Russia’s secret weapons in the energy war by Vivienne Walt @FortuneMagazine June 27, 2014, 7:08 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons With Ukraine finally signing a sweeping “association agreement” with the European Union on Friday morning, Russia’s stranglehold on the region’s economies seem to be weakening. But that hardly means its attempts to influence the region’s economies will be any less. The EU deal, inked in Brussels, shifts the ex-Soviet economy towards the West, paving the way for financial support from Europe and a huge market for its goods. Deep in debt, Ukraine’s new government urgently needs an infusion of cash. “It signifies new investment, new rules without corruption and new markets, the biggest market in the world,” Ukraine’s new president Petro Pereshenko, a billionaire chocolate tycoon elected last month, said after the signing ceremony. For that very reason, Russia could ratchet up its battle to keep its influence over its former allies, including trying to maintain Europe’s dependence on its vast energy resources. Ukraine is already bracing for Russian retaliation, including possibly blocking exports and raising tariffs according to Ukraine’s Economy Minister Pavlo Sheremeta, who told reporters earlier this month, “We have to assume that we’re going to enter a trade war with Russia soon.” Yet leaving aside the trade war, the battle over another major issue—energy independence—is already well underway. The issue over how Russia might get Europeans to maintain their links to the country’s energy resources blew up earlier this month after comments from an unlikely source, NATO Secretary General Anders Fogh Rasmussen. The normally low-key Dane, who rarely comments on energy matters, told the London-based think tank Chatham House on June 19 that Russia was secretly backing some Europeans anti-fracking environmentalists in order to stop Europe from joining the U.S.’s shale-gas revolution—and hence keep the continent dependent on Russian gas exports. Rasmussen claimed NATO allies had detected Russian manipulation at work in the “sophisticated information and disinformation operations” within Europe’s well-organized anti-fracking groups. Environmentalists were outraged at Rasmussen’s suggestion that Russia had co-opted their cause. “You have to wonder what planet he is on,” Greenpeace campaigner Ben Ayliffe, who heads the groups campaign to block oil companies from drilling in the Arctic, told Fortune, pointing out that Russia has recently jailed numerous Greenpeace activists. “To say that we’re in the pockets of the Kremlin is absurd.” In fact, the notion that Russia would seek to underwrite anti-fracking groups might not be so absurd, according to energy-policy experts. Russia has long regarded its gas exports to Europe as a crucial political lever. It spends millions each year trying to influence Western governments on energy policy. Gazprom alone spent more than $6 million on Washington lobbyists last year. In May, Russia halted its natural-gas supplies to Ukraine, which transships the gas to Western Europe through pipelines that cross the country, claiming that Kiev owed billions to Gazprom, but more importantly to retaliate for Ukraine’s decision to sign the association agreement with the EU. About 60% of the gas Ukraine uses comes from Russia, and in April Gazprom raised its price for exports to Ukraine by a whopping 80%. But Russian appears to apply more subtle pressure on other nearby countries—especially those who are EU members. Researchers believe that Russia has indeed funded anti-fracking campaigns in parts of Europe, although in modest amounts, which on their own are not enough to shift government opinion about hydraulic fracking. Take Bulgaria as one example. There, energy analysts found that Russians had funded several local environmental groups. Bulgaria, the poorest EU member state which has an estimated 17 trillion cubic feet of shale-gas reserves, signed a shale-gas exploration contract with Chevron CVX in 2011, but then suspended the deal one year later after local environmental groups protested Chevron’s plans—and before the company could even begin work. “Some of the local groups propping up here and there suddenly became very conscious of fracking and contaminated groundwater,” says Andreas Goldthau, a German energy-policy expert who is currently a visiting scholar at Harvard’s Belfer Center for Science and International Affairs, and who interviewed dozens of politicians and environmentalists in Bulgaria, for a research paper on the country’s energy battles, published in June. “All apparently had been funded by Russians, but the question was, at what scale? Even if you find a smoking gun, you might just find a $1,000 check.” In fact Russia might not have needed to spend more, since oil companies operating in Bulgaria faced other problems in their efforts to start drilling for shale gas. Goldthau says years of deep corruption in the oil and gas industry in Bulgaria and other Eastern European countries complicated support for Chevron’s shale-gas operations from the start, even though a 2012 poll commissioned by Bulgaria’s government found that about 60% of Bulgarians supported the drilling, provided that it did not harm the environment. “The central government decided it wanted to go for shale gas, and then the local mayor got a letter saying, ‘we’re sending Chevron in tomorrow. Please support them,'” Goldthau says, describing how Bulgaria’s ham-handed approach had thwarted Chevron. Already deeply suspicious of oil companies, local officials balked. “The energy sector is corrupt with a lot of turnover, and it is badly managed,” he says. With that Russia maintains its major hold over Bulgaria’s energy needs. Whether it can do the same with Ukraine remains to be seen.