one kicks the bucket. Isn't it what happened with Soviet Union, when it tried to best US during the Cold War?
mike #26
"Gazprom is a state-owned non EU monopoly organization used as an economic weapon by the Putin regime."
This is IMO correct. The weapons advanced countries are using against each other are not military, they are economic and they are every bit as effective.
"It has NO REALISTIC alternative market to the EU for its gas product."
That is a temporary situation because China's thirst for energy including gas is insatiable. It is both logical and likely that before much longer, Russia will be able to sell ALL of its oil and gas to China. India will probably be interested as well. Russia now has sufficient currency reserves that it could punish the EU by rashioning gas almost whimsically. What if the price of energy dropped 20 or 30 percent, it would be the same thing from Russia's point of view. Russia is a strategic player and has shown in the past it will make enormous short and even medium term sacrifices for a long term win. This is how chess, their national game is often played to win too.
I think the US should begin using its own economic clout as a weapon as well. It hasn't done this....yet. But if it did, it would still be a superpower. The prospect of Microsoft abandoning the European market just as it rolls out a new version of Windows is not something to be dismissed lightly. Let's not forget that Bill Gates alone is the world's second richest man, his personal wealth greater than the income of many countries.
Chiric and de Villepin wanted a bi-polar or multi-polar world and convinced much of Europe that was much more desirable than cooperating with the likes of the US, well now they've got it. In the case of the US they achieved it by sharply confronting America on every issue important to it. This multipolar world of blocs is one in which each pole has its own advantages and disadvantages. What exactly are Europe's advantages in this new world of economic warfare for global markets and resources? I've yet to find one.
I don鈥檛 know why EU thinks Russia will shut off the gas supplies to EU, or Russia might use its gas supplies as political muscle. The only reason Russia turned off the gas supplies to Ukraine and Belarus is that:
1. Ukraine didn鈥檛 want to accept the new price for gas; the price was the same as any other EU nations had to pay, and that鈥檚 why Russia shut off its gas supplies to Ukraine.
2. 2. Belarus wanted to charge Russia for gas transport thru Belarus, Belarus was buying gas from Russia for cheap about half as what EU nations had to pay, so Gazprom answered by raising price of gas, Belarus didn鈥檛 accept that, so Russia shut off its gas supplies to Belarus until agreement was reached with in couple of days.
So it just makes me sick when EU thinks Russia will shut off its gas supplies to EU to show it political power. EU was very happy when Russia was in the middle of economical crisis in late 90s, but now it seems like EU scared that Russia economy is growing. EU it will be just fine, Russia will not shut off its gas supplies, Russia is just want to make its economy stronger, but in the end it鈥檚 all about business.
Russia's economy depends heavily on energy. In the short term, this won't change, and so Russia needs EU just as much as EU needs Russia. The demonization of Russia (read: Putin) by the West has failed to put any real pressure on Russia because they know what they have to do in the next few years: Secure their borders, relations and gas customers while they diversify their economy. (And, I hope, spread the wealth outside of the major cities.)
At the same time, the EU should diversify its energy sources. When one-fifth of your energy comes from Russia, any PR against Putin is just that: public relations. It will have no teeth. If the government, or a party, in Russia has been up to no good at times, the only real remedy for the EU is to have Russia need the EU more than the EU needs Russia. Right now, that ain't so.
As for playing politics with energy ... why wouldn't Russia do this? I know it might seem a bit rude and un-cricket to the West, but it's not just realpolitik that drives Russia to do this. It's simply the current reality with Russia's economic and political needs aligning around energy.
In the long run, Russia and the West have a lot more in common than they each think. I wish the relations would just thaw and we can get on a mutually assured success. They're a big, smart market. We're a big, smart market. They have cash. We have cash. The closer we're tied, the more influence we can have on issues such as human rights and freedom of the press. Which is pressure, I may add, that we can continue to put on our own Western governments. These issues should not be the playthings of the powerful. These should be the cornerstone issues of the people, for whom a free press and human rights are our first defense against governments with too-heavy hands. This is true in all countries.
