Steadily and stealthily, a natural gas cartel has emerged over
the last seven years. On October 21 in Tehran, the Gas Exporting
Countries' Forum (GECF) agreed to form a cartel. Russia, Iran, and
Qatar announced that they intend to form a yet-unnamed group to
"coordinate gas policy." The Group of Three (the "troika") will
meet quarterly to coordinate and exercise control over close to
two-thirds of the world's gas reserves and a quarter of all gas
production. To compare, the Organization of Petroleum Exporting
Countries (OPEC) controls more than three-quarters of the world's
oil reserves but only 40 percent of global production.
Iran has the second largest gas reserves in the world after
Russia and the second largest petroleum reserves in the world after
Russia prefers to coordinate energy policies with Tehran rather
than compete. The two countries recognize that together they
control roughly 20 percent of the world's oil reserves and about
half of global gas reserves, an immense geo-economic clout.
The United States should create a global coalition of energy
consumers to oppose oil and gas cartels and to bring market
principles to the natural gas industry. The U.S. Congress should
also liberalize regulations to allow energy exploration in the
Arctic, in the Rocky Mountains, and along the Pacific and Atlantic
continental shelves, where natural gas is abundant, and expand
cooperative gas ties with Canada.
Russia's Global Gas Strategy
In the tight global energy market, Russia clearly appreciates
the economic and political bargaining power that its vast energy
resources provide, as it is attempting to control energy exports
from the New Independent States, such as Azerbaijan, Kazakhstan,
Turkmenistan, and Uzbekistan. Russia also has strengthened its ties
to Iran, Venezuela, Libya, and other major energy exporters.
Recently, Moscow also launched a charm offensive on OPEC.
Thus, Russia is playing a complex and sophisticated game, one
that is likely to maximize its advantage as the leading gas
producer with the largest reserves on the planet as well as the
largest oil exporter.
First, Russia's approach was gradualist. Moscow was never
openly enthusiastic about a gas cartel but waited for an
opportunity to launch one. Viktor Khristenko, Russia's former vice
premier in charge of energy, rejected the idea just days before
Putin called a gas OPEC "an interesting idea" during his February
2007 visit to Qatar. This past April at the Doha, Qatar, GECF
meeting, Khristenko said, "We have not, do not have, and will not
have the goal of organizing an alliance against anyone." This past
week, however, Alexei Miller, chairman of Gazprom, announced the
forming of "a big gas troika."
Careful examination of the official announcement after the Doha
summit and media reports revealed that there was reason for concern
last spring. Those concerns were validated on October 21 following
the troika announcement.
Second, Russia's approach was stealthy. Instead of
announcing the cartel prematurely and spooking consumer countries,
it quietly put the component parts into place. At Doha, Russia
initiated the creation of a "high level group" that will "research"
the pricing of gas and develop methodologies using commonly
accepted gas pricing models. Conveniently, Russia would staff this
group. The recent announcement is significant as Gazprom would
essentially become a market maker in the liquid natural gas (LNG)
market and will define gas prices in Europe.
Third, until the Tehran declaration, Russia was able to
appear reasonable. The price-regulating function of the GECF was
supported by those Latin American countries that want to dispense
with market principles, including competition, in the gas trade:
Venezuela, Bolivia, and Argentina. Today, Iran (along with
Venezuela) is applying its OPEC-honed instincts to the natural gas
sector, demanding production cuts and price regulation.
Nevertheless, Putin is credited with the idea of launching a
cartel, and an unnamed high-ranking member of the Russian
delegation to Doha told RIA Novosti in 2007 that as the gas market undergoes
globalization, an organization such as a gas cartel will appear
and is necessary.
When the new group was announced on October 21, Russian
officials allowed Iran's petroleum minister, Gholamhossein Nozari,
to call the agreement a "gas OPEC" without using such language
Fourth, and most importantly, a cartel by any other name
is still a cartel. At the Doha meeting, members of the GECF agreed
to discuss dividing the consumer markets between them, particularly
in Europe, where Russia and Algeria are already major players and
Iran may join in the next decade. For example, if Russia agrees not
to challenge Algeria's position in Spain, Algeria will steer clear
of Germany, where Gazprom is the major player. This will clearly
challenge the European Union's energy liberalization and gas
deregulation policy, which took effect on July 1.
