Welcome to the U.S.-Ukraine Business Council


Russia made clear to European energy importers their strong opposition
to Ukraine and Georgia receiving NATO Membership Action Plans.US Ukraine Energy Dialogue Series III Conference
Speech of Senator Lugar, Office of Senator Dick Lugar (R-IN)
Washington, D.C., Tuesday, April 15, 2008

WASHINGTON, D.C. - U.S. Senate Foreign Relations Committee Ranking
Member Dick Lugar told the U.S.-Ukraine Energy Dialogue Series [III,
Securing Ukraine's Energy Independence] today that, "It is time for the
trans-Atlantic community to establish a credible energy security strategy that diversifies energy sources for all Europe, establishes a collective framework to work with Russia, and refuses to tolerate the use of energy as an instrument of coercion."

"The absence of a collective energy security strategy will lead to greater
fragmentation among European nations and across the Atlantic. This
fragmentation will not be exclusive to energy policy; it may also
detrimentally impact our ability to act upon shared security and economic
issues," he said.

"Russia will be Europe's preeminent energy supplier for decades, but this
does not have to be a confrontational relationship. Nor do European
countries have to be in a weakened bargaining position because of their
import dependence. Right now, NATO and the EU have tremendous
leverage in developing a more constructive relationship with Russia on

Below is the entire text of Lugar's speech:

I welcome this opportunity to participate in the U.S.-Ukraine Energy
Dialogue Series. Increasingly, access to energy is at the heart of security
concerns for both the United States and Ukraine, as it is for other European
countries. This concern is manifested in sometimes desperate efforts to
attain reliable energy supplies, and it looms across our multilateral

Energy is so essential to maintaining a high quality of life that
guaranteeing reliable energy supplies is sometimes conceived as an almost
existential concern for countries. Likewise, the definition of our
trans-Atlantic community and capacity for multilateral action is threatened
if we are unable to act upon this most important of challenges.

In my view, the trans-Atlantic community now stands at a critical decision
point that demands a collective energy security strategy. The most urgent
challenge such a strategy must address is how to forge a more productive
relationship with Russia as that country accelerates its drive to increase
its influence over natural gas supplies to Europe.

The current European strategy will be unsuccessful in meeting this
challenge. Success at developing productive European and Russian energy
interdependence requires much more European unity.

The absence of a collective energy security strategy will lead to greater
fragmentation among European nations and across the Atlantic. This
fragmentation will not be exclusive to energy policy; it may also
detrimentally impact our ability to act upon shared security and economic

This concern was illustrated at the recent NATO summit in Bucharest,
Romania. Members struggled to find agreement on final language affirming
the future membership of Ukraine and Georgia. It was disappointing that
Membership Action Plans were not awarded.

Numerous reasons were cited for withholding the Membership Action Plans,
including a lack of public support for NATO membership in Ukraine and
frozen conflicts with Russian-backed separatists in Georgia.

Yet Russia's adamant opposition was the elephant in the room. Many alliance
members are heavily dependent on Russia for energy, and they are well aware
of Russia's record of using energy to exert pressure on neighboring

Some countries enjoy long-term energy contracts with Russia and Gazprom, and
are pursuing pipeline systems dedicated almost exclusively to meeting their
own needs. Others are former Soviet and Warsaw Pact states located in what
the Kremlin calls its "sphere of influence," and may face Russian demands
for foreign policy or economic policy concessions backed up by concerns of
energy cutoffs.

Two years ago at the NATO summit in Riga, Latvia, I encouraged the Alliance
to make energy security an Article V commitment in which a member
experiencing a deliberate energy disruption would receive assistance from
other alliance members.

I argued that a natural gas shutdown experienced by a European country in
the middle of winter could cause death and economic loss on the scale of a
military attack. Such circumstances are made more dangerous by the prospects
that nations might become desperate, increasing the chances of armed
conflict and terrorism.

Many European friends felt I raised some valid points but that this was not
a subject they were inclined to discuss in public. Others argued that energy
issues should be handled by the European Union, not NATO.

I am less interested in which organization leads the effort, than in
ensuring that someone leads the discussion. Neither NATO nor the EU has
developed an adequate strategy to address Europe's energy vulnerability.

In the two years since the Riga summit, discussion of energy security has
increased. However, the trend has been predominantly toward bilateral
agreements as Gazprom seeks to increase its control over gas supplies, a
situation that will have implications for European security for decades to

Bilateral deals with Germany to construct the Nord Stream pipeline and with
Italy's ENI to construct the South Stream pipeline will reduce Russia's
dependence on current transit countries while also blunting the economic
position of non-Russian alternative pipelines like Nabucco. Russia has
recently inked pipeline agreements with Greece, Bulgaria, and Hungary.

These nations had little reason for confidence that their western neighbors
would support them in case of an energy emergency. We should not be
surprised that they reacted by seeking their own deals with Russia. Such
deals are being made from positions of weakness.

European governments are being pressured to surrender majority shares of
national refineries and energy transportation systems.   Meanwhile, Serbia
agreed to sell its energy assets to Russia around the same time that Moscow
declared its opposition to Kosovo's declaration of independence.

