Wall Street Journal_Estonia Feels the Pinch of Moscow's Pique (Aprill 22)

22.04.2008

TALLINN, Estonia -- Most of the world has long forgotten Estonia's dispute with Russia one year ago, which saw the Baltic nation's oil supplies cut and its high-tech economy hit by a massive cyberattack. Not Endel Siff.

A leading Estonian businessman, Mr. Siff made a fortune shipping Russian fuel through the Milstrand Oil Terminal, a well-maintained 14-hectare terminal on the coast of the Baltic Sea, and through other sites. With oil prices setting records world-wide, business should be good. But Milstrand, where Mr. Siff is chairman of the supervisory board, has filed papers to transform itself into an upscale shopping center. The plan is to load the terminal's equipment on a barge and ship it to the highest bidder. That is because Russian oil companies never resumed the flow of oil to the level upon which Milstrand depends.

The terminal's plight represents a practical example of what can occur when Russia's political sensitivities toward neighboring countries combine, officially or unofficially, with its might as an exporter of natural resources. It can generate fallout long after the initial dispute disappears from the headlines.

Shipment of oil in the Baltic has been increasing overall, but Russian oil companies have redirected much of their transit flows away from Estonia and toward newly built terminals such as Primorsk and Ust-Luga around St. Petersburg. In recent years, Russia has temporarily cut off natural-gas supplies to Ukraine and Belarus and ceased oil deliveries to Lithuania and Latvia; an embargo on trade with Georgia continues. Many analysts see Dmitry Medvedev's selection by Russian President Vladmir Putin as his successor as a way of entrenching what they describe as Mr. Putin's approach of using Russia's natural-resources wealth as a source of geopolitical leverage; the president-elect is chairman of Gazprom, a giant state-owned energy company. Senior Russian government officials don't publicly acknowledge using such leverage.

Mr. Siff's reaction demonstrates a built-in weakness of any strategy that would aim to punish independently minded neighbors with economic pressure. Estonia, which joined NATO and the European Union in 2004, has shifted the bulk of its trade from Russia, and increasingly bases its economy on services, high tech and other industries less dependent on its resource-rich neighbor. Georgia is still pressing hard for membership in the North Atlantic Treaty Organization, Moscow's primary gripe, and gaining strong support in the EU from countries such as Estonia that also have come under Russian pressure.

Unless the flow of Russian oil resumes -- a prospect considered unlikely in the near term -- Milstrand aims to convert its site to tap into the strength of Estonia's consumer economy. Approved unanimously by the company's board and awaiting public planners' approval, the plan foresees deconstruction of tanks and pipes, the conversion of three underground Soviet-built nuclear-bomb-proof tanks into public water storage, and the erection of a shopping area.

"If we do it, we will just dismantle everything, put it on a barge, advertise and sell to the highest bidder," said Mr. Siff, 50 years old, looking out his window at the terminal's gleaming white tanks, tidy lawns and railway link. With its 125,000-cubic-meter storage capacity, Milstrand is Estonia's seventh-largest terminal.
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