Transatlantic Politics

Coupled with a non-united Europe and the fading influence of the US State Department in Eastern Europe, Vladimir Putin strikes again today on the energy front by securing a deal on the South Stream gas pipeline with Bulgaria, one of his closest allies and also dubbed "Russia's trojan horse in the EU".

During his final visit as Russia's President to a foreign country, Putin managed to get Bulgaria on board for his pet project: The Nabucco pipeline.  This was accomplished even though the South Eastern European country is also a partner in an US-EU backed project designed to be an alternative to Russian pipelines across Eastern Europe and to Russia itself as a gas supplier.

Despite EU optimism, Russia's move is clear: the Baku-Tbilisi-Ceyhan precedent must not be repeated.  The Baku-Tbilisi-Ceyhan gas project was a U.S.-led pipeline that bypassed Russia and brought oil from Azerbaidjan directly to the Mediterranean via Turkey.  This project single-handedly helped Azerbaidjan and neighboring Georgia gain a degree of autonomy from Russia's sphere of influence.

Having witnessed the power of the pipeline, Russia has set its sights on the oil & gas-rich Caspian countries.  As a result, these same former members of the Soviet Union are also becoming more dependent on Russia's state-controlled Gazprom monopoly in an overt attempt by Russian-controlled Gazprom to bring the "lost countries" of the Warsaw Pact back into the sphere of Russian influence.

Reuters summarizes Gazprom's expansion in Central and Eastern Europe. However, Reuters fails to note Russia's recent coup d'etat in Austria, where Putin secured a deal concerning the termination of the previously-mentioned Nabucco pipeline.  The termination point of this pipeline in Austria is at the Baumgarten terminal and is based on the principle that  "if we can't own the pipeline, we should own the faucet". 

Such moves are to be expected from Russia's Gazprom.  Here is a list of Russia's latest energy dealings: 

• BULGARIA
• Gazprom supplies all of the Balkan country's natural gas and transits gas via its territory to Greece and Turkey.
• Russian President Vladimir Putin on Jan. 18 secured Bulgarian participation in the 10 billion euro ($14.66 billion) South Stream gas pipeline.The project, proposed by Italy's Eni  as well as Gazprom, is Moscow's challenge to a rival Nabucco plan to pipe Central Asian gas to the European Union and reduce the bloc's reliance on Russian energy. Gazprom is also interested in buying a stake in Bulgaria's state gas monopoly Bulgargaz if the government goes ahead with plans to list a minority stake on the bourse. Gazprom is also reportedly interested in acquiring the Sofia heating utility plant.
• Bulgaria has picked Atomstroyexport, controlled by Gazprom, to build its new 4 billion euro power plant of Belene.
•  CZECH REPUBLIC
• Czech natural gas firm Vemex has signed a deal with Gazprom unit Gazexport on gas deliveries to the Czech Republic which bypass the former Czech monopoly.
• ESTONIA, LATVIA, LITHUANIA
• Gazprom wants to build gas storage in the former Soviet Union's Baltic states, but it is seeking alternative pipeline routes to avoid dependence on traditional transit states.
• In particular, it wants to build a pipeline under the Baltic Sea from Russia to Germany, which would bypass Estonia, Latvia and Lithuania, as well as Poland and Belarus.
• The planned pipeline is to be built by a consortium, Nord Stream, majority-owned by Gazprom and also Germany's BASF and E.ON
• GREECE
• Putin said last month that Greece wanted to double imports of Russian gas after 2016. He said Greece supported Gazprom's plans to build the controversial South Stream pipeline (a rival to the aforementioned other Russian pipeline: Nabucco).
• HUNGARY
• Under a deal announced on July 13, 2006, Gazprom gained stakes in Hungarian gas and power companies in return for giving Germany's E.ON a share in the Siberian Yuzhno-Russkoye field.
• Gazprom and Hungary's MOL have formed a company to study the proposed extension of the Blue Stream gas pipeline, which takes Russian gas to northern Turkey.
• SERBIA
• In December, Russia proposed to Belgrade a controversial energy pact that would potentially see Serbia included in Gazprom's South Stream gas pipeline.
• In return Gazprom would get a 51 percent stake in Serb oil monopoly NIS for 400 million euros. But the proposal has drawn fire from one faction of Serbia's ruling coalition, which argues the offer undervalues NIS.
• Analysts believe nationalist Prime Minister Vojislav Kostunica wants to accept the offer, to reward Russia for backing Serbia's efforts to block the independence of its breakaway Kosovo province by threatening to use its U.N. veto.
• SLOVAKIA
• Gazprom owns 49 percent of the gas network SPP together with Germany's Ruhrgas (a subsidiary of E.On) and Gaz de France.
• TURKEY
•  Gazprom supplies three quarters of Turkey's gas via southern Europe and by a pipeline under the Black Sea, which it jointly owns with Eni.
• It wants to buy Turkish gas distribution firms is also seeking direct deals with Turkish utilities with an eye towards supplying gas to Israel.

