By Shahzad Masood Roomi
Many analysts around the world has been caught by surprise when, during his visit to Turkey, Russian President Putin announced to stop South Stream gas pipeline project which was to be built through Black Sea, around Ukraine, to Eastern Europe with multi billion dollar investment by major gas production and distribution firms. According to the Russian gas production giant Gazprom, major investor in the plan, the route of this planned gas pipeline was to run from Eastern Russia to Balkans through beneath the Black Sea, avoiding volatile Ukrainian territory, to Germany after passing through Bulgaria, Serbia, Hungry etc. Major Russian goal through this pipeline was to follow the strategy to diversify the gas supply routes to the Europe.
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| South Stream pipeline Route ( Soruce: Gazprom) |
According to the Western analysts, the ambitious project became the casualty of Ukrainian crisis and its demise shows the limits of Moscow's energy bullying. This analysis stems from the perception that the construction of South Stream pipeline would have given Moscow more leverage to demand concessions from the government in Kiev, which is seeking closer ties with Europe. It is worth noticing that Gazprom was a major investor in the project investing more than 50% of total cost. This was conceived in EU as a Russian attempt to monopolize the gas supply to Eastern rim of Europe. On the other hand, Russian sources and analysts believe that the project was doomed by EU.
“If Europe does not want to implement the project, then it won’t be implemented. We will refocus our energy resources to other parts of the world,” Putin said on Monday in the Turkish capital, Ankara, after a meeting with Turkish President Recep Tayyip Erdogan.
This decision by Preisdent Putin has stirred a heated debate within EU as well. James Henderson of the Oxford Institute for Energy Studies, believes that countries on Eastern rim of Europe (Bulgaria, Serbia and Hungary) are pretty exposed to a energy crisis if Ukrainian conflict escalates. Putin may be trying to fracture the discussion within the EU,” Henderson says.
Andras Deak, an associate fellow at the Hungarian Institute of International Affairs, told Bloomberg News that "the scrapping of South Stream complicates the region’s energy security, making it all the more dependent on the Ukrainian pipeline. The EU and the IMF effectively will have to finance Ukraine’s gas bill now, if they want to make sure that gas keeps flowing through Ukraine to Europe.”
So how does this Russian decision is actually going to affect the regional energy security and geopolitics? Is it really a European win and a Russian lose? Or Russia is playing her cards more wisely on grand chessboard?
ANALYSIS:
European analysts believe that the main reason behind canceling the project is mainly economic and not political. Ruble has slided more than 22% against US Dollars during recent months causing US$90-100 Billions to the Russian economy. This explains why many Western analysts believe that Putin has caught in a perfect geopolitical storm due to its aggressive intervention in Ukraine. Coming out of this situation would not be easy for Moscow without making a compromise on Ukraine. But this Western analysis and narrative does not explains this decision in context of bigger picture of regional geopolitics.
By looking at the Western analyses, it seems that to overcome the financial shock, caused by Western sanctions, Putin is taking some immediate steps. After losing close ally like Germany, it would be difficult for Moscow to compensate the lost ground on economic front in short period of time. To make the matters worse, Russia is in no position to expand its Eurasian energy integration infrastructure towards South through Central Asian States (CAS) as the strategic sand has shifted and one of the major Cold War era Russian ally in South Asia, (India) has become the US strategic partner. Apart from that, CAS want to expand their own energy grid towards South (TAPI pipeline is vivid manifestation) and after that, India and Pakistan would be able to meet their energy demands from this pipeline.
But actually, Putin's decision was not irrational or illogical as Western analysts are trying to paint it.
Russia had already secured the huge Chinese energy market for herself before announcing the abandonment of South Stream. Earlier last month, Russia and China entered into a strategic energy partnership (worth $400 Billion). Apart from that, Russia has announced to built the gas pipeline to Balkans via a new route passing through Turkey.
Apart from that, Putin has outplayed the West on economic front by evading European and American project in Ukraine which was part of encirclement policy of Washington against Moscow. Putin rendered the plans hatched to cage the red bear in Russian mainland using Baltic States and Ukraine into quixotic dreams.
