Vladimir Putin attends a ceremony at the Grand Kremlin Palace in Moscow, on June 27, 2014. Photograph: Getty Images.
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Without a stronger response, Russia will win the Great Game of European politics

We need a European energy union capable of negotiating collectively over price and acting as a strategic sponsor.

At a superficial level the latest gas dispute between Russia and Ukraine is a squabble about price and unpaid debt. But the real issues at stake are much bigger than that. They form part of a wider struggle to control the supply of energy across the whole of Europe that will ultimately shape the balance of power with Russia over the next two or three decades. To prevail, the EU will need to show the kind of strategic awareness and political will it has so far been unable to muster.

Those who ordered Gazprom to turn off the taps last week in all probability also ordered the bombing of a gas pipeline in the Ukrainian province of Poltava the following day. They did so safe in the knowledge that there will always be influential people in Europe willing to draw the wrong conclusions. The message they wanted to send is that Ukraine is a borderline failed state and the main threat to the security of European energy supplies. Would it not be better for everyone if Russia was allowed to take direct control of Ukraine’s pipelines or at least build new pipelines to remove that country from the chain of supply? That way Europe could get Russia’s gas and Russia could get Europe’s money without the bothersome issue of Ukrainian sovereignty getting in the way. So runs the argument.

It isn’t a coincidence that Russia made its move just as the European Commission was starting to take a tough line on energy policy. The most recent example of this was its decision a month ago to threaten infringement proceedings against the Bulgarian government over its South Stream project with Gazprom. This would enable Russia to bypass Ukraine and supply 15 per cent of Europe’s gas needs through a pipeline under the Black Sea. Bulgaria and Gazprom have attempted to circumvent European competition rules by redesignating the pipeline as an "inter-connector" so that they could block third party access and maintain it as a Russian monopoly supply route. But the Commission, to its credit, said no, so the project is stalled pending further discussion.

South Stream is typical of Russia’s emerging energy strategy which aims to increase its own export options while narrowing, as far as possible, Europe’s import options. As the head of OMV, South Stream’s Austrian partner, conceded earlier this year, the €56bn project "is not about importing more gas, but about the fact that gas could be transported to Europe bypassing Ukraine." It expands Russia’s infrastructure of control by eliminating Ukraine’s bargaining power as a transit country without necessarily delivering a single molecule of additional gas to the European market.

Russia already has a sizeable excess of pipeline capacity – 250bcm per annum compared to actual exports of 161.5bcm last year. One goal is to use this over-capacity to make competitor projects commercially unviable. South Stream has already succeeded in killing off the Nabucco-West pipeline that would have brought new gas from Azerbaijan to some of the most Gazprom-dependent countries in South East Europe. The South Stream spur to Croatia, with a projected capacity equivalent to around twice the country’s actual gas consumption, has a similar purpose. At least part of the motive is to scupper plans to build a liquefied natural gas terminal on Croatia’s Adriatic coast capable of supplying several countries in the region.

Another issue of concern raised by South Stream is the importance of the Balkans in the changing geopolitics of Russian energy supply and particularly the success with which Russia has been able to secure the collaboration of local elites in frustrating the EU’s attempts to create a more liberal and diverse energy market. This is not particularly surprising in the case of Bulgaria where there are strong undercurrents of Slavophile sympathy – the German intelligence agency, the BND, recently estimated that a third of the Bulgarian economy is controlled by Moscow. The same can be said of Serbia, a self-proclaimed ‘strategic partner’ of Russia’s whose privatised national energy monopoly, NIS, was sold to Gazprom in 2008.

The real surprise is the way that Russia has succeeded in brining EU member states like Croatia and Slovenia under its influence. Despite a legacy of tension left by the Balkan Wars, both are active participants in South Stream and keen to work with Russia on other energy projects. The Croatian government has been in talks with Russia’s state-owned energy giants, Gazprom and Rosneft, about taking over its own national energy champion, INA. Zagreb is locked in a bitter dispute with current joint-owners, the Hungarian company MOL. In circumstances reminiscent of the Yukos affair, a campaign of arbitrary tax audits, bureaucratic obstructionism and judicial intimidation is being used to force MOL out. Hovering in the background is a revolving cast of energy consultants and ex-government advisers, several with close Russian connections, keen to facilitate a deal with Moscow.

All of this puts complaints about a European "superstate" into perspective. When it comes to dealing with a real superstate – an assertive, authoritarian, centralised Russia – the EU often lacks the tools to respond effectively. It can see what Russia is trying to do and it can even devise strategies to deal with it. But if it really wants to support Ukraine’s independence or make progress in loosening Russia’s grip on European energy supply, it remains dependent on the will of member states to follow through on the ground. So while everyone knows that South Stream and Russia’s moves in Croatia are designed to thwart the EU’s declared ambition to diversify its energy mix, the European Commission is forced to rely on competition policy as a substitute for the real strategic authority needed to redesign Europe’s energy system in the common interest.

The answer is the one provided earlier this year by the Polish Prime Minister, Donald Tusk: a European energy union capable of negotiating collectively with Russia over price and acting as a strategic sponsor of the new infrastructure needed to achieve real energy independence. Including Ukraine in this purchasing consortium would do even more to blunt Russia’s energy weapon. The alternative of continuing to muddle through will mean that the advantage in the Great Game of European energy politics remains with Moscow.

David Clark is the founder and editor of Shifting Grounds, and served as special adviser to Robin Cook at the Foreign Office from 1997 to 2001

David Clark was Robin Cook’s special adviser at the Foreign Office 1997-2001.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.