The frosty relations between Britain and Russia are bringing a Cold War feel to the streets of London, and you can forgive the British for feelilng as if they're in it alone. The countries have been at odds since a former KGB spy died in London last year, allegedly as the result of radioactive poisoning by a former colleague. The bad feelings have extended to business as well as politics.
President Nicolas Sarkozy of France seems set on strengthening ties with Russia, unwilling to sacrifice the huge gains his country could make – particularly in energy – and is turning a blind eye to the problems across the English Channel and cozying up to Moscow. Other European nations are likely to follow suit.
Sarkozy has told President Vladmir Putin of Russia that the state-owned energy company Gazprom (other-otc: OGZPY - news - people ) can be involved in the merger of Suez (nyse: SZE - news - people ) and Gaz de France (other-otc: GZFCF - news - people ), the Belgian financial daily De Tijd reported on Wednesday.
The news is not completely unexpected, after last week’s announcement that the French utility Total (nyse: TOT - news - people ) had been chosen as a minority stakeholder in the company that will operate the Shtokman oil field in the Barents Sea, estimated to be the world’s largest single natural gas field.
Sarkozy was subsequently credited with taking the necessary actions to seal the deal.
«A telephone conversation between Vladimir Putin and Nicolas Sarkozy ensured Total's participation in developing Shtokman,» reported the Russian business daily Kommersant.
It is possible that the GDF-Suez venture could have been discussed at the same time, said Matthew Hall, an analyst at Global Insight.
There has been no official confirmation of Gazprom’s involvement, and scant details about what the tie up would involve, and whether the Russian company would be the only partner. However it could prove to be a blow for Algerian state-owned gas producer, Sonatrach, which had been previously been identified as a partner for the merger.
Despite the tricky time that foreign companies have had with Moscow, tie ups with Gazprom are hugely coveted because of Russia's vast energy reserves.
There has also been a spate of joint initiatives in Europe. Most recently, Italy's Eni (nyse: E - news - people ) and Gazprom signed a memorandum of understanding to build a pipeline from Russia to the European Union across the Black Sea, dubbed the "South Stream" project. Britain’s BP (nyse: BP - news - people ) announced a $3 billion joint global venture with Gazprom, after being allowed to retain a minority stake in the Kovykta gas fields.
By accessing European markets through partnerships rather than direct acquisitions, Gazrpom has been able to bypass European regulators concerned about the EU’s dependence on Russian energy.
Russia, which is hugely dependent on energy exports, is set on strengthening its foothold in Europe. A partnership with suppliers like GDF and Suez would provide new routes to bring Russian gas to the continent.
Gazprom will have its eye on Suez’s Belgian gas distributor, Flexysl, said Hall. The company has a terminal at Zeebrugge, which could be used to import Russian gas and distribute it through European transport links.
The timing of the deal may seem bad, after Anglo-Russian relations plunged to a new low when British Foreign Secretary David Miliband announced the expulsion of four Russian diplomats. But it is hardly unexpected, said Dr. Bobo Lo, Head of the Russia and Eurasia Programme at Chatham House, the London-based foreign-policy think-tank.
The track record of Britain’s European neighbors has made it clear that it would take a thoroughly abhorrent action by Russia to get them to jeopardize their relationship with the Kremlin.
«Britain may get lots of moral and political support from European governments but they won’t get offered anything more tangible,» said Lo. «Sarkozy will do what he thinks is in France’s interests,» he said, adding that the French president had already proved more supportive of Britain than German Chancellor Angela Merkel. Germany is currently Russia's top trading partner.
Despite its huge dependence on exports to Europe, Russia has managed to convince the EU that it is they that are dependent on Russia, argues Lo. State-owned Gazprom has become an important arm of Russian foreign policy.
In 2006 the company cut gas supply to Ukraine as part of a political dispute, and a year later threatened to cut off Belarus.
"Energy is like the nuclear weapon of the 21st century," said Lo. "Except its better than nuclear weapons, because you can actually use it."
Forbes