Despite the fact that till the recent deal with China and Turkey manifests into reality, the Russian economy would stay under stress there is no Soviet era like threat to Russian economy. This short term stress explains why National Bank of Russia had to cut its growth forecast for next year to zero sighting the decline in oil prices and Ruble's decline against Dollar. But believing that this stress would dent Russian economy in serious way is nothing more than a fantasy. In order to keep the Russian energy sector alive, the China-Russia deal was secured despite a heavy cost of accepting Chinese influence in Russian energy sector. Due to this deal, Russian oil & gas production company, OAO Rosneft, would sell a 10% stake in a Siberian unit to state-owned China National Petroleum Corp. One can argue that Chinese influence on the Russian policy making is increasing and this compromise by Russia is a manifestation of that. But for Russia, through this arrangement, Chinese would be providing much needed investment to the Russian energy sector. A natural strategic alliance between Beijing and Moscow is in making where former is securing its energy supplies by securing latter's economy.
But actually, Putin's decision was not irrational or illogical as Western analysts are trying to paint it.
Russia had already secured the huge Chinese energy market for herself before announcing the abandonment of South Stream. Earlier last month, Russia and China entered into a strategic energy partnership (worth $400 Billion). Apart from that, Russia has announced to built the gas pipeline to Balkans via a new route passing through Turkey.
Apart from that, Putin has outplayed the West on economic front by evading European and American project in Ukraine which was part of encirclement policy of Washington against Moscow. Putin rendered the plans hatched to cage the red bear in Russian mainland using Baltic States and Ukraine into quixotic dreams.
Despite the fact that till the recent deal with China and Turkey manifests into reality, the Russian economy would stay under stress there is no Soviet era like threat to Russian economy. This short term stress explains why National Bank of Russia had to cut its growth forecast for next year to zero sighting the decline in oil prices and Ruble's decline against Dollar. But believing that this stress would dent Russian economy in serious way is nothing more than a fantasy. In order to keep the Russian energy sector alive, the China-Russia deal was secured despite a heavy cost of accepting Chinese influence in Russian energy sector. Due to this deal, Russian oil & gas production company, OAO Rosneft, would sell a 10% stake in a Siberian unit to state-owned China National Petroleum Corp. One can argue that Chinese influence on the Russian policy making is increasing and this compromise by Russia is a manifestation of that. But for Russia, through this arrangement, Chinese would be providing much needed investment to the Russian energy sector. A natural strategic alliance between Beijing and Moscow is in making where former is securing its energy supplies by securing latter's economy.
Lowering the prices of oil failed to work the way it was expected. US-Saudi nexus kept the production of oil at same oil while dropped the prices to dent the Russian economy but that hasn't work to required extent so far and in future it will not because unlike Iran, apart from oil, Russians are principle suppliers of gas to major part of Europe and the entire hoopla of ending the threat of monopolization of European gas supplies by eliminating the South Stream is a big hoax considering the fact that Russia is still biggest supplier of gas to Europe via Nord Stream pipeline which runs under the Baltic Sea from Vyborg in the Russian Federation to Greifswald in Germany.
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| Nord Stream Pipeline - Major Energy supply route to Germany and Western Europe |
This makes it clear that the entire media buzz about the Russian economic and political isolation is nothing more than a well coordinated propaganda. The fact that Russian banks are buying the physical currency like Gold from all over the world which in the long run is going to support Russian currency against US dollars which is rapidly losing its value against gold.
A quiet aspect of this energy war in Eurasia is how Turkish geography would become more relevant in the regional geopolitics. If Russian plans to expand the gas pipeline to Greece via Turkey materializes smoothly, the Bulgarian resistance to South Stream would be another futile European endeavor and by looking at the recent developments, this possibility is not a distinct one!
A quiet aspect of this energy war in Eurasia is how Turkish geography would become more relevant in the regional geopolitics. If Russian plans to expand the gas pipeline to Greece via Turkey materializes smoothly, the Bulgarian resistance to South Stream would be another futile European endeavor and by looking at the recent developments, this possibility is not a distinct one!