Russia's strategy is not limited to Eastern Europe. North Africa is a key
source of natural gas for Europe, and Gazprom is seeking agreements with
Libya and Algeria. An April 9, 2008, article in the International Herald
Tribune underscored the consequences of this action: "Some analysts
describe Gazprom's moves in North Africa as a 'pincer' attack on Europe.

They say if Gazprom succeeds in Libya and in Algeria, where it is already
competing for contracts, it could end up dominating the supply routes to
Southern Europe." Russia has even advocated a global natural gas cartel and
proposed a trans-Saharan pipeline linking West Africa to export terminals in
North Africa in an effort to gain leverage over African gas supplies to

Gazprom's monopoly-seeking behavior should not come as a surprise. We
have seen in our own history that without regulation, many businesses will
seek to gain monopoly power. The difficulty in restraining this tendency is
multiplied when the business in question is backed by the Russian

Some European leaders have argued that energy is an economic issue that
depends on markets and should not involve governments. Unfortunately, not
all energy suppliers are playing by these rules. It is difficult to
distinguish where the Russian Government ends and where Gazprom begins.

Clearly Gazprom has sacrificed profits and needed domestic infrastructure
investments to achieve Russian foreign policy goals. This is the crux of the
problem facing the trans-Atlantic community.

The Kremlin and Gazprom have shut off energy supplies to six different
countries during the last several years. These energy cutoffs were efforts
at Russian intimidation. Unfortunately, neither NATO nor the EU provided
assistance to its members. In fact, several European capitals were
conspicuously silent, failing to even lodge complaints.

In this context, it is no surprise that Membership Action Plans for NATO and
Georgia and Ukraine were complicated by energy security at the Bucharest
Summit. Georgia has faced significant gas supply interruptions dating back
to President Saakashvilli's election victory.

Ukraine has had energy supplies cut off several times. Russia made clear to
European energy importers their strong opposition to Ukraine and Georgia
receiving Membership Action Plans.

While several NATO and EU members have pursued a unified European energy
strategy, others have frustrated the formulation of a European policy. The
effect of Nord Stream and South Stream will be to increase overall European
dependence on Gazprom, make certain countries like Ukraine more vulnerable
to supply disruption, and make it easier to divide Europe on critical
foreign policy issues.

Russia will be Europe's preeminent energy supplier for decades, but this
does not have to be a confrontational relationship. Nor do European
countries have to be in a weakened bargaining position because of their
import dependence. Right now, NATO and the EU have tremendous leverage
in developing a more constructive relationship with Russia on energy.


It is time for the trans-Atlantic community to establish a credible energy
security strategy that diversifies energy sources for all Europe,
establishes a collective framework to work with Russia, and refuses to
tolerate the use of energy as an instrument of coercion. Russia, Europe, and
the United States should be interdependent partners in energy security.

Russia will benefit from U.S. and European investment, expertise,
technology, and trade revenue, and Europe - like the U.S. - will benefit
from reliable supplies and investment opportunities.

The dilemma now is that European countries are trying to solve their energy
security concerns with Russia on a bilateral basis. Some countries will be
more successful than others. Still others risk being left behind completely.
While several European countries struggle to form a collective strategy,
Russia is highly organized and strategic in pursuing its energy strategy.

I believe NATO should play a leading role in formulating and advancing a
trans-Atlantic energy security strategy because energy and security are
synonymous. As the world's preeminent security alliance, it is NATO's duty
to respond to crises threatening member states as well as act to prevent
such crises. Failure to address energy will undermine the alliance's ability
to act in a unified way on these core functions.

While the current situation appears grim, progress in unifying Europe behind
a cohesive energy policy can be made in the near term. A first priority
should be completing the so-called East-West energy corridor to bring oil
and gas across the Caspian from Central Asia to distribution points from
Central Europe. This will help diversify gas supplies to Europe, thus
increasing its collective bargaining position.

Success requires leadership in promoting Caspian sources of energy with
independent transportation routes; supporting pro-Western governments in
Azerbaijan, Georgia and Turkey that host significant energy transportation
routes; and developing strong multilateral support and funding for the
Nabucco pipeline.


Kazakhstan and Turkmenistan hold large energy reserves. While not as
large as Russia's, they can play a pivotal role in European diversification
efforts. When I visited leaders in both governments earlier this year, they
told me that they want more dialogue with the West.

Nevertheless, Kazakhstan and Turkmenistan recently concluded large-scale
agreements with Moscow to sell more gas and oil to Russia for delivery to
European markets. In part, these deals were reactions to the failure of the
West to provide alternatives and to engage leadership in the region. Both
countries understand that while maintaining trade with Russia, it is in
their interests to diversify their export opportunities.

The willingness of these governments to discuss trans-Caspian alternatives
will not turn into investments on the ground without concerted, high-level
engagement. President Putin visits the region several times a year, and his
personal diplomacy has been critical to Russia's success.

I am encouraged that just last week, we saw an announcement that
Turkmenistan has agreed to make natural gas available to European markets.

Nevertheless, NATO and EU leaders have not devoted the time, energy, and
political capital required to solidify Western relationships in the region.

