South Stream Saga has Another Episode

The South Stream pipeline project is engaged in yet another episode since its public presentation back in June 2007. Over the past seven years, a series of upturns mostly related to geo-economic antagonisms has gripped the attention of energy professionals and most energy majors in Europe. As of late, Bulgarian Prime Minister Plamen Oresharski announced the postponement of the project, until matters are cleared with the EU regarding the adherence or not of the proposed pipeline with regards to the Third Energy Package and EU regulation. Since Bulgaria is designated as the entry point of the onshore part of South Stream, the whole scheduled route has effectively been postponed up to Italy and Austria, where the terminating points are currently situated.

It is worthwhile to examine the reactions involved, which reveal wider culminations at play both in the political and energy spheres. Italian Premier Matteo Renz recently proposed to the leaders of Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria to make a joint letter towards the European Commission stating their support for South Stream, in a clear case of boosting political backing for that pipeline, in which one of Italy's 'national champions' - Eni - is a major partner.

Concurrently, the President of the Commission, José Manuel Barroso, has made clear that Brussels is about to open up a case against Bulgaria for non-committal to EU rules on public tenders in the energy sector. The Commission, since late 2013, has made clear that all intergovernmental agreements between countries participating in South Stream are in opposition to EU law and should be re-negotiated; a development which if initiated, would seriously derail its construction and lead to multiple legal entanglements between governments and participating companies.

Thus, the pipeline proves to be a conflict point between the EU's supranational structures and those of national governments, in a time of brinkmanship with Russia over Ukraine and rise of nationalistic and ethnocentric political forces in most of the EU member states. The stakes are high and are Ukraine-centered. The 63 bcm annual capacity pipeline will not deliver any extra gas quantities to EU markets, but instead minimize Ukraine's role as a transit route to Europe, by by-passing the entire country through the Black sea, Balkans and into the heart of the consumer markets in the Central European hubs. In that sense, the ongoing saga of South Stream is inexorably related to the future of Ukraine as an important country in the European energy affairs or not. A likely establishment of the pipeline will take out Kiev's stronger card in its political relations vis-a-vis Moscow and also with the rest of the EU countries. So, instead of being an element of corporate decision or even an energy security issue, South Stream is an integral part of the ongoing 'Ukraine question', and that is which direction will that country follow in the coming decades and what leverage each side may have, with natural gas transit being the basic factor in all developments occurring.

The Bulgarian head of government made his decision shortly after meeting a troika delegation composed by three US Senators, John McCain, Ron Johnson and Christopher Murphy. The meeting came after a public statement on the 6th of June by American Ambassador in Sofia Marcie Ries, warning that Bulgarian companies participating in South Stream maybe part of US sanctions against them due to their collaboration with the Russian Stroytransgaz, which is linked to Genady Timchenko, who is already on the sanctions list after the Russian takeover of Crimea in February 2014.

Marcie Ries, apart from being the supreme diplomatic missionary in Bulgaria, is also one of the key figures shaping US policy at all levels in the Balkans in terms of energy and security over the past decade, having served in Kosovo, and in Albania, while her spouse was the US ambassador in Greece. The obvious correlation of American involvement in the South Stream's project temporary suspension and the Bulgarian government's sudden upturn and compliance has caused an uproar in the Bulgarian political scene with the minister of Economy and Energy Dragomir Stoynev stating that "South Stream seems irreversible as a European project…The question is not whether, but how exactly to be implemented." In parallel, the Bulgarian foreign minister Kristian Vigenin told the press in a state visit in Moldova that the pipeline project will go ahead as planned and that he fully shares the position of Minister Stoynev who said that the project is sure to be implemented. It seems beyond a doubt that the issue had divided the leading ranks of the Bulgarian government and may lead to early elections as it is widely estimated by policy makers in the country.

Another country that seems to have political tremors caused by the pipeline is Serbia. Shortly after the Bulgarian PM's announcement that the country's deputy PM, Zorana Mihajlović, stated that its government will delay final decisions on the pipeline modelled on Sofia's move. Shortly after Serbian Prime Minister Aleksandar Vucic claimed that no decision by Belgrade to postpone the project has been made and that the pipeline will go ahead as planned, whilst the country's foreign minister Ivica Dacic stated that Serbia is ready to implement the gas project.

Meanwhile, Moscow is eager to take advantage on a political level of all the above culminations of the saga through the Russian ambassador in the EU Vladimir Chizhov who claimed that "It is hard to shake off the feeling that the European Commission's blocking of the start of work on the construction of Bulgaria's key section of South Stream has been done for purely political purposes."

For a country like Bulgaria, the proposed €3.5 billion in investments by the South Stream consortium is a great lure given the fact that the nominal GDP of the country stands at around €40 billion and it represents the single most valuable investment ever to be scheduled. Moreover, the Bulgarian economy heavily depends on Russian trade and investments in tourism, real estate and energy, where Lukoil's Burgas oil refinery is in the process of a €1.2 billion upgrade, while almost all gas imports are coming from Russia via Ukraine transit pipelines. Similar figures are for Serbia, while Hungary, another land route of South Stream, is also teaming up with Russian state companies for a €10 billion deal involving the construction of two nuclear reactors.

In essence (and in a nutshell), the South Stream project is maturing not at a construction level but in the political sphere involving the triangular relationship between US, Russia and EU, based on two basic factors. One is the fate of Ukraine as the major gas transit hub and the other is the ability of Russia to offer investment funding to cash-strapped EU members. The overall estimation is that if these two factors do not become a part of a larger geopolitical package of diplomatic grand compromise between all interests involve, then the issue may well become a security related one with disastrous consequences for a whole array of themes, stretching from EU cohesion to NATO decision making stagnation and ultimately to more instability in Ukraine and the Black Sea region.

Certainly, the saga of the South Stream contains all features of a history novel, filled with interstate competition, global clashing interests and turmoil in various political, diplomatic and corporate offices around the world.