Russia’s evolving energy strategy and EU’s respond to the “Turkish Stream”
Russia’s termination of South Stream and proposal for Turkish Stream has appeared as a result and also a necessity given the emerging geopolitical and geo-economic dynamics in Moscow-West relations. In addition to the difficulties faced by Gazprom (which were caused by the Third Energy Package in the European gas market), the Ukraine crisis and tough Western sanctions have required an update in Moscow’s own energy strategy. Moreover, ongoing work on building an EU Energy Union, which would standardize gas prices within the Union, have hastened Gazprom’s strategy.
Russia’s conditions on Turkish Stream can mainly be categorized within two fundamental and functional tasks. First, taking into account Moscow’s declining influence in Ukraine because of both coercive politics and objective factors such as Crimea’s annexation, the appearance of de facto “people’s republics” in eastern Ukraine, and the lack of ethnic Russia or supporters on territory under the control of the Kyiv government, it’s hard to imagine that Moscow will regain a strong position in the capital in either the short or medium terms. This requires Russia to take a fundamental step in rethinking transit routes, as well as the necessity to totally bypass Ukraine in its gas exports to the EU before the renewal of gas transit agreements with Kyiv in 2019.
Almost half of Russian gas exports to the EU already pass through Ukraine. The South Stream project did not assume the end of Ukraine’s transit position for Russian gas. However, Turkish Stream reckons Turkey will be the main transit country for Russian gas exports to Europe. Russia aims to transfer all of the gas it pumps through Ukraine to Turkish Stream and farther to Europe via a hub terminal built at the Turkey-Greece border.
Since Turkey is not an EU member and does not seem to aspire to membership soon, the proposed project is not bound by the EU energy objectives. Notwithstanding the fact that there is a high risk that Turkish dependency on Russian gas may increase and that there is also a divergence of approaches between Russia and Turkey on the Syria and Ukraine crises, the developing strategic relations between Ankara and Moscow and Putin and Erdogan pave the way for both countries to cooperate on this delicate issue.
On the other hand, the functional portions of the Russian proposal are based on economic concerns. According to its renewed energy strategy, Gazprom will not build pipelines to destination in EU countries. The EU’s complex energy bureaucracy and Russia’s new markets in the East for its gas, such as China, India and South Korea, have pushed Gazprom to feel much more freedom in its ability to change transit routes. The economy of Russia has suffered much because of Western sanctions and also declining oil prices—this implies it will invest less in the risky EU energy sector, including infrastructure. Actually, it’s estimated that Gazprom will save approximately $10 billion if it is not included in construction of the pipeline network in Europe that would be necessary to connect to Turkish Stream. Gazprom says that Europe should buy Russian gas at the Turkey-Greece border and build the necessary pipelines for the route and interconnectors if it really wants and needs this gas.
In this context, there are a few options the EU can take as a reply to these Russian conditions. First, the EU’s dependency on Russian gas is still so high (namely 27% of all of the gas consumed in the bloc) and at the same time it seems it will be difficult to considerably decrease this dependency in the short term, therefore the EU should maintain the so-called Ukraine-inclusive policy in its energy strategy. For the foreseeable future, Ukraine will and should remain one of the main transit routes for Russian gas to Europe. To achieve this aim, the EU should play a more constructive role in the Ukraine-Russia gas crises. The economic instability in Ukraine costs much more for the EU than for Russia. Moscow doesn’t have a chance to sell gas transited via Ukraine to any other market until 2019 because of the tight economic conditions in the country and the huge infrastructure investment requirements for the new markets. This means that an opportunity for bargaining between the EU and Russia still exists.
Second, if Russia insists on Turkish Stream, the EU can undertake to determine the exact route and capacity of the new pipeline. Greece’s disadvantageous geographic location for Central European “gas-hungry countries” will force the EU to negotiate on this issue with Russia. Also, Romania’s potential energy reserves in the Black Sea could be activated quickly. As well, the TANAP project and the possibility of gas from Cyprus, Israel, Iran or Iraq should force Russia to rethink the capacity of Turkish Stream.
As a result, it can be said that the EU’s reply to the Russian conditions for Turkish Stream mostly depends on whether it can reach its own potential and create a balance between its aims and capacity.