I strongly urged the Administration to appoint a Special Energy Envoy to the
Caspian region. The White House responded by naming C. Boyden Gray to the
position. He currently leads the U.S. mission to the European Union and will
be dual-hatted.

Special Envoy Gray's close relationship with President Bush gives him
significant gravitas in building relationships and promoting U.S. interests
in Kazakhstan and Turkmenistan. I wish him well and hope that he will make
significant progress.

Notwithstanding the contributions a Special Envoy can make, it is time for a
U.S. President to visit Central Asia and make these critical geostrategic
arguments in person. President Bush should consider a visit before he steps
down in January, but his successor must certainly make a visit to Central
Asia a high priority early in his or her presidency.


Energy resources from the Caspian and independent transportation routes are
dependent upon Azerbaijan, Georgia, and Turkey. Recently, President Aliyev
of Azerbaijan told me that he had put his country on a path of cooperation
and dialogue with the West, and we have seen this sentiment borne out in a
number of ways.

Yet we cannot take for granted the progress made in Azerbaijan, Georgia, or
Turkey. These three countries host the Baku-Tbilisi-Ceyhan and South
Caucasus pipelines, which are carrying oil and gas from Azerbaijani fields
in the Caspian toward Western markets.

To ensure true resource diversification, the trans-Atlantic community must
continue to support the independence and democratic transformations in the
Caucasus. Both Azerbaijan and Georgia have made great progress, but need
substantial and on-going international support as their governmental and
economic institutions evolve.

If NATO's failure to extend Membership Action Plans at the Bucharest summit
is interpreted as lack of commitment, this will not be helpful in securing
Georgia's future. An unfortunate result of that meeting could be the
perception that Russian intimidation can affect the alliance's approach to
Caspian security.

European positioning on future Turkish membership in the EU also has
consequences for energy security. Unfounded fears of mass migration and
other cryptic concerns must be rejected. Meanwhile, the situation in Iraq
has strained U.S-Turkey bilateral ties. It is time for the United States to
redouble our efforts to improve the relationship and support Turkey's EU
ambitions. Turkish membership is important to regional security, outreach to
the Muslim world, and energy diversification.


The Nabucco natural gas pipeline is intended to connect energy
infrastructure nodes in Turkey and Austria passing through Bulgaria,
Romania, and Hungary. It is intended to be the final link connecting Caspian
energy resources with European consumers, but it is being challenged by the
Russian-backed South Stream pipeline proposal that would cross the Black

Numerous NATO and EU member states have attempted to make the Nabucco
pipeline a reality. Unfortunately, their efforts have been stymied.

Reluctant European governments must be convinced that long-term security
interests are not served by developing a two-tier European energy society.

European history has proven that insecurity in one country is enough to
provoke reactions across the entire continent. The EU took an important
first step by appointing a Commissioner for the Nabucco Pipeline, but
success will depend on the level of cooperation he receives from member

Although diversifying energy transit routes from Central Asia to Europe
should be a first priority, this does not diminish the importance of rapid
progress in building energy trade with North African countries, increasing
use of biofuels, improving efficiency in power and transportation, deploying
clean coal and carbon sequestration technologies, and increasing usage of
nuclear power.

Nor does it negate the need for proactive engagement with Russia to advocate
market-oriented energy policies. Yet without decisive action by the
trans-Atlantic community to increase their leverage in energy dialogue with
Russia, Western unity on a wide range of security issues will be put in
jeopardy. In such an environment, it may become increasingly difficult to
find common ground with Russia.


The trans-Atlantic community has the ability and responsibility to provide
energy security for all of Europe, not just those countries in Moscow's

We can continue to hope

[1] that the economics of energy supply and pricing will be rational
and transparent;
[2] that nations with abundant energy resources will reliably supply
those who need them through normal market transactions;
[3] that pipelines and other means of transmission will be safe and
[4] that energy rich nations will not exclude or confiscate productive
foreign energy investments in the name of nationalism; and
[5] that vast energy wealth will not be used as a political tool or military

But hope alone has not succeeded to date. The trans-Atlantic community must
come to grips with the fact that our future is threatened by the continued
abdication of leadership on energy. Our energy-derived vulnerabilities will
continue until we have the possibility of collective action and are
implementing supply diversification.

The upcoming EU summit scheduled for June in Slovenia is an opportunity for
progress. President Bush has been invited, and he should spur European heads
of state to be more resolute in pursuing European energy security.

He is sure to receive the support of many of the newest members, but will
more experienced members continue to resist a common European energy

President Bush must start reaching out to his colleagues today if he is to
be successful. I believe we have time to reverse the damage that has been
done to our security and set ourselves on the right course for a healthy,
respectful, and market-based relationship with Russia. This will be the
foremost test of alliance unity in the coming decade. It is a test we must
not fail.

LINK: http://lugar.senate.gov/press/record.cfm?id=296148

US Ukraine Energy Dialogue III
Securing Ukraine's Energy Independence
Hart Senate Office Building
Hyatt Regency Washington on Capitol Hill
Washington, D.C., April 15-16, 2008