Putin's European goal no longer a pipe dream
By M K Bhadrakumar
For Russian Prime Minister Vladimir Putin, September 6 will remain as one of
the memorable days of his checkered public life. The Nord Stream pipeline
carrying Russian natural gas under the Baltic Sea directly to Germany formally
opened on Tuesday. On the very same day, Moscow also announced that a
shareholder agreement has been finalized between Russia, Germany, France and
Italy for the South Stream pipeline project, which is designed to carry Russian
gas to Western Europe under the Black Sea.
Both Nord Stream and South Stream have been Putin's pet projects. Against heavy
odds, he tenaciously advanced these two projects that hold the potential to
rewrite Russia's ties with the West and change the power dynamic in Europe.
Russia takes a leap forward in realizing its longstanding dream of finding some
form of permanent habitation in a common European home.
Nord Stream, which redraws Europe's energy map, evoked criticism from the
United States and Poland in particular, while the South Stream was countered
all along by Washington with the rival Nabucco gas pipeline project, envisaged
to transport gas from Azerbaijan and Turkmenistan to Western Europe via Turkey.
The Nord Stream will start pumping 27.5 billion cubic meters (bcm) of gas to
Germany, Britain, the Netherlands, France, Denmark and other European states at
the beginning of October. In short, in the next few weeks, German consumers
will directly receive Russian gas for the first time in history. With that,
German-Russian strategic ties cruise to a qualitatively new level.
The 1,224-kilometer Nord Stream is a twin pipeline and should be able to move a
volume of 55 bcm of gas by 2013. The Nord Stream is designed to connect the
European gas grid and the United Kingdom through the planned connection between
Bunde and Den Helder and from there through the offshore Balgzand-Bacton
Pipeline.
British Prime Minister David Cameron is arriving in Moscow on Sunday in a
renewed attempt to build on UK-Russia ties when the other major European powers
- Germany, France and Italy - have surged ahead in fostering ties with Russia.
Although the US lost the first round of sparring over the Nord Stream, which
will further increase Europe's energy dependence on Russia and even, arguably,
"lock in" European dependence, Washington hasn't given up. It is quietly
promoting European "resistance" to the robust attempts that Gazprom, Russia's
energy leviathan, has been making to snap up the highly lucrative downstream
energy market in Europe by acquiring the utilities that deliver Russian energy
supplies directly into the homes of its European customers.
What irks the US most is that Russia is striving to make lucrative deals with
individual countries - such as Germany - which might incrementally strengthen
Moscow's political influence with them and will profound implications for
Euro-Atlanticism. The trend is already evident with Germany and Italy stalling
on the US-sponsored drive to further expand the North Atlantic Treaty
Organization (NATO) into the territories of the former Soviet Union, lest that
would disturb Russian sensitivities.
The US is working hard in Brussels through Poland and the Baltic countries to
encourage the creation of a new regime vested with the power to supervise
Gazprom's energy agreements with the European Union member countries. Prima
facie, the argument is that Europe should speak with a single unified voice on
energy issues.
The US counts on new German energy commissioner in Brussels Guenther Oettinger,
who is a senior German politician as well, to push for an enhanced role for the
EU in the European countries' direct energy deals with Russia.
Interestingly, on Wednesday, no sooner had Nord Stream been formally opened,
the European Commission unveiled a proposal that, given the prospect that the
share of imported energy is poised to rise in the coming years in Europe - 80%
of EU countries' oil needs are currently met through imports, while the share
of imported gas is touching 60% - there ought to be a comprehensive EU energy
policy to obviate the possibility of individual member countries competing when
striking energy deals with Russia.
Oettinger has a maximalist position that all energy deals with Russia should be
negotiated by the EU and a minimalist position that the EU member countries
should at least allow more EU oversight over their energy deals with Russia.
Oettinger belongs to Chancellor Angela Merkel's Christian Democratic Party.
A special friendship
The US also finds Poland, which currently heads the rotating EU presidency, a
key ally. The heart of the matter is that the Nord Stream bypasses Poland and
takes away the one trump card Warsaw traditionally held to influence Moscow,
which is that it has been a transit country for Russian gas flowing to Germany.