 Putin's Russia understands that energy is the lifeblood of an economy.  Chavez's Venezuela understands that energy is the lifeblood of an economy.  Why do the largest economies in the world, the EU & the US, not do more to secure their own lifebloods? 

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The Nabucco project is one feeble EU attempt to build an alternative to the Gazprom-controlled, already-built natural gas pipeline-network. 

It is supposed to bring gas from Azerbaijan and/or Iran, through Turkey, Bulgaria and Romania to the huge gas-hub in Austria, at Baumgarten. Russia tried first to discourage the Azerbaijan government from moving forward with the project.  Instead, Russia built its own direct pipeline through the Black Sea via Turkey (entitled Bluestream), all the while openly dismissing the Nabucco pipeline, by saying that Russia needs to protect and expand its own pipelines in order to ensure an uninterrupted gas flow to its European clients.  Given Russia's recent history towards energy policy, some might view this sequence of events as disturbing.

But Russia's ultimate strategy came to life 10 days ago, during Putin's visit to Vienna. The gas hub in Baumgarten, where the Nabucco pipeline would be connected to other Western European pipelines is now a shared venture between OMV (the Austrian gas corporate) and..Gazprom - the Kremlin-controlled Russian oil conglomerate!

Can't own the pipeline? No big deal, we'll own the faucet.

This might just be the beginning of a "beautiful friendship" with the Austrians, similar to the Gerhard Schroeder affair.  The former German chancellor struck a deal with Putin just weeks before the election he lost that called for building a direct pipeline through the Baltic Sea linking Germany directly to the gas fields in Siberia.  Doing so conveniently reduces the gas flow through the Baltic states and Poland - who have openly criticized Russia. Punishment and reward in its most basic form.  Since signing this deal on behalf of the German government he no longer leads, Schroeder has been rewarded with a seat on the executive board of Gazprom and he is now actively lobbying for the continuation of this and other projects of the Russian state-controlled giant.

Pictured above is the map of the Nabucco-project. The construction of the pipeline is due to start next year and be ready by 2011. It is not clear yet which branches will be developed first. With Russia having also struck a deal with Kazakhstan and Turkmenistan regarding their Caspian Sea reserves, and with Iran being the second gas producer, there is only Azerbaijan left to feed the pipeline. And Azerbaijan's reserves are not sufficient. With Gazprom waiting patiently at the other end of the pipeline, one might ask if it really matters anymore.

As Ed Lucas puts it in this week's Europe view column -

"Russia has largely won the gas wars before most Europeans even noticed they were being fought. So far this year the Kremlin has stitched up the Caspian (by striking a pipeline deal with Turkmenistan and Kazakhstan). It has nobbled Austria, Belgium and Hungary (to add to its powerful position in Germany, France and Italy). By schmoozing other producers it has begun to form a gas cartel. Russia has also built a strong pro-Kremlin camp elsewhere in the European Union (Greece, and Cyprus chiefly; Hungary, Latvia and Slovakia increasingly; and probably Bulgaria too if anybody looked closely). Its banks and businesses have created a fifth column in the City of London and other world financial centres."

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53% - Nicolas Sarkozy

47% - Segolene Royal

The exit polls are clear: France's new president is the center-right candidate Nicolas Sarkozy. Good news for the economy, immigration policies and France-US relations. Bad news for Turkey, as Sarkozy is a fierce opponent to its future EU membership. He might soften his stance though, especially since Turkey is not due to join before 2014 anyway.