And, in the long run, Russia and the West will be different than they are today. Power is shifting dramatically, with Russia, India and China being our northern hemisphere partners in shaping economic, ecological and political conversations. Quit the bickering, guys and gals, and figure out how to help Russia risk-reduce its economy through diversification, and thereby risk-reduce the EU's energy supply.
There are some tired and sadly familiar comments being made about the relatiionship between russia and the EU.
To correct a few misnomers for those who are intelligent enough, or willing, to try.
The 'cutting off of gas' so touted as a black mark in russia's copybook was a result of greed on the part of politicans and businessmen in Ukraine and Georgia. In both countries, local and foreign interests were taking gas intended for domestic consumption and at a 'soviet' price, and selling it on to Europe at current market prices, reaping huge profits. An even cursory search on the net would reveal this. Russia, quite understandably, decided not to subsidise former soviet bloc countries to the same level,as those countries were and are, after all, democratic countries, most of whom belong to the EU. Those countries STILL get gas and oil at subsidised rates below that of the rest of the EU. Perhaps the citizens of Europe should be asking 'why do the new members of Europe pay less than we do for their energy supplies?'
Next, as a Briton living in Russia, not safely enclaved in an 'english speaking' sector, but among the people of this country, there is a groundswell of optimism, and more of the economy than ever benefitting the middle and lower classes of the country. Infrastructure is being repaired and renewed at a considerable rate, and optimism continues to take root in ever greater proportions among ordinary people. This includes the eastern part of Russia, as fibreoptics and other services get laid at a furious pace. Russia is growing, and it is no coincidence that for all the rhetoric of a 'soviet past' and 'beware the bear', EU businesses and corporations are banging on the door, eager to get into the russian market, the biggest in a new economic cyle in Europe. Further, for all the abuse that russia takes from hostile press and those who wish to visit the perceived sins of the past over and over again, banging the same old drum as an excuse for indifferent political performance, or representing 'interests' from other parts of the world, ordinary russians continue to hold out the hand of friendship, and mutual business opportunity. There's much noise about Gazprom 'taking over' Europe, but a little less noise about the onslaught of american business, intent as they are on getting profits back into the good old us of a. It's hypocritical to point the finger in one direction, and accept the insincere handshake in another. And again, for all the rhetoric and intent of control, when russia and germany made a business deal to ship gas from one to another under the baltic sea, those countries who had been hammering gazprom and others with stiff 'historical redemption laden' transit fees jump up and down on the petulant spot screaming unfair, as their tool of manipulation is taken away. Frankly, Europe should have been more worried about poland turning off the gas into western Europe in a belligerent attempt to 'increase their influence' at the table than russia doing the same, something they haven't done intentionally, now, or during the soviet period. The move by the EU is symbolic, and is part of a greater game by those in power in the EU and beyond to limit the progress in Russia, and potentially destabilise the country enough to once again get their hands on the natural resources tax free, as they did during the reign of Yeltsin, the 'western friend.'
Russians want to do business, and they have the cash to do big business. Those interests who are trying to limit or derail this potential are also acting in their own interests.
Finally, to those who say it will take a while to build gas and oil pipes into China, you're two years too late. The pipes are already built, and chinese companies are already working with russian companies to develop fields further. The partnership is mutual with no 'historical petulance' to weight it one way or the other. India too, already does considerable business with Russia, again in mutual and equal partnership with both economies benefitting equally.
Until the EU gets the message that equal and mutual business is a successful path to a good and lasting relationship with russia, then the decline will continue. To let political belligerence, and constant calls for 'atonement and retribution' for the past in which many citizens of now democratic EU countries participated eagerly at the expense and worse of their own countrymen, influence an EU Russian future, is frankly absurd, and will further endanger the chance of a mutual and equally prosperous future.
* 17.
* At 02:42 PM on 20 Sep 2007,
* Toby Stewart wrote:
"Is there really a need to be using hysterical terminology like "blackmail" and "cold war"?"
