Via Forbes, an interesting article on Russia’s influence on BRIC energy policy.  As the report notes:

President Putin is officially back, with his swearing in scheduled for Monday, but this time he has a problem. The Russian masses have started to see through the political mist of the Kremlin; they don’t like what’s on show. Few doubt that serious reform is required for Putin to make it to 2018 (and beyond), but ‘quick fixes’ also tend to help. Although Putin’s ‘Eurasian Union’ has already flopped as an external strategy to garner support, he still has one vehicle available that can seriously enhance Russia’s global economic and political stake: the BRICs bloc. That’s not in the conventional sense of acting as a structural hedge against G8 economic ‘activities’, (everyone is bored with that gig given G20 developments), but as a serious energy unit. Given the fundamentals involved, energy isn’t just one potential policy area where BRIC cooperation could be made to work, but the core issue that will make or break the BRICs in future.  Russia is best placed to push its ‘alphabetical allies’ in this hydrocarbon direction – especially because Moscow has no choice but to make a virtue out of its own hydrocarbon necessity. Energy is the way of the future; both for the BRICs and a Putin 3.0 Presidency.

What’s surprising about the BRICs is that more progress hasn’t been made on the energy front. The supply-demand fundamentals are obvious to see. Russia and Brazil will be key exporters, while China and India are consummate consumers, providing around 90% of non-OECD demand growth. From this clinical division of hydrocarbon labour, Russia would become the provider of choice for China across Eurasia, while Brazil would be well placed to feed Asian markets above and beyond the Western hemisphere. On the demand side, China and India would benefit from a cohesive energy voice, adding the final touches to a massive wave of mutually reinforcing BIRC growth. Russia and Brazil pump the black stuff; India and China provide the receipts. Everyone politically gains as a result.

The snag is that none this of is in place: Quite the reverse. China has largely eschewed Russian overtures to develop East Siberian reserves, and gone shopping in Central Asia, the Middle East and Australia instead. Such supplies are making life difficult for Moscow to nail down Chinese supply agreements, so much so that Russia is seriously considering LNG and GTL options in its Eastern fields. Brazil has managed to attract considerable investment into pre-salt finds, but resource nationalism is unequivocally rising across Latin America – Brasilia could still fall prey to such temptations, or indeed join OPEC ranks if it really wants to flex its energy muscles. Meanwhile India and China are engaged in a hostile battle to gain strategic ascendency in Asia. Delhi hasn’t been able to claim a serious upstream stake thanks to Chinese presence, snapping up new concessions far beyond India’s reach. Indian import dependency is considerably worse than China’s in percentage terms. Far from cutting India some energy slack, China is increasing its maritime presence in the Indian Ocean. Any way you look at it, BRIC supply isn’t calibrated to meet BRIC demand.

Much could be done to remedy this. China could obviously give India more room to sign concessions (and even joint ventures) to defuse tensions in the Indian Ocean. Maritime insecurities would be put to one side, China and India wouldn’t just continue to drive growth, but find collective voice to tamper IEA ‘exuberances’ in Paris. On the supply side, on-going international (read Asian) investment in Brazilian blocs would help to keep President Rousseff focused on BRIC designs, rather than Venezuelan, Bolivian and Argentine distractions. All nice stuff, but the clincher for BRIC energy credibility is for Russia to hardwire its oil and gas supplies into China. Until these agreements are put in place, little else will matter. Russia has most to lose (and gain) in this equation.

The ‘good news’ amid renewed Russian focus on its Arctic reserves, is that swap agreements could hold the key to resolving pricing (and tetchy political) disputes between the two nations. Chinese oil majors’ like equity production stakes; Russia needs massive CAPEX investments to make Eastern export strategies a runner. Such a move wouldn’t just reinforce Sino-Soviet energy links – it would reduce bilateral pressures in Central Asia where Russia and China have been jockeying for strategic control. The sooner Russia and China do serious energy business, the quicker Central Asian pressures will abate. India could then pick up any excess hydrocarbon supplies from the Caspian without treading on Sino-Soviet toes. Beijing would be free to drive a harder bargain with hydrocarbon providers in the Far East with Russia on the books; not to mention being more selective in high-risk upstream markets.

From Moscow’s perspective, a Chinese deal would leave Putin perfectly placed to wield a heavier hand over Russia’s traditional European demand base. Rather than talking up Russia’s inherent arbitrage potential between ‘East and West’, Putin would actually be a position to deliver tangible market results. Smaller producers would also have to pay far closer attention to Russian volume and pricing preferences. Moscow would basically become a ‘price maker’ rather than marginalised ‘price taker’ that it’s been of late. Bottom line: Asian security of demand is where Russia can reclaim its stake in the global energy game; what’s more it would help to iron out serious price volatility that has left Putin so heavily politically exposed at home.

Putin’s BRIC power play is therefore pretty simple. Place Russia at the heart of BRIC ascendency by turning it into a serious energy club. Brazil will gain from plugging its resources into key markets as a global player, rather than morphing into a pithy regional pawn. China and India would both gain from energy cooperation (and enhanced Eurasian supplies), importing vast amounts of oil and gas to maintain domestic growth and boosting international status. Russia would be the lynchpin state bringing it all together, gaining handsome economic rents in the process.

It’s an impressive blue-print; the only remaining question is whether Putin has the ambition or ability to go for it? Given the parlous state of Western economies, it’s high time the BRICs stepped up their global economic game. They have a real shot at the big time, and energy is the key to collectively achieving it. But the longer the BRICs go without energy based cement to shore up their political foundations, the larger the cracks will become – not just between Brasilia, Moscow, Delhi and Beijing – but on the streets of their own respective capitals. President Putin knows that better than anyone. Rather than Russian inertia, 2012 might just prove to be Putin’s BRIC moment.