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Russian energy giant Gazprom's CEO has said that natural gas prices for Europe will drop in 2009. Seeing the backlash from its aggressive pricing tactics in Europe, the Kremlin is trying new ways to keep an energy grip on its neighbors.

Gazprom, Russia’s state-owned energy giant, will start dropping natural gas prices for European consumers at the beginning of 2009, CEO Alexei Miller. Miller’s stated rationale for making such a move in midwinter, when demand is highest, is that the export price for natural gas to Europe in the fourth quarter of 2008 was at a record high of more than $500 per 1,000 cubic meters. With the global economy in recession and energy consumption dropping across the board, that price would naturally have to come down.

Such an announcement would not be anomalous were it not Russia doing the talking. The Russians are reducing natural gas prices for the Europeans not out of economic pragmatism, nor out of the goodness of their hearts; instead, this is primarily a political move designed to keep the window of opportunity for manipulating Europe open as long as possible.

Russia is a powerful producer and exporter of both crude oil and natural gas. Because oil can be loaded and shipped across the world in a variety of ways — tanker, pipeline, truck or rail car — the laws of supply and demand more clearly dictate the price of oil than that of natural gas. Now that the world’s economic hubs are being hit with recession, there is little preventing the price of oil from plunging as demand drops. Thus, Russia also announced Wednesday that it is drastically revising its budget downward, anticipating oil prices falling to at least $50 per barrel in 2009 amid the global financial crisis.

Natural gas pricing works differently. Gas can be shipped easily only through existing pipeline networks, making the relationship between the producer and the consumer much tighter, and therefore much more politicized. As a result, prices for Europe are dictated far more by the Kremlin’s naughty-and-nice list than by market forces. This economic reality is all too familiar to countries like Ukraine, Lithuania and the Czech Republic: All have felt the wrath of Moscow, through price hikes or natural gas supply cutoffs, when they moved against Russia’s geopolitical interests.