Wednesday, August 20, 2008

Russia Georgia Conflict and energy markets

How does the conflict between Georgia and Russia affect energy markets?

The conflict is now phasing from military to diplomatic stage. The conflict broke out on 7 August when Georgia launched an assault to wrest back control of the Moscow-backed breakaway region of South Ossetia, triggering a counter-offensive by Russian troops who advanced beyond South Ossetia into Georgia's heartland.

Following crisis talks in Brussels, Nato's 26 foreign ministers said in a joint statement that they could not have normal relations with Russia as long as Moscow had troops in Georgia.

"The Alliance is considering seriously the implications of Russia's actions for the Nato-Russia relationship," the statement said, read out by Nato Secretary General Jaap de Hoop Scheffer. "We have determined that we cannot continue with business as usual."

Foreign Minister Sergei Lavrov accused Nato of bias and of trying to save the "criminal regime" in Tbilisi. Russia has dismissed a warning by Nato that normal relations are impossible while its troops remain inside Georgia.

How will it affect the prospects of Central Asian energy producing countries for independent export strategies? Europe will have to pay attention to Russia for the foreseeable future. They are highly dependent on energy pipelines for oil and natural gas. It will be interesting to see if these current problems make a difference in the energy sphere.

"Recent escalation in military engagement between Russia and Georgia poses a threat to certain key oil and gas pipelines which transit Georgia," the International Energy Agency said.

Is Russia's incursion into Georgia an initiation of what will become the slow process of reclaiming the former Soviet Union?

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