By Dr. Filippos Proedrou, Vice President KEDISA
Pipeline diplomacy is extremely hot precisely because they operate in the nexus of business and politics. Pipeline agreements convey signals of broader geopolitical alignments and economic cooperation and herald alternating patterns of international behavior. This having been said, our era is far from conducive for such infrastructural schemes for two reasons. Firstly, geopolitical alliances are in state of flux, due to changing geopolitical conditions on the ground, as well as conflictive energy and security considerations of actors. Secondly, pipelines are discussed and constructed in phases of existent and projected growth. Our era neither witnesses, nor expects either of those. When growth projections remain very low, energy consumption is also expected to see no increase. The economic logic of pipeline construction thus remains void.
Turkish Stream is a good case in point. The successor of South Stream, itself a giant project that fell short of both economic logic and political support, has been agreed a year ago as the new corridor that will cater for the gas needs of Turkey and the EU. Nevertheless, Turkey is already supplied by Russia through the direct Blue Stream link and the Druzhba stream that crosses the Balkans. The Turkish market needs are projected to rise, but far from the extent of the total capacity of the pipeline, 63bcm. Out of these, 14bcm are destined for the Turkish market, principally to replace supplies via Ukraine, reflecting Russian political considerations. 49bcm are destined for the EU market. Stagnant gas consumption means that these quantities will basically serve to replace existing ones via Ukraine, rather than absorb surplus capacity and hence yield new profits for Gazprom.
Russia also maneuvered politically a few months ago, when it suggested that only two out of the four initially proposed legs will be built and proposed the construction of Nord Stream II as a further Russia-Europe energy route. Russia naturally remains skeptical of placing all her eggs in the Turkish basket, rendering it a powerful gas hub that will replace Ukraine’s role. The terms of gas shipment to Europe remain unclear, and the two sides evidently vie for favorable provisions that are seen as zero-sum.
The geopolitical background of the energy cooperation scheme, nevertheless, added to existing commercial, energy and economic difficulties, and has rendered the pipeline obsolete. Even before the downing of the Russian air-jet and the ensuing freezing of diplomatic relations and economic fallout, Russia and Turkey were on opposing sides in the Syrian conflict. Turkey viewed Russian intervention as bolstering the Kurds’ role and providing the Assad regime with precious extra time in power. Moscow, on the other hand, derided the counter-productive and contradictory Turkish stance that boosted the ISIS regime and jeopardized Russia’s military presence in the Mediterranean coasts. These were added to long-standing disagreements over the Azeri-Armenian dispute. The Crimean annexation has also pitted the two sides against one another, since Turkey is frustrated over Russian moves that degrade the plight of Crimean Tatars. Lastly, the military escalation has once more raised concerns over the longevity of the Montreaux convention.
In a nutshell, on both geopolitical and economic grounds, Turkish Stream is indefinitely postponed. While bilateral energy cooperation will not break down, Turkey is searching more actively for alternative sources of supply, while Russia will not hesitate to cease/reduce supplies in case it can channel its gas elsewhere, albeit the current production glut renders that highly improbable. An energy security dilemma seems to settle in, and will continue to do so, unless geopolitical considerations bring the two sides closer together. But this seems nowhere near for the time being.