Poland not only loses the transit fee for gas transportation from Russia, but
in political terms, Nord Stream also symbolizes a shared German-Russian
interest to deprive Warsaw of a "spoiler's role" in the two powers' expanding
strategic ties. (Polish Foreign Minister Radek Sikorski, in his previous
capacity as defense minister, once compared the Nord Stream deal to the
Molotov-Ribbentrop pact that partitioned Poland between Nazi Germany and the
Soviet Union in 1939.)
The US is most perturbed about the special friendship between Germany and
Russia built around energy cooperation - what Germans delightfully call their
"modernization partnership" with Russia. Washington apprehends that Moscow is
finessing a formidable asset by way of its relationship with Berlin for playing
a greater role in European affairs.
Germany's unique export boom depends on Russian energy, and its decision to do
away with nuclear energy following Japan's Fukushima Daiichi disaster further
accentuates the dependence in the coming period. Put plainly, Germany may no
longer be able to solve its energy problems without its Russian partner.
Injecting a high degree of reliability and predictability in German-Russian
relations, therefore, becomes a priority foreign-policy objective for Berlin.
This hasn't substantially changed even under Merkel, although she may lack the
fervor and personal commitment of former chancellor Gerhard Schroeder, who was
a strong advocate of excellent relations between Germany and Russia. (Schroeder
at present heads the Nord Stream consortium.)
It was Merkel who opposed the plan by the George W Bush administration in 2008
to induct Ukraine and Georgia into NATO and also blocked the EU from
introducing regulations that would restrict Gazprom's acquisition of European
energy utilities.
As the Germans see it, Gazprom's deals have been very profitable for its Nord
Stream collaborators E.ON and BASF. Indeed, Gazprom has given a vastly
differentiated treatment to German companies in regard of stakes in its Russian
assets, too. BASF and E.ON control almost a half of Russia's massive
Yuzhno-Russkoye gas fields that will provide most of the supplies for Nord
Stream.
However, the fear psychosis over Nord Stream among the European countries -
"Old" and "New Europeans" alike - whipped up by the US, is slowly withering
away against the backdrop of the steady improvement in Russia's ties with the
former Warsaw Pact countries of Eastern Europe. Even Poland is now considering
taking part in Nord Stream as a recipient country.
Meanwhile, Germany's own relations have dramatically improved with the former
Warsaw-Pact countries of Eastern Europe that have been Russia's most vocal
critics so far. Germany's trade with these countries is flourishing and
currently by far outstrips its business with Russia. The Czech Republic alone
is a bigger market today for German exports than Russia, while imports from the
Czech Republic, Poland, Slovakia and Hungary amount to US$56 billion a year,
compared with only $21 billion from Russia, including its energy.
United States propaganda about Nord Stream was exaggerated and had probably
more to do with its own trans-Atlantic leadership role in the post-Cold War era
than about the real specter of a Russian dominance over Europe's foreign
policy. After all, Nord Stream is a European project, not a German project.
Ukraine's travails
But then, Russia is now all set to have a repeat show with the South Stream gas
pipeline project. The US will find the South Stream a bitter pill to swallow
since the Russia-sponsored project is soaring high, finally, while the rival
Nabucco pipeline, which has been tirelessly projected by Washington as a symbol
of European grit to reduce energy dependency on Russia, continues to languish.
Russia plans to deliver as much as 63 bcm gas to Western Europe via the South
Stream pipeline. On Tuesday, Gazprom revealed that Electricity de France (EDF)
and Germany's Wintershall - a subsidiary of BASF - will each get 15%, while
Italy's ENI will have a 20% stake in the South Stream project and that the
shareholder agreement will be signed on September 16 in the Russian Black Sea
resort city of Sochi. Russia plans to begin forthwith the construction of the
South Stream pipeline and to commission it in 2015.
Meanwhile, on a parallel track, Moscow has been revving up its energy diplomacy
with Turkmenistan and Azerbaijan to get these two Caspian countries to use the
South Stream to export their gas (which would also starve Nabucco).
The finalization of the shareholder agreement over South Stream puts paid to
the project's detractors. Some of these have argued that South Stream is far
too expensive. The pipeline is expected to cost 20-24 billion euros (US$28-$34
billion) including the construction of the offshore section at a cost of 8.6
billion euros. Some others have questioned the need of South Stream in view of
the fall in energy demand caused by the global financial crisis.
