Wednesday, August 6, 2014

The Prospects for the South Stream Pipeline after the Ukrainian Crisis | Foreign Policy Journal

by Andrew Korybko | June 6, 2014

South Stream Route
Map of the proposed South Stream natural gas transportation pipeline (Samuel Bailey/Wikimedia Commons)


Following the end of the Cold War and the redistribution of power in the international system, soft power began to take on a significant role in geopolitics. Aside from its ideological and image-crafting manifestations, it is also deeply involved with the energy sector. Specifically, the complex energy interdependence between Russia and the EU has become a major factor in continental (and by degrees, global) politics. As with any interdependency, both sides are simultaneously vulnerable and empowered, setting the stage for unique tango-like moves of “give and take” between both political dancers. After dancing for so long, either partner may tire of the other and try to break free from the tango, eying an available replacement partner across the dance floor to enter into a different type of dance with.

It is against this thematic backdrop that Russia and the EU currently find themselves, especially when it comes to the subject of South Stream. The research will address the project and touch upon the EU’s legal mechanisms for influencing it. Following that, the article will explain the clash between Russia and the EU’s vision for the South Stream pipeline, taking into consideration Brussels’ legal tools. The effect of this Great Power competition on the Balkans will be explored, followed by the most recent developments stemming from the Ukraine Crisis. The latter, as a result of the EU’s reaction to it, will be considered a watershed event in energy relations with Russia, and two probable scenarios will be forecasted.

European Energy Geopolitics

The EU collectively receives about a third of its gas imports from Russia, with some members – Finland, the Baltic States, Slovakia, and Bulgaria – practically fully dependent[1] on Russia for their needs. On the reverse, Russia exports nearly 80 percent[2] of its oil and gas to the EU, and the energy trade contributes to nearly 70 percent of its total exports and 30 percent of its GDP.[3] Due to the Ukrainian Gas Crisis of 2009, when Russia stopped transit because Ukraine was illegally siphoning off gas[4] and hadn’t paid its debt, the EU experienced an acute energy shortage. Ukraine supplied 80 percent of Russian gas to Europe[5] at the time, and the lesson that the EU learned was that it needed to diversify its pipeline routes (and perhaps suppliers, as the failed Nabucco project[6] sought to do) to prevent a repeat of this scenario. The successful completion of Nord Stream in 2012 reduced Ukrainian transit dependence to 50-60 percent,[7] and the fulfillment of South Stream has the potential to lower that amount even further.

South Stream

South Stream is a Russian-led project to create a gas pipeline that travels under the Black Sea to the Balkans, and thenceforth into the heart of Europe. It would increase EU supplier dependency on Russia, while at the same time decreasing transit dependency on unstable Ukraine. The backbone of South Stream will pass through Bulgaria, Serbia, Hungary, and Slovenia, with extensions planned for Austria, Croatia, and Greece, all of which have already signed onshore agreements with Gazprom. Even before the Crimean climax of the Ukrainian Crisis, Brussels had taken issue with South Stream as a result of the Russian project not accommodating new EU energy regulations. This has led to the EU pressuring the aforementioned states to renegotiate their agreements with Gazprom or face stiff legal penalties.[8]

The EU’s Legal Mechanisms for Reverse Energy Blackmail

The EU has passed various legal packages in a bid to centralize the energy policy of all of its members. Although supposedly created to increase market competition and support energy efficiency, a dual purpose of the measures is to make the EU a unified energy partner in dealing with Russia, thereby allowing it to enact greater concessions and benefits.

Energy blackmail is usually identified with the supplier enforcing its political will on customers downstream, but in this case, the potential for reverse energy blackmail is apparent. This is defined as downstream states taking (or threatening to take) moves to limit their consumption, thereby endangering capital flow to the upstream state which has grown dependent on its customers. To a country as dependent on its downstream clientele for revenue as Russia is, this is a strategic threat. The subsequent sections describe the EU’s levers of reverse energy blackmail and how they affect Russia.

Complete story at - The Prospects for the South Stream Pipeline after the Ukrainian Crisis | Foreign Policy Journal

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