Energy as 'Soft Power', or: an (A-) Morality Tale About How 'the West' Became Dependent on Russian Hydrocarbons
It all started in 1968, with Austria firmly in the forefront of West European developments--then as now, it's an interconnected world of many conflicting interests
A few years ago, Lord Voldemort, then better known under his alias ‘Vladimir Putin’, came to visit the small alpine republic of Austria (/sarcasm). On a balmy spring day, 5 June 2018, the most important visit by a foreign head of state in many years, if not decades, took place. State and non-state media went ‘all-in’ to prepare the grounds for a—hopefully—successful visit.
Mr. Putin’s visit marked the 50th anniversary of the first delivery of Russian (the Soviet) natural gas across the Iron Curtain. The Kremlin’s first customer was—Austria, which, since 1968, works as a ‘bridge’ between the energy systems of the collective arrangements in eastern and western Europe.
Why is this bit of history important? Austria was the first non-socialist country to conduct this kind of business transaction with the Kremlin, which is to say: 1968 was the year Western Europeans made their very own Faustian bargain.
Europe’s Energy Dependence (on Russia) Began in 1968
Fast-forward to June 2018, Federal President Alexander van der Bellen spoke of ‘a decade-long cooperation that has worked excellently and very well for both parties’. Mr. Putin, as ever quite candid, characterized Austria as ‘the key country’ for Europe’s energy supply:
The jubilee symbolises the tried and tested, as well as mutually beneficial, cooperation, and both our countries wish to strengthen this cooperation henceforth.
Thankfully, state broadcaster ORF recently ran a long, but quite accurate, historical analysis on this subject. You will find a translated and slightly edited (for clarity and concision) version of this article by Felix Novak and Alexander Katholitzky below.
This is part one of my mid-June ‘historical context’ series on Russian hydrocarbon energy. Tomorrow, I’ll provide you with a second part, which focuses on the tiny village of Baumgarten, Lower Austria, where Soviet (now Russian) gas reaches Austria. As always, all emphases are mine.
When Austria Became Dependent on Moscow
How did this momentous arrangement come about in 1968—at a time when for most people the world ended at the Iron Curtain? The origins of this treaty may be found in the early 1960s.
At that time, Austria drew its energy primarily from imported coal while the Soviet Union did not play a role in energy terms; rather, to the contrary: energy exported to the USSR. Specifically, the Soviets had demanded ten million tonnes of crude oil from Austria as part of the State Treaty (Staatsvertrag) of 1955, a kind of reparation payment that would have to be made within a decade.
Natural gas played a merely subordinate role up to that point. In part, it was (is) produced as a by-product of oil extraction, and back then it was mostly used for illumination (Leuchtgas). This kind of gas was obtained from coal gasification and was mainly used for gas-lit streetlamps, but it was comparatively inefficient and also dangerous due to its toxicity.
The Run on Natural Gas
The boom years after the war brought this system to its limits. Manufacturing businesses in particular, such as the steel company Voest (the former Hermann Göring-Werke in Linz, Upper Austria), recognised the great potential of natural gas. Gas-powered plants for heating and electricity became increasingly interesting for energy companies, and eventually private households also began to heat with natural gas. These trends created an unprecedented demand for energy, not only in Austria but throughout Europe.
Austrian state-owned oil administration ÖMV (now OMV) conducted gas production in addition to exploitation of domestic oil fields in the Marchfeld north-east of Vienna, but this domestic production would not be nearly enough to sustain economic production. Those responsible in politics and in state-owned and state-related companies realised that Austria’s economy was in danger of shutting down additional natural gas.
Algeria, Libya, or the USSR?
Therefore, from 1960 onwards, all possibilities of import were examined. Gas fields in Algeria, Libya, Kuwait, and Saudi Arabia, as well as in the Netherlands, were classified as options—and from 1964 onwards, also increasingly those in the Soviet Union, as Marie-Louise Skolud writes. She evaluated historical sources from the EVN (the Lower Austrian state energy provider) for her enquiry into the first gas supply contract.
Many hurdles made negotiations difficult in the 1960s: besides the technical challenges of building a pipeline, this meant, first and foremost, political upheavals. During these years, Algeria liberated itself from French colonial rule in a bloody war of independence. At the same time, Austrian state-owned oil administration (ÖMV) and the energy companies of the federal states were engaged in a power struggle that further delayed talks on any importation.
The Course Is Set for an Austrian Gas Crisis
In 1964, ÖMV was producing 1.7 billion cubic metres of natural gas annually but, according to then-ÖMV Director-General Fritz Hoynigg, domestic production could ‘only be maintained for another three to four years’ without new exploration. In 1966 the situation had become so dramatic that a short-term—and thus very expensive—supply contract had to be concluded with Czechoslovakia to prevent acute gas shortages.
Despite new discoveries, domestic production remained in long-term decline, as ÖMV spokesman Rudolf Schaffer confirmed in January 1968. At that time, negotiations with the Soviet Union had reached their high-intensity phase, and there was a ‘very urgent’ need for natural gas from abroad. By early 1968, there were no longer any serious alternatives to Soviet gas, and all other negotiations had reached an impasse.