I guess this depends on how you define "business": How one believes politics and deplomacy relate to war and trade:
Some (Clauswitz) have claimed that war and politics are an extension of each other -and historically, "war" has often been an important "econoomic" activity. Unfortunaterly,it seems that WWII lead America away from social "new deal" policies and turned the country into a military-industrial junkie dependant on the exploitation of conflict.
Indeed, perhaps there are two possible ways of conceptualising "business": One sees it as an agressive (zero-sum) activity with one winner and no real fixed boundaries between war, economics and politics -while the other position sees "business" as a more symbiotic (multi-winner) process where everybody gains.
In practice, we seem to be caught in a global system that preaches symbiosis but practices agression.
There are two things I don't quite get in this gas discussion. 1) why is Gazprom trying to buy all these pipelines when its production capacities are waning, due to lack of drilling and maintenance investment ? To me, it smacks of trying to "corner the market"
2) Western Europe has plenty of "syngas" below its surfacde in the form of coal that could be gaseified underfground and even transformed into liquid fuel as SASOL of S Africa does. Siemens discovered the process of underground coal gaseification at the end of the 19th century and and the Autralians recently installed a plant at a place called Chinchilla that has been working quite successfully. Just starting a few such plants in Europe would make Gazprom think again as theree is one that;s been installed in Uzbekistan in the 50's that is still operating so they know what it means
The arguments in these comments very soon veered away from what Mark said, namely the worry that Gazprom might buy up the EU gas networks if their existing owners were forced to sell, and that the worry was unfounded because, in that event, and as a major company working inside the EU (as well as selling to the EU) Gazprom would have to abide by EU rules about diversification. (If nothing else, a network owned by a single supplier could be tempted to discriminate against its competitor suppliers, the reason behind the planned divestment in the first place.)
As regards Microsoft, there was an interesting articale in a magazine (The Economist) that stated that the EU was "winning" the regulatory law, i.e. letting "good" laws drive out "bad" ones. The theory went thus: if large US exporting companies have to follow the more stringent EU rules, they'd prefer it that their US-only (domestic) competitors had to bear the same costs of compliance.
Allex # 38, I do not think you are correct in claiming that some EU countries get gas/energy at subsidised rate. AS far as I know those deals only applied to some former Soviet republics, and now are being withdrawn... even from "allies" such as Belarus... money talks louder than even supposed keenship.
What do you mean when you say that some EU countries get subsidised energy costs from Russia?
I will repeat the point to drive it home, EU should use CLEAN nuclear energy... it does exist, and it would remove energy supply worries from all these arguments. It would also make the EU independent... frankly the first sizeable economy that utilises nuclear energy effectively, will "take over the market" in energy intensive production.
Alex Stone #38
I have to disagree with you on some points. The gas crisis in Europe resulted from Russia insisting after the orange revolution that Ukraine pay world market rates for Russian gas instead of the discounted rates it had previously paid, a holdover from its Soviet days. The Ukranian government said it simply couldn't afford those rates and so Russia decided to cut off gas to Ukraine. But what the Russians had forgotten was that the same pipelines which fed Ukraine also delivered gas to other countries like Germany and Poland and gas pressure in those countries began to fall dangerously. When the pipelines were designed and built, Moscow had complete control over Ukraine since it was a Soviet slave state. But since the end of the USSR, Ukraine had the power to independently cut off all gas transported through pipelines traversing its territory but never used it. I don't recall clearly how it was finally settled but apparantly there was a compromise. Russia has been trying to work around the problem by building other pipelines to its customers in Western Europe but at least some of those have run into snags. Recently, Estonia said it would not allow a Russian owned pipeline to be built on its territory.
Given Russia's recent "expropriation" (that's all it can really be called, Shell was forced to accept an offer it would likely have rejected if it had the option) of Shell's investment in Eastern Siberia, it is not likely that the large Western multinational gas and oil companies which have the technology Russia needs to exploit much of its untapped energy resources will invest there until the climate changes radically. Russia may have won this battle against Shell but they made a terrible blunder IMO. Venezuela will find out the same thing for the same reason. Huge projects are a big expensive risk which take many years, even decades of profits to pay off and justify the decision to build them in the first place. At this point that risk in Russia is unacceptable, they could do the same thing again to other investors.
