EU-Russia Gas Relations and the Ukrainian Crisis: Why Pipeline Politics Should Not Be Overemphasized

EU-Russia gas relations have been predominately analyzed within the broader geopolitical framework with a particular focus on pipeline politics and the physical dimension of energy security that has included inter alia debates about EU diversification strategies and Russia’s ‘energy weapon’. Providing prominent and fruitful research insights, such studies, however, have proved to mushroom exponentially in the immediate aftermath of path breaking events—as it happened after the gas disputes between Russia and Ukraine in 2006 and 2009. The same path is likely to occur now, since the ongoing crisis in Ukraine has escalated into a nearly large-scale civil war and reciprocal accusations between the EU and Russia have spiraled into EU sanctions towards the Russian hydrocarbon sector. In addition, even if the interim agreement seems to have been reached during the trilateral talks between the EU, Russia and Ukraine started on 26 September, tensions are likely to persist, fuelled by markets uncertainty and political speculations, as occurred after announcements of Russian gas flows reductions to Poland on 8-12 September and a consequent temporary stop of gas reverse flows to Ukraine.

Acknowledging that extreme politicization of EU-Russia relations has been externalized to the oil and gas sectors, this commentary, however, cautions against narrowing EU-Russia gas relations down to the physical aspects of energy security and traditional pipeline politics.

At a first glance, this argument might look slightly paradoxical, since recent events seem to confirm the prominence of traditional geopolitics in the analysis of EU-Russia gas relations. Thus, the gas contract, signed between Russia and China in May 2014, and a new wave of the EU sanctions in September 2014 are paving the road towards the revival of traditional (neo)realist balance of power. However, some scholars have already warned against the return of geopolitics since “a substantial number of politicians and foreign policy makers seem to be stuck in a Cold War paradigm” and have highlighted mismatches between policy proposals during the Ukrainian Crisis and gas market fundamentals^[1].

First of all, while the physical dimension of energy security remains crucial, normative shifts in gas markets and alterations of power constellations they might cause should not be overlooked and EU-Russia gas relations is a prominent case to illustrate these shifts. Gas as a free traded commodity is being increasingly framed by epistemic communities and accepted by commercial players as the leading paradigm of gas market organization. Without joining ‘chicken-egg’ debates, it is worthy to note that while these gradual changes in ‘normal’ practices are being facilitated by economic transformations in gas markets, inter alia, the shale gas revolution and a greater availability of LNG technologies, EU regulatory initiatives and implementation of the Third Energy Package provisions play a key role in reframing the understanding of the appropriateness of one or another gas pricing mechanisms. These changes surely will not take place overnight, but power configurations are slowly being shifted from traditional pipeline politics towards gas-to-gas competition. These changes make control over resources and their delivery routes—a key variable in traditional energy geopolitics—increasingly less relevant: a particular pipeline route is no longer a key ‘game changer’ and is gradually but steadily losing its exclusivity. In the light of the emergence of the two-level model of gas market organization, the geopolitical studies might focus on how norms and practices are being altered and mitigated via the models of traditional long-term contracts and spot trading—and broader, via the models of resource nationalism and liberalized market respectively.

In this regards, conflicts around the South Stream should not be interpreted as a return of old-style energy geopolitics—they are more about rules that regulate how the pipeline is to be operated than about the old notion that construction and possession of the pipeline represent a source of power. The tensions around  the South Stream prove the prominence of the institutional dimension of energy security—the ability of one actor to set up predictable and stable rules of the game vis-à-vis another.

The case of the South Stream also offers potential research inquiry about path dependence in EU energy security discourse. While counterpoising the Southern Gas Corridor and the South Stream has a certain political rationale and the outcome of tensions between the EU and Russia is extremely difficult to predict, the South Stream can benefit EU energy security and decrease the level of geopolitical tensions in the region. While the Nord Stream has become a victory of bilateralism, the South Stream, if completed according to the EU rules, will symbolize EU-led reconfigurations of the European gas market according to its institutional model. Indeed, the Third Party Access (TPA) to its onshore part provides new opportunities to the EU to arrange supplies from the Caspian Region and even Iran[2] via the Black Sea and/or the TANAP. The South Stream’s compliance to the EU regulatory framework makes a widely discussed ‘competition’ between pipelines in the region increasingly less relevant.

However, this raises a question to what extent path-dependence in EU policy-making and discourse framing might inhibit acknowledgment of these benefits. In other words, to what extent discourse of diversification from Russia in old-style pipeline politics can actually overlook the new opportunities for EU security of supplies? To what extent harsh securitization path against Russia, chosen by the Commission, might hinder externalization of the Internal Energy Market initiatives?

Another aspect not to be overlooked is domestic dynamics in Russia. Even if reciprocal accusations between the EU and Russia are extremely harsh nowadays and shifts in Russian foreign policy are yet to be assessed, gradual partial liberalization of  Russian gas sector and adaptation to gas market changes^[3] that took place before the Ukrainian Crisis should not be disregarded. Despite numerous statements by the Russian Government against ongoing market transformations coupled with Gazprom’s ‘ostrich’ positions^[4], market changes have been acknowledged, yet indirectly. A benchmark example is a switch to the spot gas pricing formula in  the long-term contract between Gazprom and ENI[5]. Thus, another interesting aspect for a research inquiry might be the question whether these liberalization trends are being hindered by reconfigurations in Russian foreign policy and how they are being impacted by target sanctions towards the Russian oil and gas sector. Will they cause, yet indirectly, drawbacks in liberalization or, contrary, lead to uncontrolled liberalization?

Moreover, a division between commercial and political interests in gas business is very intricate and dynamics of business cooperation does not always follow the path of political relations. In this sense, an interesting question is to what extent the business community is reluctant to freeze relations with Russian energy companies, and is ready to find side doors for cooperation in case tensions persist.

This commentary admits that EU-Russia relations are experiencing an unprecedented level of politicization, externalized to the gas sector. Yet, discussions about EU-Russia gas relations should not be limited to traditional pipeline politics with a focus on the South Stream and the gas dispute between Russia and Ukraine. They should be complemented by debates about normative shifts in gas markets and Russia’s reaction to them, institutional incompatibility of the gas market models, internal policy-making dynamics in the EU, and the role of business communities.