Email This Post - Print This Post Print This Post

By John Helmer in Moscow

The decision of the Estonian government to remove the city’s Soviet war
memorial and the graves of Red Army soldiers who fell in the last war
against Germany has been an on/off thing for months.

Now that it’s on, clashes between protesters and supporters, have already
cost one life (Russian); inflicted grievous bodily injury; damaged property;
affronted the amour-propre of Estonian diplomats in Moscow; and generated
reams of anti-Russian media copy across Europe and the United States.

Even President George Bush has weighed in — on the side of the Estonian
victims of an alleged Kremlin oil cutoff. Only there’s no evidence of this.
An unusually warm burst of spring and early summer weather across Europe is
the real culprit, cutting demand for both gas and heavy oil for heating.

Gazprom, Russia’s dominant gas exporter, has also been feeling the pinch
from the weather, reporting this week that its exports to Europe fell in the
January-March period by 24%, compared to the same time in 2006. But if
Mother Nature — that Madame Butterfly ever faithful to the seasons — can
be pressed into campaigning against the Kremlin on behalf of the Bush
Administration, why blame Reuters for failing to check the temperature, and
for putting the blame on President Vladimir Putin instead?

Russian oil industry sources are adamant that Russian oil shipments for
re-export from Tallinn, the Estonian capital, are running at their normal
seasonal level for the month of May. Mazut, heavy fuel oil, is the biggest
volume cargo, most of which is loaded at the Maardo terminal of Tallinn
port. The Muuga terminal loads mostly gasoline, and the Tallinn terminal,
diesel and mazut. The Russian oil exporters are TNK-BP, which is controlled
by British Petroleum; Gazpromneft, the state owned successor to Roman
Abramovich’s Sibneft; and Surgutneftegas, a management controlled entity
with powerful Kremlin friends.

The industry sources are categorical in contradicting claims aired by
Estonian politicians, US government officials, and western media, all of
which have charged the Kremlin with imposing a rail and oil squeeze on
Tallinn. Natalia Vialkina, spokesman for state oil producer Gazpromneft,
says: “We have fixed all the planned volumes [for shipment to Tallinn].”
She added she cannot disclose the exact tonnages of the oil products, as
this is commercially sensitive, but she confirms there has been no cutback
this month.

Raisa Khodchenko, spokesman for Surgutneftegas, make an identical point; “We
have no significant changes in volumes. We’ve fixed all our volumes for May
to ship to Estonia.”

TNK-BP said it will not be able to report the volume of shipments until “the
end of this week”. The comment was echoed by trade sources, who explain that
evidence for a cutback is impossible to detect until the end of the month at
the earliest. There is no basis for speculation, alleged to be from
unidentified traders, that Russian rail deliveries of oil to Estonia have
been curtailed, on Kremlin orders.

The spokesman for the Russian railways company, RZD, decalred: “I can’t
understand the stir happening here. We have transport ‘windows’ to allow
scheduled repairs for May on the route, and we are completing our
obligations. We don’t want to be driven into speculation.” May is selected
by RZD because weather conditions in the Baltic region are optimum —
relatively sunny, but cool, rainless — for the manual work of repairing
rail tracks.

In April, before protests erupted over the Estonian decision to relocate a
Russian war memorial in the capital city, Tallinn’s three terminals loaded
1.6 million tonnes of Russian oil. The monthly average from January to March
was higher, reflecting winter demand, at 2.3 million tonnes. The monthly
average logged last year was 2 million tonnes.

As is traditional in the affairs of the Baltic states, nostalgia for Adolph
Hitler is a cash register that promises to spit out money for all types of
interests. Initially, the local Tallinn land developers, who stand to make
the most out of the relocation of the Soviet memorial, lacked the clout of
the Estonian shipping lobby. In February, when the Estonian parliament put
off the relocation decision, the interests of Tallinn port were at odds with
those of the real estate developers. But after twelve weeks of stirring, the
latter have now prevailed. The former must now begin to count their losses.

One generally believed report, put out by Reuters, turns out to be false.
The Russian railways (RZD) have not imposed a blockade of oil and coal
cargoes into Estonia. These shipments for loading and re-export at Tallinn
are the lifeblood of the port, and of the Estonian shipping and financial
agents who live off the Russian trade.

RZD’s spokesman Irina Shabanova told me the political controversy between
Russia and Estonia has had no impact whatever on transportation. “There is a
big stir here now about Estonia,”she acknowledges. “But in fact it is the
usual practice that we repair the route in the spring, and have technical
‘windows’ for scheduling this. I can assure you that all applications for
May from traders have been accepted and we have also spoken to the Estonian
railroad and the Estonian trade representative [in Moscow]. They confirm
they have no problems from their end.”

She adds that the press claims of a blockade began when “one trader who
failed to confirm his application with RZD spoke to Reuters and complained
about the ban.” A Russian transportation source adds this is the usual time
of the year for scheduled repairs. But the source also claims that RZD
appears to be taking a stricter approach towards trader and shipment
applications. “I am not sure whether this is connected with the political
situation or with technical problems and nobody will say for sure, ” the
source said.

There are no refineries in Estonia, and Russian shipments by rail are of
petroleum products for export. Oil shipments through Tallinn have been
stable for the past four years at 24 million tonnes per annum. By contrast,
coal shipments from Russia to Tallinn have been on the rise. They were 2
million tonnes in the first quarter, up 42% year on year, and a target of 10
million tonnes has been set for this year. This is a fivefold increase since
2002. For the time being, the political propaganda is silent about the coal
trade.
One good reason for that is that it is booming. Russian coal exporters say
they have experienced no reduction in railcars for shipping coal to Tallinn
for export. After petroleum products, coal is the second largest Russian
cargo for export through Estonia.