I agree with you on gas and oil pipelines to China and India, Russia could probably sell every last bit of what it's got to them and more. I see no reason why economic advantages should not be used as a political weapon to force concessions out of other countries. The only reason the EU doesn't like it is that they have no advantages, they are as weak and helpless economically as they are militarily.
Rob(#41) is right. Ukraine, Georgia and Belarus are paying basically the the same commercial rates as EU.
The same appplies to Poland, Czech Republic, Hungary, etc.
Incidentally ,the moment Lithuania has decided to sell its Mozejki refinery to a Polish company, not only Russian oil supplies to the plant have been stopped "for technical reasons", but also a highly suspicious fire destroyed most of that installation.
Britania rules the waves, but Ruslandia waves the rules.
P.S. Rob is also right re nuclear energy: the "Old Europe's" (particularlty Germany's) liberal Left's policies of not allowing building new nuclear plants is clearly suicidial.
In a world of free trade and innovation, organizations that have the upper hand now may lose it if they do not play their cards correctly. Gazprom has the upper hand now and it will maintain its position only by properly dealing and complying with EU treaties regulations, and trade policies. If it (Gazprom) does not comply with these set of rules (by maintaining an authoritarian mentality), it may see great benefits in the short term, but will be negatively affected in the long run. Why? Gazprom needs the EU market. If the EU continues being threatened, innovation will provide an alternative source of energy that will supplement to a large extend energy imported from Russia (you can see the change in sources of energy by the EU in the last 10 years).
I also read a comparison made by one of the writers with Microsoft and how it could just stop doing business in Europe. I think this is unrealistic as Europe is one of Microsoft鈥檚 largest sources of revenues and a great area (next to the US) for new product introduction.
Markets are not decided on the supply side and anyone who believes this should rethink heading back to economics 101.
I think this trick to blackmail Russia is detrimental to EU long-term economic interests. Somehow we should limit US influence within EU. US are simply abusing this influence we are behind them in economic development and they want us to fall even further by fomenting these idiotic rows with Russia. Russia is rising and we are well placed to have our piece of the pie by developing mutually beneficial economic relations but Poland and some other new members with their old inferiority complex are acting like Grecian horse.
I agree with some of the above posts. There's a much greater degree of inter-dependency in the EU-Russia relationship than is commonly acknowledged in the media, and not just with Russia losing out on petro-dollars if it starts cutting supplies for political reasons. The EU is Russia's single largest trading partner accounting for about one half of Russian external trade, whereas Russia accounts for a much lower proportion of EU external trade, and any strong EU sanctions could go a long way to laying waste to Russia's economic revival. The fact of the matter is that the EU market is one that Russia cannot ignore, and Putin seems like a calculating type of guy and will know this. Russia may have the gas that the EU needs, but the EU's got a market that Russia needs.
"Russia is rising and we are well placed to have our piece of the pie"
[#46]
In response I will simply offer a quote from another dreamer:
"We shall soon match and surpass United States".
[Nikita Khrushchev -1961] :-)
I have been working in Russia for three years and in general I agree with Alex鈥檚 assessment of the situation their. Russia is definitely NOT dictatorship. Here they have no problems with freedom of speech you can say whatever you like about authorities etc. You can read opposition papers listen to opposition radio (with comments even more aggressive than you can here in the UK) but frankly very few Russians are interested in what they have to say. But our press is painting a picture of Russia as a fascist dictatorship of the worst kind. And it is simply wrong.
The problem with our journalists is that when they come to Russia they do not know the language and they do not want to learn. They have to rely on information provided by 鈥淩ussian experts鈥 鈥 Russians English-speakers working for some Western institution. So our journalists often find themselves in a sort of echo-chamber. I think it鈥檚 the main reason of demonization of Russia which we see in our press. And this is bad for Russia and bad for us. This lack of accurate information leads to irrational decisions.