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There’s a witty editorial in the yesterday’s Wall Street Journal (requires subscription) about Angela Merkel’s totally softened policy-making. The title "Angela Schroeder" says it all, the current holder of the EU-presidency has actually more resemblance to her predecessor than to what she initially was supposed to stand for: closer US-German relations, stronger NATO involvement, "less government", cutting taxes, economic reform.

Upon assuming the presidency of the bloc in January, Ms. Merkel decided to use this rare opportunity to shape the Brussels agenda for six months to advance the softest of all soft policies: to revive the European Constitution.
(…)The EU’s real challenges are elsewhere: enlargement to the Balkans and Turkey, economic reform, the incomplete single market, terrorism, immigration, energy security to name only a few. Any of those would have proved more challenging for Ms. Merkel — and so much more beneficial for the EU.

Instead of immigration or energy security, Ms. Merkel has given in to the green obsession (despite her center-right orientation) currently so trendy in the EU: gas emission targets that are merely "PR gimmicks" - 20% by 2020 - when just 2 of the 15 old EU member states are on track to meet the Kyoto protocol. On issues like Iran, Merkel has also visibly given in to her Social-Democrat predecessors and members of cabinet. If one year ago, she was comparing Iran’s rhetoric to the Nazis, now she softened the tone and let her Foreign Minister and Schroeder’s former chief of staff do the talking. In Afghanistan, NATO is "fighting uphill" because of her refusal to move the 2700 troops out of the stable north to the more dangerous south.

The latest Merkel disappointment involves American plans to expand its missile defense shield. Poland and the Czech Republic are in talks with Washington to install radar and missile sites to better protect the U.S. and Europe against an Iranian missile attack. To stir up nationalist furies at home and pressure the Poles and Czechs, Vladimir Putin lashed out against the missile plan, knowing full well this limited system could never put a dent in Russia’s own nuclear threat. Germany’s foreign minister immediately rushed to the defense — of the Kremlin. Mr. Steinmeier accused the U.S. of supposedly failing to inform Russia about the missile plans.
Ms. Merkel could have set her foreign minister straight for resuscitating the Schröder-style coddling of Moscow. But she, who grew up in East Germany, only seconded him. Ahead of a trip to Warsaw last week, the chancellor said, "We, and I will say it in Poland, prefer a solution within NATO and also an open discussion with Russia about it." The Germans aren’t so concerned with NATO cohesion in Afghanistan. In this case, the countries directly involved are the ones to decide.

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The Bush administration is slowly recognizing that without Turkey’s full commitment and leadership, there cannot be any real perspective for peace in the Middle East. Yesterday, Assistant Secretary for European and Eurasian Affairs Daniel Fried testified before the House Foreign Affairs Committee and presented the new "Shared Vision" between the US and Turkey. The new policy suggest a stronger partnership, probably more lobbying in Brussels to get 2014 as an EU accession date, promoted already both by the Turkish government and business groups are already promoting as an accession target date. Energy transport and security is also a key-component in the US-Turkey relationship, and is becoming increasingly important to the EU.

Secretary Rice has instructed me to shift the focus of the U.S.-Turkey relationship from one of simply managing challenges to one where the United States and Turkey are working cooperatively to advance a broad range of issues, putting in action our shared interests and common values. Our shared interests include stability and freedom in Iraq and Afghanistan, democratic reform in the broader Middle East, energy security across Eurasia, and Turkey’s deeper anchoring in Europe.

On the energy security issue, the plan is to further invest in the already existing pipelines that link Azerbaijan, Georgia and Turkey and expand this network to Europe, for instance through the Nabucco natural gas pipeline that would ultimately end in Austria (maybe that will melt down their anti-Turkish feelings a little bit) and the emerging Turkey-Greece-Italy pipeline. There are also negotiations for gas exports from Iraq to Europe via Turkey.

As these natural gas projects develop, they will emerge as a Southern Corridor of infrastructure that will offer fair and transparent competition to Gazprom’s massive network of gas pipelines that is in place - and expanding - in Northern Europe. The Southern Corridor can change Eurasia’s strategic map by offering Europe its best hope for large volumes of natural gas supplies that will allow diversification away from a deepening reliance on one supplier or network. Turkey, if it continues to act as a partner with its neighbors, including by reaching a commercially attractive gas transit agreement with Azerbaijan, will be the centerpiece of this grand strategic effort.

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