Hopes for 50% Natural Gas Imports from the East
Hopes for supplies from the East were enormous—at least by the standards of the time. ‘Until then, domestic consumption was necessarily limited by domestic production. If enough imported gas becomes available, however, consumption will increase’, said Schaffer, adding that, ‘it may be at a later stage that demand will be covered in roughly equal parts by domestic production and imports’. For comparison: today, about 80% of gas consumed in Austria is imported from Russia, 10% comes from other countries, and only another 10% comes from domestic production.
The initiative for the treaty with the Soviets had originated in Austria in 1964. In the years before, the country had already maintained good relations with the USSR, at least by Western standards. In the phase of détente after the Cuban Missile Crisis in 1962, the time was seen to have come to engage Moscow further. However, establishing contact proved difficult, and it was not until four years later that the Soviets were prepared to enter into serious negotiations.
The totalitarian socialist régime had now recognised the enormous opportunities that a treaty with Austria would offer: on the one hand, such a treaty would function as a door-opener to other Western states while, on the other hand, it would allow the USSR to improve its own infrastructure. Therefore, joint efforts were made to get the Austrian steel industry on board, which was to provide the pipes for the pipelines.
Milestone 1 June 1968
In fact, an agreement was reached in the spring of 1968, and on 1 June, the first gas supply contract was signed in the Vienna offices of the ÖMV. Voest undertook to furnish the processed alloys for 520,000 tonnes of pipes. From that moment on, restrictions on the supply of gas to consumers are off the table, ÖMV Director General Ludwig Bauer told the Austrian Press Agency at the time. The term of the contract: 23 years—‘but its importance for the Austrian economy will extend far beyond this period’, he predicted.
After years of disputes between ÖMV and the state-owned energy providers, such as NIOGAS in Lower Austria, the following solution was found: ÖMV functioned as the exclusive importer at the border—and was thus the sole contractual partner of the Soviets. ÖMV subsequently promised identical conditions to the state energy providers, by which is meant also civilian end customers.
Probably the greatest advantage of supplies from the East were its low investment costs. The USSR had already built a ‘Brotherhood pipeline for natural gas’ (today the Yamal-Europe pipeline) to its satellite states in 1964. Only a few kilometres had to be built to cover the distance from Bratislava to Austria, specifically to Baumgarten an der March, which was to become the key importation hub [featured in tomorrow’s post].
Construction was to be completed within three months, and the first natural gas from the East was to arrive in Lower Austria as early as September 1968. The long-term duration of the contract was seen as a gain—as were contractual clauses that did not provide for any exit options even in the event of war.
Soviet Tanks in a Neighbouring Country
It was precisely this scenario that was to weigh heavily on the world scene merely a few weeks later, not in Austria, but in a neighbouring country. For years, Czechoslovakia had been moving politically further and further away from its socialist ‘protector’, the USSR. Under the communist Alexander Dubček, it had passed reforms such as the abolition of censorship and taken further steps towards opening up. On 21 August, Warsaw Pact troops intervened, and tanks soon rolled through Prague and Bratislava.
The consequences for neighbouring Austria were dramatic. The Defence Ministry had warned the government early on about an expected number of 150,000-200,000 refugees. By 1969, more than 210,000 refugees had arrived, as historian Silke Stern notes in her article ‘Czechoslovak Emigration’ (citation here). In addition, there were several border violations by Warsaw Pact troops along the Iron Curtain.
No Condemnation of the Invasion
Despite these enormous repercussions, the Austrian reactions remained very restrained, writes Peter Ruggenthaler (of the Boltzmann Institut für Kriegsfolgenforschung). Federal Chancellor Josef Klaus (ÖVP) did not condemn the invasion of Czechoslovakia. And while Austria did not remain indifferent to the ‘fate of other countries and peoples’, it remained strictly neutral. The Federal Government accepted the statement of the Soviet ambassador that it was an internal matter. Moscow had merely reacted to a communist call for help from Prague, according to the official version.
Vienna did not even transmit a diplomatic protest against the repeated border violations by Soviet fighter jets. It merely mentioned this to Moscow and asked the Soviets to refrain from such incidents in future.
Soviet Criticism of the ORF
Soviet diplomats were quite pleased with Austria’s attitude, at least at first. Their tone quickly sharpened, however, because of reporting in Austrian state media, specifically by ORF. With their ‘tendentious’ attitude, the state broadcaster had made themselves ‘spokespersons for the counterrevolutionaries in the CSSR’, criticised Ambassador Boris Podtserob.
For Foreign Minister Kurt Waldheim (ÖVP), 1968 was a balancing act. On the one hand, he referred to the freedom of the press while insisting, on the other hand, that press freedom also had limits ‘imposed by Austria’s obligations under the State Treaty’. As a result, Waldheim and Chancellor Klaus sought to talk ‘virtually daily’ to those responsible for the media, such as ORF Director-General Gerd Bacher, with the aim ‘to instruct them to proceed from the government’s neutral position in illuminating the events in Czechoslovakia’.
