In which I do my damndest to ignore the freudian implications of the South Stream decision

South Stream

‘Sometimes an enormous pipe is just an enormous pipe, Ivan.’

Listening to the howls of outrage from the EU on behalf of plucky little Bulgaria (once described to me by a British criminal as ‘the only place on earth that turns out to be exactly like you expect it to be’), I was interested to get a Russian perspective. Unfortunately, I don’t read Russian (and if anyone who does wishes to pitch in, there’s a comments box below), and the next best thing is RT, home of dashcam vids and Natalia Poklonskaya photos*.

Actually, from a discourse analysis point of view, the RT summary of the affair is rather interesting. Even the title has a subtext:

Why Putin pulled the plug on

EU-South Stream project

Russia, India, Indonesia and China have, over the past few years, grown much less willing to pretend to adopt the old liberal democratic formatilities in their international discourses. In China the trend has manifested itself in repeated statements along the lines of ‘you have your way of doing things, we have ours; neither is better or worse than the other, you have to learn to love diversity’. In the other three cases it can be seen in a new willingness to embrace personality politics without feeling a need to be embarrassed about it on the international stage. A year or two back this headline would have been ‘Why Russia pulled the plug on EU-South Stream project’.

What was wrong with the original plan?

Russia doesn’t want to start a pipeline that the EU doesn’t want to see completed. The EU signaled that the project might not be realized, and as the Ukraine crisis intensified, so did opposition to the Russian pipeline on European soil.

EU Energy Minster Gunther Oettinger openly threatened to obstruct work on the South Stream pipeline as long as Moscow didn’t recognize the new government in Kiev.

Over the summer Bulgaria, under pressure from the United States and the EU, halted the South Stream project twice, which worried Moscow. Bulgaria was to be the key gateway to Europe for South Stream gas.

Gazprom and EU countries signed bilateral South Stream agreements as far back as 2008. Later, the European Commission passed legislation known as the “Third Energy Package,” which stipulates that a single company can’t both produce and transport oil and gas.

I rather like Oettinger, but that aside, these are all broadly fair points. As Henry Kissinger famously didn’t actually say: ‘Who do I call if I want to call Europe?’ Negotiating with Europe is no fun – not because they’re spectacularly rude and intransigent like the Soviets or anything – but simply because they don’t, as yet, spreak with a united voice, and positions tend to shift with weary regularity. In big international trade deals you need to know that the other partner’s word is his bond, and not that they’ll come back after a couple of years saying ‘Sorry old chap, no can do, turns out that the Basque Socialist Party doesn’t like your human rights record’ or something of that variety. Obviously this gives a premium to authoritarian states – the Beijing consensus in action.

Does this mean less gas to Europe?

No. Russia has other pipelines that deliver gas to Europe such as the Nord Stream and Yamal pipelines. Russia will deliver 155 bcm to Europe in 2014, half of which will flow through Ukraine, and the rest through Nord Stream, Yamal and other, smaller pipelines.

But the point of South Stream was to deliver gas directly to the EU and to bypass Ukraine, which has been constantly engaged in gas rows with Russia.

Germany, France, and Italy have a say in the project, as they are strategic partners in South Stream. Gazprom may also decide to find new partners or go it alone with the new venture. South Stream AG was the company created to build and manage the project, which is 50 percent owned by Gazprom, 20 percent by Italy’s ENI, and 15 percent each by France’s EDF and Germany’s Wintershall.

Ah, the trolling magnanimity of Caesar… Fret ye not, puny Eurotrash! Though you have behaved badly over this, we in our generosity will make sure that you get your fix.

This too is interesting. There’s a tendency in the West to see sanctions as something that is done to infantile, underdeveloped countries more in sorrow than in anger, in order to show them the error of their ways and bring them back to the fold. This passage – while seeming reassuring on the surface – basically says that things have changed. No one now is above the cut-and-thrust of international politics. If you want to throw your weight around, you also have to face the consequences, as we shall see:

How is Europe affected?

It’s bad news for EU companies that have already invested at least €2.5 billion in the South Stream project.

Losing South Stream could also mean less energy security. Even though Europe is increasing renewable energy, it still relies on Russia for a third of its gas supplies, half of which travels via Ukraine.

Even prior to the Ukraine crisis, European countries have been focused on cutting their dependence on Russian energy, which they reaffirmed after Crimea rejoined Russia.

Europe can’t totally do without Russia gas, according to Jerome Ferrier, head of the International Gas Union and Senior Vice President of France’s Total.

Why Turkey?

Turkey is Gazprom’s second-biggest customer in the region after Germany. Their natural gas partnership dates back to 1984, when they signed their first supply cooperation agreement.

At present, Russia sends gas to Turkey through the Blue Stream gas pipeline, opened in 2002, and via the “Balkan corridor” through Ukraine, Moldova, Romania and Bulgaria. In 2013, Russia supplied Turkey with 26.2 bcm, nearly 60 percent of the country’s total needs. In 2014, Russia will supply Turkey with 30 bcm of gas.

With a population of more than 80 million people, Turkey is a strategic partner for Russia as it diversifies dependence away from Europe. Turkey’s imports from Russia are about 10 percent of Europe’s total demand.

Trade between the two countries currently stands at $32.7 billion, making Turkey an important foreign partner for Russia.

During President Putin’s visit to Ankara on December 1 with Turkish President Erdogan, Turkey sought a 15 percent discount for Russian gas, but only got 6 percent, starting January 1 2015. In the deal, there is the possibility to reduce prices in the future.

In the best mafia don tradition, we jump straight from the reasons to be grateful to the threats. Europe will not go short of gas for the time being… though this can still be arranged. (Total are big Putin supporters, by the way.)

Is Russia turning away from the EU?

No. In fact, an EU pipeline project could still be realized, just not in the current political situation. For now, however, Moscow’s money is going to Ankara, not Brussels, an important geopolitical step for both nations who feel they have been strung along with lofty EU promises.

So far, Gazprom has spent $4.66 billion on the South Stream project, which was projected to cost $29 billion, according to the most recent estimate by the company.

Putin has said that Europe is still important for Russia, but that China is a priority. Turning to Turkey is another way to diversify buyers.

Is Russia turning away from the EU? Not at all, dear boy. We’re merely turning away from the EU. (Ying tong iddle i po!)

So that’s that then: the money talks and bullshit walks moment. Or possibly not, because here’s the interesting thing about the sanctions against Russia: they’re pretty crap. As Gary Hoffbauer, a former US Treasury official pointed out:

These sanctions are a bonanza for K Street… Here there’s a lot of holes and not much cheese. There’s a lot of room to argue.

In other words; the Western governments doing the drafting instended the sanctions more as a gesture for the benefit of domestic audiences (Tough on Russia, tough on the causes of Russia!) than a genuine attempt to inflict damage. This in turn shows the Russian response in a far more ambivalent light. On the one hand, angry retaliation does have the benefit of making sure that the world knows that they’re mad as hell and not going to take it any more.On the other, if the sanctions were originally intended to be evaded and avoided and finally quietly forgotten about, then Russia may well be cutting off its nose to spite its face here. Alternatively, as Sir Thomas Wyatt put it:

What needeth these threnning words and wasted wind?
All this cannot make me restore my prey.
To rob your good, iwis, is not my mind,
Nor causeless your fair hand did I display.
Let love be judge or else whom next we meet
That may both hear what you and I can say:
She took from me an heart, and I a glove from her.
Let us see now if th’one be worth th’other.

*Along with the Japanese current affairs show that keeps a cat on set, it’s pretty much the only news outlet that I still follow without duress.


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