Michael Harrison's Outlook: 'Beware the Russian bear' is the motto Europe must adopt as it reviews its energy future

BP's Lord Browne faces toughest test; Rose's M&S can smell sweeter still
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Today sees the publication of the European Commission's review of energy - a subject which has climbed remorselessly up the political agenda in recent years to the point where it has now assumed the same kind of importance to world well-being and security as international terrorism or global warming.

The focus of Brussels' deliberations, however, is likely to be inward-looking, concentrating on the steps the European Union needs to take to reshape its own markets and, in particular, to unbundle those national monopolies on the Continent which have served to stymie competition and the free flow of energy.

If that is the case, it will be a lost opportunity because the biggest threat to the energy security of the EU is external and it can be summed up in one word - Russia. That the launch of the review by the EU's Competition Commissioner, Neelie Kroes, should take place against the backdrop of another piece of economic imperialism on the part of Moscow - the closure of its gas pipeline to Europe through Belarus - merely serves to underscore the point.

Coming exactly a year after a carbon-copy dispute between Russia and Ukraine, it demonstrates that lightning can and does strike twice in the same place and is likely to continue to do so as Russia's importance to the West as an energy supplier grows.

The point has not been lost on Angela Merkel, the Chancellor of Germany, a country which relies on Russia for a third of its gas. She has wasted no time in highlighting the Belarus episode as another reason why it is imperative not to be overly dependent on one supplier. She has called for the rapid construction of liquid gas terminals to act as a bulwark against Russia's use of its energy resources as a political weapon. She has even ventured that Germany may wish to slow or reverse its phasing out of nuclear power - a suggestion that would once have been anathema to any Germany politician.

It is true that Germany has more to fear than most due to its high dependence on Russian gas. But other EU members such as Britain cannot afford to be complacent: it is quite conceivable that a decade from now a fifth of our gas will be of Russian origin.

Robert Amsterdam, the Kremlin critic and defence counsel to the jailed oligarch Mikhail Khodorkovsky, has some trenchant views on the danger the EU runs if this unequal relationship with its near neighbour is not addressed. He catalogues how the state-owned Russian gas monopoly Gazprom, which harbours ambitions of swallowing up our own Centrica, uses its market power to divide and rule, cultivating certain countries such as Germany along with their political leaders, banks and utility companies and penalising others by withholding supplies - as it did with Lithuania as punishment for selling an oil refinery to Poland.

When cajoling and threats do not work, Gazprom simply uses its sheer might - as it did in Armenia where it pretty much bought up the local energy infrastructure to prevent Iran competing as a gas supplier to Europe.

Europe does have some cards of its own to play because the Russians are desperate for two things. One is access to and, if possible, ownership of Western distribution and supply networks - Gazprom is reliant on export markets in the West to help to subsidise the loss-making business of supplying domestic Russian customers. The second is Western expertise to help develop its huge indigenous supplies of oil and gas.

If Russia and Gazprom want more access to Europe, then they too must be prepared to reciprocate through market liberalisation of their own and parallel access to Russia for European energy companies. That may be a tall order given that Europe, as Ms Kroes will illustrate today, still has a long way to go to reform its own energy sector.

But today's publication of the EU energy review is as good a place as any to start. If Europe does not grasp the opportunity, it may come to regret the consequences.

BP's Lord Browne faces toughest test

Things go from bad to worse for Lord Browne. Not only does BP's chief executive have to contend with falling oil production, even the weather is conspiring against him. The abnormally mild spell in America may be good news for New York sun-worshippers, but for BP's very own Sun God it has meant a 12 per cent decline in the price of the commodity he trades since the start of the year. The short sellers scent that oil is a one-way bet for now, so there may be more pain to come for the likes of BP.

In not-so-distant times, BP would have been able to shrug off falling oil prices and even the odd production blip. But Lord Browne and his company are on a roll of the wrong kind. Output from the once mighty BP machine has now fallen for six straight quarters and, while it may not be alone among Western oil majors in struggling to grow production, it is bearing the brunt of the market's disillusionment. Like Shell before it, which is only now recovering from the reserves reporting scandal which laid it low three years ago, BP is discovering that once on the treadmill of bad news, it becomes difficult to step off. Like Shell, too, the pain has largely been self-inflicted. Since the Texas City refinery explosion almost two years ago, pretty much everything has gone wrong. BP has been accused of rigging the propane market in the US, and the Prudhoe Bay field in Alaska has sprung a disastrous leak. Meanwhile, the BP board itself has been riven with dissent over Lord Browne's failed attempt to hang on long beyond his retirement age.

Even so, he is still slated to remain as chief executive for the best part of two years. The glory days of the late 1990s, when Lord Browne exploited the weak oil price to pull off a series of daring takeovers in America to create the BP we see today, seem to belong to another era altogether. Even the TNK purchase in Russia, an exquisitely timed deal of more recent vintage, feels like a distant memory. Managing the business out of adversity would arguably be an even greater achievement. Right now, however, December 2008 could probably not come quickly enough for Lord Browne.

Rose's M&S can smell sweeter still

OK, so it's a recovery, but it's still only a recovery with a small "r". Stuart Rose always knew that he would have to wait until Marks & Spencer had some decent prior year sales figures to beat before he could declare his task even partially completed. The store's Christmas trading update did not disappoint, with like-for-like sales up 5.6 per cent (even if the more pedestrian 3.6 per cent growth in food caused a little indigestion). But, in mountaineering parlance, Mr Rose has still only reached base camp. The ascent will get harder from here. The last time M&S made £1bn in profit was a decade ago, and it is unlikely to be a peak which is scaled again this year.

That totemic target aside, there is plenty else on Mr Rose's plate. First, M&S has to continue to sustain that sales growth against comparators which get more demanding each time. Second, it has to turn a fledgling internet strategy into something with real substance, since online sales are still only the equivalent of a single store's turnover. Third, it has to decide what its overseas strategy will be. Fourth, it has to start selling more expensive clothing instead of knocking the spots off competitors at the commodity end of the market. Mr Rose has to do most of this by pinching market share in an environment where consumers are likely to become even more canny with their money.

One unnamed investor decided to cash in a 1.6 per cent stake for £188m yesterday. Presuming that shareholder was Brandes, then it still holds another 7 per cent of M&S to take advantage of further upside. That does not look like a bad position to be in.