How to Successfully Cuddle with the Russian Bear
In fact, from the Soviets’ point of view, the reporting subsequently ‘improved’. Waldheim’s ‘cuddling’ towards the Soviet ambassador went so far that Podtserob could not help but praise that Austrian media coverage of the events in Czechoslovakia, in particular highlighting the ORF’s role, which had become more ‘objective’, Ruggenthaler writes. The ORF, for its part, rejected accusations of political intervention at the time.
According to the historian Ruggenthaler, one reason for the extremely reserved reaction of official Austria was the lack of security guarantees from the USA, as Austrians were afraid of being next in line (after Czechoslovakia). But ‘Austria, especially the Klaus government, was also particularly interested in pursuing its economic interests’, writes Ruggenthaler. ‘The intensive travel to countries of the “Eastern bloc” had already borne fruit, which had earned the government criticism from the opposition for its “Ostlastigkeit”, that is, its attention to all matters eastern.’
Sidenote: the below header is from the ORF piece, indicating that, then as now, political opportunism still holds the newsroom in its grasp.
Opening During a ‘Special Military Operation’
Part of these economic interests were undoubtedly connected to the gas supply, for which Austria had tied itself to the Soviet Union for 23 years in the very same year. Exactly ten days after the start of the invasion, the first gas flowed across the Iron Curtain to Austria.
On that very day, 1 September 1968, Czechoslovak reformer Dubček admitted defeat, at least indirectly. ‘We underestimated the strategic interests of the Warsaw Pact’, he said in a speech announcing a return to censorship and state socialist repression.
‘Scheduling Difficulties’ at the Opening Ceremony
After two weeks of trials, the Baumgarten Gas Hub was to be supplied regularly from mid-September, and this moment was to be celebrated. Here, diplomatic tensions had an impact on the gas business for the first time. ‘So far, ÖMV has not received any news about who would attend the celebration from the Soviet side’, APA reported on 4 September. The two ministers for foreign trade and for gas industry, as well as their deputies, had been invited.
Foreign Trade Minister Nikolai Patolichev eventually cancelled—officially because of ‘scheduling difficulties’—but Gas Minister Alexei Kortunov attended the celebration on 17 September. For the Austrian side, Ludwig Weiß (ÖVP), the Minister for Nationalised Industries, was present. The treaty opened up new perspectives for state-owned industry, Weiß explained at the time. He hoped for further expansion of Soviet-Austrian economic relations, and this hope was also shared by the representatives of the communist regime.
A Model for Half of Europe
The supply contract with Austria was to serve as a blueprint for many other West European countries. France and Italy, for example, had also shown interest in Soviet natural gas for years, and in West Germany a deal for the supply of pipelines to the USSR had failed in the mid-1960s due to a NATO embargo.
Now the ice was broken, and the proof of the successful delivery of Soviet gas to the West was in. More and more contracts were concluded, and with it came the increasing importance of the Baumgarten Gas Hub as a central node for Austria’s neighbours. Later, the Trans-Austria and West-Austria pipelines, which transport natural gas to Italy and Germany respectively, started here.
‘Choose for yourself the countries on whom you prefer to be dependent’
Austria also renewed its long-term supply contracts with the Soviet Union and later with Russia at regular intervals. More and more natural gas was delivered to Austria—and the dependency grew far beyond the originally envisaged extent.
Whether or not this was problematic, ÖMV head Ludwig Bauer was asked by an ORF reporter in 1978: ‘The whole civilised Western world is dependent on energy and no country can supply itself’, he replied. You have to ‘choose for yourself the countries on whom you prefer to be dependent’, Bauer said: ‘I prefer to be dependent on those who can provide our economy energy that makes it competitive’.
Bauer’s follow-up sentence is still valid: ‘That’s the problem.’
Brief Comment
Whether or not such dependency is a good idea is one thing, I’d argue. Problem is that such detached, quite rational deliberation as displayed back in the 1960s, is virtually gone from mainstream western discourse, both in politics and legacy media.
Now, I’m not saying that I condone the Russian operation against (in) Ukraine, but it’s easy to see how any number of sanctions on Russian oil and gas will have potentially catastrophic consequences for most Europeans.
Still, I also think that the going hasn’t become tough enough for most people to take to the streets and demand an end to the EU-mediated madness of ‘freezing for freedom’.
Also, this situation has the potential to change ‘European’ affairs, I believe: both NATO and the EU are little more than paper tigers, to paraphrase Chairman Mao, and after the disillusionment of the many typically follows a period of calm—before the weather changes decisively.
Fascinating! I loved the emphasis are mine quips.
With any luck the bear still retains a bit of humor and will simply log this temper tantrum as a teenage rebellion issue. They use to want to negotiate, yes, always wanting more money, or more of something, the challenge is to find out what they want and negotiate, maybe with some boot licking they will want to again. Hahahahaha!