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South Stream Abandoned: Who Benefits and Who Loses

By Dimitrije Tasic

Fuels might not draw maps of the world, but they clearly create and destroy political alliances. Putin’s visit to Turkey last week confirms this. His visit is important for at least two reasons. The first reason is that Russia officially gave up on the construction of the South Stream gas pipeline.  The second one is that Putin negotiated with Turkish President Erdogan the export of more gas to Turkey, at a lower price.

Earlier this year, South Stream started to present a challenge to the EU authorities. The EU Commission found that the plan did not comply with EU law, since under the rules of the EU’s liberalized gas market, no company can own both the pipeline and the gas that flows in it. However, the South Stream countries asked for exemptions from that rule and hoped to somehow negotiate. Nevertheless, Putin was not patient enough to see how the issue would unfold. Why was that?

The main reason seems to be a very simple one- money. The plunging price of oil has put a huge strain on both public and corporate finances in Russia. This, in addition to the costs of sanctions imposed by the EU and the US, seems to be a huge cost for Russia to absorb. Also, the South Stream project had more of a political rationale (bypassing Ukraine and buying influence in Southeast Europe) than a business one. EU gas consumption, as well as the gas price, has also been dropping. At the same time, market competition has been increasing. For example, Lithuania, previously 100% dependent on Russian gas, has just opened an import terminal for liquefied natural gas, an alternative to conventional gas transported from Russia.

In addition to all these reasons, it also seems that the EU pressure on member states has worked. For Italy, the South Stream project was no longer a priority. Austria reduced its support, too. Bulgaria changed its energy policy after intense lobbying from Brussels and Washington.

It is unclear whether Russia will benefit from abandonment of the South Stream. While it loses some of its European customers and a grip over some Southeast European states, Russia receives a reliable partner in Turkey. With this move, Russia has strengthened its influence in Turkey and is not spending money in vain digging a pipeline under the sea to reach the Bulgarian coast. Finally, Russia now has an excuse to completely turn to other, larger markets, such as China. Turkey, on the other hand, gets a huge economic benefit as well as a reliable partner and is clearly profiting from such a turn of events.

The US has never supported the South Stream, and such a turn of events might represent a chance for US exports as well as more influence in Southeastern Europe. In particular, the Croatian island of Krk has been mentioned several times now as a potential gas terminal, where US liquefied natural gas could be delivered. Nevertheless, if it is true that the political influence coincides with the energy influence, then the greater American power in Europe might have to be paid with a weakening power in Asia Minor, where Russian influence might take over.

South_Stream 2

TURKEY-RUSSIA-DIPLOMACYDuring his visit to Turkey, Putin announced that Russia gives up on the construction of the South Stream.

One Response to South Stream Abandoned: Who Benefits and Who Loses

  1. Pingback: Eurosphere agenda: “EU reaches deal on 2015 budget… Snap Presidential election in Greece… Uber taxi app banned in Spain… « Erkan's Field Diary

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