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Adrian Hamilton: It's economics, not politics, that will influence Russia

Among all the dramatic and doom-laden suggestions this week of how to deal with Russia after Georgia, one of the most naive must be the suggestion that we can somehow separate the politics from the commerce, playing hardball with the one and softball with the other. Tell that to BP. Tell that indeed to the Ukrainians, the East Europeans or the Baltic states in their price negotiations for Russian gas.

You can't separate politics from business, not in Africa, Asia and most of all not in the countries of the former Soviet Union. In the fall of the Berlin Wall it might have been possible to see Europe's future simply in terms of the spread of democracy and the autonomy of new states. The growing shortages of of raw materials, and particularly oil and gas, have changed all that.

In the first place, it has altered the bargaining power of Russia itself, as a major oil exporter in its own right. When the Russian state was in disarray and its assets in the hands of the oligarchs, the West as customers could play the game by their rules.Once energy went into short supply and the Russian state acted to retrieve its control of raw materials, the bargaining power moved across the table.

If that were all, that would be hard enough. But the part of the story that is only now developing – and the part that being so harshly illuminated by the Georgian crisis – is Russia's role as the distribution centre for the oil and gas discovered in the former Soviet republics along its southern border. Georgia is already the pipeline route for oil and gas from Azerbaijan. It was specifically developed by the West as a route that would bypass Russia on the route to Turkey and hence Europe.

The difficulty for Europe is that Georgia remains, for the moment, the only alternative route to Russia for supplies from Kazakhastan and Kyrgistan as well as additional supplies from Azerbaijan. The obvious non-Russian route would be by Iran, which has been nullified by the present policy of confrontation with Tehran. For the producers of the Caspian the choice is either Turkey via Georgia or Europe by way of Russia.

Not for nothing have Russian troops been firmly and visibly in possession of Gori, the Georgian town at which the Baku-Tblisi-Ceyhan pipeline hinges from Azerbaijan to the east to Turkey in the south. Nor is it for nothing that the Russians are so determined to send out a clear message as to who is in charge in their nether regions and how little the West can be relied on.

Presidents Bush and Sarkozy may see the Russian message of Georgia as directed against the West. In reality it has far more resonance, and is likely to have the greatest effect, on the other states of the Caucasus and Caspian. The Ukraine is irrelevant to what matters most. So are Poland and the Baltic states. Look to where the oil and gas are and there you will find the real interests of Moscow.

So should we be confronting Moscow in a battle for "spheres of influence", as Nato leaders argued this week? No, absolutely not. The very worst thing to do is what we did in Georgia and load a specific local situation with all the panoply of East-Westconfrontation. It is not in the interests of the countries concerned to play this. Many of them, such as Kazakhstan and Georgia (if the enclaves are included), have sizable Russian minorities and long-established relations with Moscow. They cannot afford to choose sides against their bigger neighbour, however much they may resent it.

But most also have commercial as well as political interests in encouraging alternative sources of investment and influence. If we were to regard Russia less as a rampant bear to be contained and more as a commercial competitor to be competed with, we would get a lot further. We have the money and the skills to offer and we present a countervailing influence, cultural as much as political, to Russia.

The trouble is that, even in straight commercial terms, we have let so much slip through our fingers. We have been terribly slow to commit ourselves to new pipeline plans, including the proposed Nabucco gas line. EU engagement through trade and aid is slight and diffuse, and attention is now being diverted by President Sarkozy's mad schemes for a Mediterranean Union. Europe still hasn't got a proper common energy policy. EU policy towards Iran is both futile and self-defeating.

This is far more a European responsibility than an American one, if only we'd pick it up and handle it effectively. Condi Rice, David Miliband and Nicolas Sarkozy got it precisely wrong this week. What we need in dealing with Russia and the former Soviet Republics is to play softball on the politics and hardball on the commerce.