I can not deny the importance of Russia's gas deliveries to EU, but also the Western world has to understand that the rules of business and competition are totally different in Gazprom and for example in the City. Gazprom is simple monopolist state owned company which actions not always have economic background and Putin is not the Western politician, which is worried before every elections. Moreover, the prohibitions legitimated by EU lately are the response to the Russia's denial to play on the same rules as the rest of the world plays - I think everybody remembers the scandal about the Shtolkman gas fields and Western investors? There is one obvious fact to be mentioned - Russian state owned business in a very huge part is used to seek political goals, which might be understood only by the russian's mind and mentality, do you remember Putin's words that the collapse of USSR was the biggest tragedy of XX century? Knowing that, it is very healthy sometimes to kick russian bears nose earlier before he starts to feel himself unpunishable.
Response to #20
I am aghast at the tripe you have been allowed to post on this forum! You have been allowed to post because you live in a nation which has rights enshrined and protected by the EU. It should not be a surprise to anyone that the real reason the UK did not sign up to the constitution was becuase Labour made a deal with the CBI back in 1998 promising to block any attempts to enforce a 'human rights charter', you know just the kind of charter designed to protect ordinary people! yet not a squeak did we hear from the mainstream media, presumably the large media groups agree with this particular decision.
Personally I trust the EU Commision more than my own government because party political politics which is corrosive to achieving anything is not nearly as important for the commission. As an organisation they can get on with the buisness of prtecting our individual rights over and above self interested political parties and big buisness. How is this a bad thing? As far as I can see the EU is the only legislative body in Europe and probably further afield acting in everyones interest and for the betterment of society, not just profit.
So #20 count your lucky stars you are protected because personally with views like that any far left government anywhere would line you up against the wall and in my opinion rightly so.
Good article. Honestly exposes that EU bias towards Russia is driven by mercantile interests and thirst for cheap energy resources. A measured tone of the article also indicates that Drang nach Osten is not any more possible 鈥 it is a normal trade 鈥渨ar鈥 and a sound desire of each side for commercial advantages.
And yet I welcome a tougher stance of EU against Russia on issues of energy "security". A tougher stance of EU would help Russians to understand that instead of relying on export of natural resources they must carry out rigorous structural changes in their economy. Russians must slow down or better stop increasing output of crude oil and natural gas. Instead they should concentrate on increasing efficiency (both labor productivity and MFP) and environment safety of crude oil and natural gas extraction. Such approach would also be good for EU and American economy because it would accelerate R&D for alternative energy source. It would ultimately put an end to shameful, embarrassing dependence of Europeans and Americans on imports from despotic regimes like Saudi Arabia, Iran, and Venezuela.
Culturally Europe and Russia are more similar than different.
In the long run, we should see a normalization of relations, if Russia escapes the "resource curse" and diversifies its economy into a more services driven developed nation system - When the economy is no longer as exclusively dominated by one sector, and bilateral trade is far more comprehensive, there is little incentive to antagonize one's partners, which, like it or not, I'm sure they will become.
My far fetched hope is that Russia joins the EU, but that's unlikely in the extreme, I think.
Victor Chernomyrdin, Russia's ambassador to Ukraine, linked the result of last Ukraine's parliamentary election to the price the Kremlin would charge for natural gas exports in future, Kommersant newspaper reported on September 28, 2 days before the elections in Ukraine. "It all depends on who forms the new government and how they conduct their relations with us", Chernomyrdin said.
Good point to end the dispute here about the ability and willingness of the old KBG-elite, ruling Russia, to use Russia鈥檚 gas supply as weapon to strengthen her influence in Europe. To take measures against being in the future blackmailed like Ukraine today is both appropriate and fully justified.
Victor Chernomyrdin, Russia's ambassador to Ukraine, linked the result of last Ukraine's parliamentary election to the price the Kremlin would charge for natural gas exports in future, Kommersant newspaper reported on September 28, 2 days before the last elections in Ukraine. "It all depends on who forms the new government and how they conduct their relations with us", Chernomyrdin said.