The troika and GECF members are planning to "reach strategic
understandings" on export volumes, schedules of deliveries, and the
construction of new pipelines. They also plan to jointly explore
and develop gas fields and coordinate startups and production
schedules. To continue their work, members plan to create a
permanent secretariat. Despite protestations to the contrary, the
GECF had all the trappings of a nascent cartel, and the troika
includes its founding members. These founders will expand their
cooperation beyond their relationship through the GECF and drag
other gas producers with them.
Moreover, Russia and Iran are interested in increasing their
leverage against the EU in areas that often have little to do with
The new group will provide its three leaders with greater
geopolitical advantage. If this new cartel expands, Russia and Iran
are the net winners, as they will gain clout over smaller Eurasian
gas suppliers, such as Azerbaijan, Turkmenistan, Kazakhstan, and
Major gas producers such as Iran, Russia, Qatar, Turkmenistan,
Brunei, and Venezuela have one feature in common: a democracy
deficit. All three members of the new cartel share this dubious
quality. Just like OPEC, the gas cartel will be a formidable global
geo-economic force that can be used to oppose, challenge, and
possibly weaken market-based democracies through high energy prices
and wealth transfer. Such a cartel may cut deals with similarly
undemocratic large-scale consumers, such as China, while forcing
the West to pay full price.
Coordinated Global Action Needed
The Bush Administration barely reacted to the Tehran and Doha
meetings. Ileana Ros-Lehtinen (R-FL), the Ranking Member of the
House Foreign Affairs Committee, wrote to the secretary of state
after the Doha meeting that the establishment of a gas OPEC would
be a "major and long-term threat to the world energy supply" that
the U.S. should "vigorously oppose." Officials express grave
concern, but only in private.
In reaction to the October announcement, the European Commission
stated that it "feels that energy supplies have to be sold in a
free market" and that it opposed price-fixing cartels in principle.
It remains to be seen if the recently defeated "Gazprom clause" of
the unbundling proposal that would block Gazprom from owning mid-
and downstream assets in Europe is resurrected. One also wonders
whether the world would even be dealing with the emergence of a gas
cartel if European companies such as E.ON and Eni had not been
successful in lobbying for Russian energy interests.
As the case of OPEC demonstrates, closing markets to
competition, promoting national oil companies, and limiting
production through a quota system results in limited supply and
higher oil prices. Gas, in the long run, will not be different.
What the U.S. Can Do
The United States should open its vast natural gas resources on-
and offshore to further exploration and production and encourage
its neighbors in Canada, Mexico, and the Caribbean to do the
Additionally, the next Administration must develop a clear
global policy to limit cartelization of the gas markets.
Specifically, the U.S. should work with the European Union member
states, Japan, China, India, and other countries to prevent the
cartelization of the gas sector. This can be accomplished through
cooperation with the International Energy Agency, which China and
India should be invited to join, and by applying anti-trust
legislation worldwide against state-owned companies that are
actively involved in cartel-like behavior in energy markets.
Finally, the U.S. should also work closely with those within
GECF who oppose Russian-Iranian domination, including Azerbaijan,
Canada, the Netherlands, and Norway. The National Security Council
and the National Economic Council should take the lead in
developing this policy. Unless buyer solidarity is translated into
action, energy consumers and economic growth will suffer
Ariel Cohen, Ph.D., is
Senior Research Fellow in Russian and Eurasian Studies and
International Energy Security in the Douglas and Sarah Allison
Center for Foreign Policy Studies, a division of the Kathryn and
Shelby Cullom Davis Institute for International Studies, at The
Heritage Foundation. Owen Graham, Davis Institute Research
Assistant, and Nicholas Lippolis, Heritage Foundation intern,
assisted in production of this paper.