The US argument is also that with new discoveries of gas in the United States,
Middle East and elsewhere, there would be increased global supplies and along
with it is also the advance of LNG, which together would drive down prices and
transform the global gas market.
Evidently, Germany, France and Italy have not bought into this argument and
seem to prefer that the safety and stability in gas delivery that South Stream
assures is worth their investment. Besides, they see ahead an era of gas for at
least two decades ahead.
However, a dark cloud can always have a silver lining. What the "Orange
Revolution" in Ukraine in 2006 failed to achieve conclusively for the US in
geopolitical terms, Nord Stream and South Stream might - if luck holds and
Moscow errs.
The fact of the matter is that the South Stream bypasses Ukraine, which is
traditionally the main transit route for about 100 bcm of gas to European
countries and made up 80% of all Russian gas supplies to Europe. The so-called
"pro-Russian" leadership of Viktor Yanukovich in Ukraine, who was feared to
undo the Orange Revolution, tried its level best to convince the Kremlin to
give up South Stream.
Ukrainian fears are palpable, since apart from the hefty transit fee, Ukraine
is 100% dependent on Russian energy supplies. Also, woven into Ukraine's energy
relationship with Russia are a host of issues. The established status as a
crucial transit country enabled Kiev to extract concessional terms for its gas
purchases from Russia. Moscow now counsels Kiev that it has a choice to make:
either join the Russia-led Customs Union (comprising Kazakhstan and Belarus)
and become eligible for concessional energy pricing or pay up market prices.
Moscow has essentially posed an existential choice for Ukraine because the
choice inevitably means repudiating decisively Ukraine's option of its future
association with the EU. Yanukovich is going to have a hard time making this
choice. He is on record as favoring the previous pro-US government's policy
seeking rapid rapprochement with the EU. But Russia can make it real hard for
him if he presses the accelerator hard in the journey to Brussels.
The real irony is that all three protagonists are in a dilemma in varying
degrees - Yanukovich, EU and Russia. The US encourages EU to pursue the
development of ties with Kiev as top priority. But Brussels is dithering in
offering yet a clear long-term prospect of membership to Ukraine whose passage
as a transition country in the corridor of "Europeanization" offers,
admittedly, a grim prospect. And as of now, Europe is broke and EU expansion is
the last thing on anyone's mind when European integration itself is in such
visible disarray.
On the contrary, without the alluring prospect of a EU membership, Yanukovich
would ever hesitate to take a plunge into the dark by annoying Moscow.
For Russia, too, the dilemma is acute. Nord Stream and South Stream rock the
foundations of Russia-Ukraine relations. The interdependency built around the
Soviet-era pipelines provided a sort of equilibrium in the relationship - a
sort of sobering influence - since Kiev knew it survived on Russian energy
supplies at concessional price and Moscow knew the criticality of fully
functioning pipelines heading toward Western Europe via Ukrainian territory.
Moscow's dilemma is going to be to resist the temptation of the new "freedom"
provided by Nord Stream and South Stream to pressure Ukraine and force it to
its knees and make it to irrevocably join the Russia-led integration processes.
The danger is that if Moscow's idea is to integrate Ukraine, it may end up
having an opposite result with a recalcitrant Kiev searching for alternate
means to move altogether out of a Russian sphere of influence.
As things stand, the Deep and Comprehensive Free Trade Agreement (DCFTA) which
EU has proposed to Ukraine, already holds the potential to change the power
calculus in Ukraine-Russia ties. The DCFTA is also a brainchild of the US. If
ratified, it decisively takes Ukraine away from the Russia-dominated Eurasian
trading area.
Besides, the EU is also working on a Political Association with Ukraine, which
envisages among other things visa-free travel regime, and practically enshrines
Ukraine's place in Europe. (Russia has been pleading in vain for a similar
regime with EU.) And all this can eventually take Ukraine to within striking
distance of membership of the EU - and, conceivably, of NATO as well.
In sum, Nord Stream and South Stream are poised to leap out of the world of
energy security and choreograph an altogether new power dynamic in the heart of
Europe.
Ambassador M K Bhadrakumar was a career diplomat in the Indian Foreign
Service. His assignments included the Soviet Union, South Korea, Sri Lanka,
Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.
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