Good point to end the dispute about the ability and willingness of the old KBG-elite, ruling Russia today, to use Russia鈥檚 gas supply as weapon to strengthen her influence in Europe. To take measures against being in the future blackmailed like Ukraine nowadays is both appropriate and fully justified.
Hoping that Gazprom will allow itself to be put at a disadvantage due to new regulations is unrealistic, considering its leverage within and outside Russia. However, progress in this direction may depend on
negotiations that would entail offering some brand new business opportunities to Gazprom in exchange for commitment to corresponding concessions from the Russian side. If the offer implies certain business risks for both sides, Europe might just come out with an advantage in the end if it acts smartly.
A bold and imaginative offer from the EU may get GAzprom to rethink their position and improve the overall EU-Russia situation. Unfortunately, "bold" and "imaginative" are terms barely applicable to the current EU politics. Fear is known to block imagination and water down decisiveness, curage and positive thinking towards the competitor. Trying to push Gazprom out of the position where it has a natural, legitimate advantage without offering something solid in return will only provoke endless exchange of retaliations.
I think we should end this ridiculous concept of EU energy solidarity. I don鈥檛 want to have anything to do with Poland and other new members as far as energy is concerned. They want energy wars with Russia at our expense. Somehow they want to get gas and oil from Russia below market price. Why on earth these spoilers within EU should be sustained by EU (read German) subsidies? They receive orders from Washington and money from our pockets it is simply outrageous.
"Why on earth these spoilers within EU should be sustained by EU (read German) subsidies? They receive orders from Washington and money from our pockets it is simply outrageous." [#57]
One may wonder who chancellor Schroeder was receiving orders from, because soon after he fulfilled them (signing on Baltic pipeline deal desired by Kremlin) he's been rewarded by prez. Gazputin with a seat on Gazprom's board of directors. I know for a fact that quite a few Germans and German media thought it simply outrageous.
Bonn, # 57. What are you talking about? You confuse and mix together a bunch of facts and other issues.
Russian energy disputes were between, among others, Ukraine, Belarus, Georgia, all NON EU countries. The disputes affected EU countries, Poland included... hence the argument about energy security, and independence.
The same, Poland, and EU members DO NOT get subsidies from Russia, never did. Poland pays the same range of prices as Germany does.
The argument that somehow Russia and Germany can be friends because Russia's disputes are not with Germany is ridiculous in the extreme. After Russia deals with Poland, Lithuania, and the others, it will deal with Germany in the same or worse way. The suggestion is ridiculous because all you are proposing is a repeat of the political situation prior to WWII. Initial alliance between Germany and Russia, co-ordinated attack by the two against Poland, followed by a war between Germany and Russia. Germany alone will wither and die, it needs alliances to survive... just like Poland does, and the others do, be it economic or military conflict.
Poland and the others follow EU rules in terms of payments into EU and getting payments from it. When Poland gets richer it will pay more, as has happened with Ireland recently.
EU gives certain rights to all members, and as long as those members express their opinions within those rules, criticising them for it is anti-democratic... and downright clueless.
"Why on earth these spoilers within EU should be sustained by EU (read German) subsidies? They receive orders from Washington and money from our pockets it is simply outrageous." [#57]
One may wonder who chancellor Schroeder was receiving orders from, because soon after he fulfilled them (signing on the Baltic pipeline deal desired by Kremlin) he's been rewarded by prez. Gazputin with a seat on Gazprom's board of directors. I know for a fact that quite a few Germans and German media thought it simply outrageous.
I agree with Bonn. We need constructive engagement with Russia not energy wars. Baltic pipeline is a big step forward in this direction. Poland and Ukraine will not be able to disrupt a steady gas supply to Germany and France. I do not want repetition of the situation of 2005 when Ukraine started stealing gas assigned to Germany from the pipeline on its territory refusing to pay market price. This Polish-Ukrainian blackmail MUST stop once and for all. Poland and Ukraine should understand that STEALING AND BLACKMAIL ARE NOT A CIVILIZED BEHAVIOUR.