The Estonians know how fragile their good fortune is in the coal trade, for
the jump in Russian throughput at Tallinn has occurred partly at the expense
of Riga, Latvia, which has suffered a 15% decline in the first quarter to
2.3 million tonnes. Russian coal ports in the northwest also reported a 20%
increase in volume in the first quarter to 5.4 million tonnes, while the
southern Russian ports handled 1.5 million tonnes, a gain of 57% since last
year. It doesn’t require much skill in geography or arithmetic for the
Estonians to calculate that, if they have benefitted recently at Latvia’s
expense, the Kremlin could arrange for a switch-back just as swiftly.

Nor can Estonian confidence in provoking the Kremlin reliably depend on
statements issued by the White House. What Estonian officials understand,
without saying so, is that their benefit depends on Russian ownership of
Tallinn’s real estate. The Muuga terminal, for example, is reportedly owned
by the son of a former Russian rail minister, Rustam Aksyonenko, and by coal
trading and mining companies owned by Iskander Makhmudov, a well-known
Russian business figure in the coal and copper sectors. Aksyonenko’s father
was disgraced by corruption charges, and relieved from trial by illness and
death. Neither Russian would dare go against the Kremlin now, if Putin
really decided to pull both the oil and coal trade out of Tallinn. He
hasn’t.

At Kuzbassrazrezugol, one of Makhmudov’s mines, Stepan Dubkov told Asia
Times: “So far as I know, the loading goes in normal working mode. I have
heard about no difficulties with delivery.” At Tallinn, the AS Coal
Terminal — which appears to be part of the Makhmudov group of companies —
Estonian officials declined to say if the volumes of coal received and
reloaded at the terminal have dropped or gained over the past month.

The political confrontation has triggered bitter reaction from the Russian
parliament, which has taken its cue from Putin, who told Germany’s
Chancellor, Angela Merkel, at their summit meeting in Sochi in February,
that the relocation was grandstanding on Estonia’s part, with the aim “to
gain some kind of advantage.” Putin implied skepticism as to what advantage
the Estonians thought they were after.

The timing comes as the latest port data show Tallinn’s lead over rival
non-Russian Baltic ports depended in 2006 on oil and coal. Oil volume
accounts for almost 60% of Tallinn port’s total tonnage. This could change
if the political crisis worsens. But if oil shipments were to fall, the
impact would be cushioned by the rapid growth of coal shipments. Other
dry-cargoes from Russia have been growing at an annual rate of almost 30%,
but not steel and non-ferrous metal cargoes, which fell last year by 10% and
5%, respectively. Trying to thwart the obvious, Estonia’s prime Andrus Ansip
has claimed that economic sanctions from Russia “cannot influence the
decisions of a democratic sovereign state.”

But commercial competition, the hidden hand of the Baltic trade, can. In
less than five years, Transneft, the Russian state oil pipeline company, has
created a new Russian oil port of Primorsk, on the Gulf of Finland, and it
now dominates tanker loadings. This has anchored most of the Baltic oil
market to the Russian shore.

The construction of a new Russian coal port at Ust-Luga, also on the Gulf of
Finland, can do the same for that commodity. Ust-Luga’s construction was
delayed through the Yeltsin period, as railwaymen, coalminers, and Yeltsin
appointees stole the budget and a World Bank loan for building the port. But
Putin has almost managed to put that right, and coal shipments have begun.
The volume loaded aboard ship at Ust-Luga more than quadrupled in the
January-March period of this year to 1.1 million tonnes, and the growth
rate will continue.

Putin has been less successful on behalf of Kaliningrad, the Russian
territory within Lithuania, which was taken by the Red Army from the
Germans, who used to call the town Konigsberg. Kaliningrad remains a very
small operator still in the Baltic oil trade. But it is Russian state policy
to help it to grow. Accordingly, a source at the port reports “we’ve
started to process oil products quite recently, but you can see there is
sizeable growth in volumes.” In the first four months of 2006, Kaliningrad
loaded 25.8 tonnes of oil products for export. In the same period to April
30 of this year, the volume had jumped sevenfold to 179.7 tonnes.

This oil has to come from somewhere, and there is little doubt that the
non-Russian Baltic ports are the losers. But for the time being, the volume
moving through Kaliningrad is a drop in the bucket, compared to Tallinn.”I
will not bet that [Kaliningrad’s growth] is connected to Estonia,” the port
spokesman said.

When the Soviet Union included the Baltic states, they provided all the
northwestern maritime gateways that Moscow needed. When the union collapsed,
Russia suddenly found itself more landlocked than was comfortable. The
creation of Primorsk, Ust-Luga, Vysotsk, and Kaliningrad on the Baltic,
expansion of Arkhangelsk on the White Sea, and the building of Varandey on
the Barents, were a natural reaction. This port strategy has been under way
for a decade now.

The obvious losers have been, and must be, the Baltic states, and the
long-term data on oil export flows and tanker loadings prove it. In the
short term, however, the Kremlin is not wielding its oil weapon against
Estonia. It doesn’t need to — time and Baltic tanker commerce are on its
side. And if Madama Butterfly of the weather warms up the Russian coastline,
unlocking the traditional winter freeze, she too will favour the Kremlin.

Hostility towards Putin in the media has blinded observers to the subtlety
with which Russian oil and coal delivery strategy manipulates the Estonians.
For they are afraid that the rival ports of Lithuania and Latvia —
Ventspils, Riga, Klaipeda, Butinge — may regain Russian oil cargoes, at
Tallinn’s expense, while the expansion of Primorsk and the other Russian
ports continues relentlessly.

Leave a Reply