Partner, or Bully?

Vladimir Putin was feeling indignant. Why don't Europeans trust Russia? "I constantly hear complaints" that Europe is "overly dependent" on Russian energy, he griped last week to German Chancellor Angela Merkel in the Siberian city of Tomsk. "But Russia is a reliable partner. It always has been."

Really? Ask the Georgians--or almost any of Russia's former satellites. Rather than a reliable partner, they've found Moscow deeply vindictive toward any neighbor that crosses its interests. Ever since the pro-Western Rose Revolution of November 2003, Georgian leaders say, Moscow's been trying to ruin the country's economy--first by raising gas prices, and in recent months by blocking imports of fruits, vegetables, wine and mineral water. Ditto for Ukraine, hit with a doubling of gas prices, a gas stoppage and a blockade of meat and produce in the wake of its own Orange Revolution. Even poor Moldova, which hasn't had a revolution of any color yet, was hit with a gas hike and a ban on wine exports to Russia after it struck a deal with the European Union sealing the borders of the tiny, Russian-speaking enclave of Transdniestr, which Moscow regards as a protectorate. "Russia treats us like it treated Hungary, Czechoslovakia and Germany in the '50s and '60s," Georgian president Mikhail Saakashvili tells NEWSWEEK. "We are being punished for our attempts to be free."

So maybe it's not so surprising, after all, that Europeans worry. Given Russia's track record of bullying its close neighbors, won't it eventually bully distant ones too? "Europe is relying for a large portion of its energy supplies on a country that does not hesitate to use its monopoly power in devious and arbitrary ways," wrote the international financier George Soros in The Financial Times last week. "European countries are at Russia's mercy."

If Georgia is any indicator, that isn't a good place to be. Last month, shortly after Tbilisi declared that it would oppose Russian membership in the World Trade Organization, Russian health officials declared that Georgian wine was tainted with heavy metals and pesticides and banned all imports. "That means three more bottles per person for us to drink here," jokes Kakha Bendukidze, a businessman recruited by Saakashvili to be minister of Economic Reform. But the ban is deadly serious--wine accounted for 12 percent of Georgia's exports last year, or more than $90 million. Shortly after came a ban, also on health grounds, of Borzhomi mineral water, wiping out another 3.5 percent of Georgia's trade balance. That comes on top of yet another ban on Georgian citrus fruits and vegetables, a staple of the country's agricultural exports. "We hear threats like, 'Georgia will die of hunger'," says Saakashvili. "But we won't. What doesn't kill you makes you stronger."

Perhaps. Georgia's economy grew 9 percent last year. And while the blockade will certainly put a severe dent in that rise, the Georgian president argues, it will also force Georgia find to new markets. "We've been thrown into the open sea. The time has come for us to learn to swim." It remains to be seen just how receptive those new markets might be--especially a Western world awash in inexpensive wines. Worse, Moscow is by no means finished with its harassment. Lately, the Russian Embassy in Tbilisi has taken to delaying visas for Georgians wanting to visit Russia. The main Georgian church in Moscow (spiritual home to an estimated 1 million Georgian expatriates) now conducts services in Russian--at the insistence of the Moscow Patriarchate. And in Moscow's two Georgian schools, teaching is now all in Russian after pressure from the Education Ministry. "Our time has come, I guess, to go back to Georgia," sighs Diana Darchia, 28, a former Georgian chess champ living in Moscow.

Energy is Russia's most potent weapon. Raising prices is just good business, officials at the gas monopoly Gazprom insist. Ending cushy subsidies to neighbors will also help them become more competitive, they say. Fair enough. But there's little doubt that the price increases have been selective. "The entire world knows that Russia's trading ethics are purely political," says Georgia's Prime Minister Zurab Noghaideli. In December, Gazprom doubled the price Tbilisi has to pay to $110 per thousand cubic meters; then, on Jan. 23, a mysterious explosion knocked out the main gas pipeline from Russia to Georgia, and another destroyed trunk electricity pylons, plunging most of the country into cold and darkness. Russia blamed Chechen rebels; Saakashvili decried a Russian plot to destabilize his country. Either way, it was a graphic reminder that for all Georgia's talk of independence, it's still fatally dependent on energy supplies from Russia.

Paradoxically, Moscow's attempts to punish its wayward neighbor may push Georgia further into the arms of the West. "Life has forced us to choose a course towards integration into international organizations such as NATO and the European Union," says Noghaideli. Georgia has since signed gas deals with Iran, and hopes that a planned British Petroleum-built gas pipeline from Azerbaijan to Turkey will some day end its dependence on Moscow. Says Energy Minister Nika Gelauri: "What happened to Georgia hasn't happened to Europe yet--but I believe that Europe is waking up to the truth."

Don't bet on it. As Georgia and Ukraine struggle to find alternate suppliers, Europe's getting ready to buy more gas than ever from Russia. Merkel signed one such deal in Tomsk just last week. And Gazprom deputy CEO Alexander Med-vedyev got a warm reception at last week's packed Russia Economic Forum in London, where he predicted that European dependence on Russian gas would rise from the current 26 percent to 33 percent over the coming decade, thanks in part to a major $4 billion pipeline under the Baltic. "Gazprom is good for the world," Medvedyev said, quoting the Bible to back up his argument. "He who has ears, let him hear." He might have added: and those who have eyes, but choose not to see, are blind.

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