Pipeline war with no winners

Orhan Sattarov, the head of the European bureau of Vestnik Kavkaza

A famous British journalist specializing in the Caucasus region, Thomas de Waal, published today an article on the curtailing of the South Stream project. According to Thomas de Waal, the South Stream was simply too costly for Russia. "Seven years and ten billion dollars after the project was first floated, Gazprom and the Russian government could no longer sustain the costs. Like its failed European twin, the Nabucco pipeline to Central Europe, it was too much of a geopolitical project and not commercially viable," de Waal writes. He stresses that "in the duel between Nabucco and South Stream, both sides lost." "The world’s first pipeline war ended up having no victors at all," he quotes Steve LeVine's article, which appeared in Quartz.

Vladimir Putin's announcement in Ankara of the end of the South Stream and the decision to implement a new joint Russian-Turkish project will reshuffle all the cards in the Eastern European energy sector, in the opinion of the British experts. According to de Waal, Vladimir Putin is the "first loser in this maneuver," since he had to abandon his long-cherished "prestigious" project. Among the losers are also Bulgaria and Serbia, which will have to say goodbye to their hopes for profit, which, if the project was to be implemented, could amount to hundreds of millions of euros annually.

"The European Union can celebrate a rare political success, having rallied enough support to kill off South Stream. Ukraine also scores a rare win, even as it faces disaster on many other fronts. After all, Moscow’s political rationale behind promoting South Stream was to bypass Ukrainian territory," de Waal writes.

Turkey will benefit the most from the situation. Its ambition to turn into an energy hub will be confirmed by additional supplies of Russian gas, in addition to gas supplies from Azerbaijan, Iran and Northern Iraq. Putin spoke in Ankara next to the world leader whom he respects the most and called Turkey a "strategic partner."

"The most intriguing question is what this all means for Azerbaijan, which has begun the awkward process of trying to convert itself from being an oil supplier to a gas supplier, as its oil revenues begin to decline. Azerbaijan’s bet is to deliver gas to southern Europe via Turkey through the TANAP and TAP pipelines in five years’ time. If it ever comes to fruition—and that is a big if—the new Russian-Turkish gas project could be a competitor to Azerbaijan's gas ambitions and squeeze the profit margins of that project even more," de Waal believes.

However, the new Russian-Turkish project is a large endeavour and it will be difficult to implement it. In order to deliver gas to Europe, Gazprom will have to use the new pipeline TANAP, which is owned by a consortium which belongs to BP and the Turkish companies BOTAS and TPO, as well as the Azerbaijani state company SOCAR. “ANAP becomes major gas link,” de Waal quotes an unsourced Azerbaijani commentator.

The expert notes that this year has been marked by unprecendeted cooperation between Russia and Azerbaijan. Baku has recently announced the signing of new transactions with Russia aimed at bringing Azerbaijani goods to the Russian market, which has been vacated by European goods due to sanctions. In October Baku also hosted a meeting of the Supervisory Board of the Russian VTB, also affected by sanctions.

"So the new Turkish deal may require more collaboration in the future, challenging the notion that Russia and Azerbaijan are always destined to be energy rivals," de Waal concludes.