South Stream pipeline and the EU double standards

Naftogaz, Ukraine’s gas company, owes its Russian-owned counterpart, Gazprom, an estimated $4.46 billion for previous deliveries of gas. Gazprom demands prepayment for future supplies to Ukraine now and files an arbitration claim in Stockholm. On June 16, Naftogaz missed a deadline to pay part of that debt (about $2 billion), which entails three consequences. First, even though the new president was elected, Ukraine has yet rendered to be an unreliable client who fails to pay bills and thereby prompts another cut-off. Second, Ukraine has repeatedly proved to be unable to provide a reliable transit for Russian gas to Europe. Third, the need for diversification of gas supplies has become even more obvious and relevant.

No wonder, Russia has become even more bullish about South Stream, a pipe-line project designed to pipe 63 billion cubic metres of gas per year from Russia to Central and South Europe bypassing Ukraine. The pipeline will go across the Black Sea bottom from Russia to Southern Europe. Its length will be 900 km. The project is being implemented by South Stream Transport, of which Gazprom owns 50%, Italian ENI 20%, French EDF and German Wintershall 15% each. To build the land part of the pipeline, Russia has stricken agreements with the governments of Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia, and Austria.
Thus, the project will cement Russia’s hold on the European gas market and diversify the gas supplies. However, the European Union seeks to diversify the gas suppliers (in other words, to give other gas suppliers access to the pipeline), not the methods of its supply. As a result, the European Commission postpones the final approval of the pipeline and applies pressure on the key-members of the South Stream chain. With solely a political purpose – to punish Russia.

Screen Shot 2014-07-02 at 1.51.56 PM

On the one hand, Brussels sharing its part responsibility for the ongoing events in Ukraine (namely, the so called Euro-Maidan was inspired by hopes to join the Economic Association with Europe), cannot let the situation be taken over by Russia. Once the situation is under Russia’s control, Ukraine (who is physically unable to pay the debt back, because its economy is gruesomely broke) is no longer the gas-transit country, Ukraine is no longer Russia’s client at all. Russia will build a new gas pipeline bypassing Ukraine, and leave the country in oblivion. That being said, why does not the EU bail out Ukraine and helps it redeem the debt to Russia? Once the debt issue is settled, there is a chance for a new round of talks regarding further cooperation in gas supplies between Ukraine and Russia, between Putin and Poroshenko, who have numerously demonstrated their eagerness to diplomatically solve the conflict.

The European Union is not so much interested in bailing out Ukraine and even less so in its admission to the Union. It would entail further subsidies, humanitarian and financial aid, all that burden that the German taxpayers have already been pissed off by dragging Greece, Spain, and Portugal out of their debts. The problem is that there are actually two Europes: the European Union as a huge bureaucratic machine, and Europe as a conglomerate of nations. Those two Europes appear to be different. What’s more, those two Europes appear to be pursuing different interests and goals, if not conflicting goals. The European Commission is acting from a position of a universal judge who seeks to pursue justice and punish the hot-headed game-breakers. The European Commission is a “stronghold” of morality that cannot allow its members to do business with someone who violates international norms and neglects other country’s sovereignty. Fair enough. Such an approach is quite understandable from the rule of law and the world-system perspective. But the reality is more complex. The reality is that Europe is still (whether it likes it or not) highly dependent on import of hydrocarbons. The price it pays for these imports matters too – now even more than ever, given the stagnation in the eurozone. Thus, the cheapest and the most reliable gas supplier to Europe is still Russia. In fact, Russia has never let Europe down since the 1960s in terms of the energy supplies. Again, 2006 and 2009 were the transit zone blackouts. The Middle East could potentially be accounted too, but at the moment it’s major client is Asia and it’s undergoing another wave of terrorist coups and civil war turmoils. EU countries get about 30% of their gas from Gazprom, and half of that is piped through Ukraine. If Europe had alternative energy suppliers such as LNG from Qatar, Algeria, and the U.S available right now (by “available” I mean ready-installed refineries, de-liquification facilities, special storages, the money, after all, to pay for the gas shipments across the Atlantic), or if Europe had alternative energy resources (wind, solar power, water energy, etc) that could easily replace natural gas, the Brussels talks would make more sense. Sadly, the fact of the matter is that Europe does not have those alternatives handy as of yet. Nor is it going to have them available in the next two-three years. Thus, no matter how unlawful and rogue Russia’s bahavior is, Europe is nowhere near ready to wean itself from Gazprom. To sum it up, Brussels acts from its supranational, hyper-idealistic perspective and makes decisions based on the same premises that drives the EU committees to set cucumber shape regulations or obligations to put a sticker on non-GMO food-items. Meanwhile, individual European states, being guided by sheer energy security interests, have to think pragmatically and act individualistically. They need to make sure that the gas supplies are guaranteed and there is no such a situation when their citizens have to burn woods to keep their homes warm on cold winter days (as it used to be the case in 2009).

Thus, Italy’s Saipem, for instance, signed a contract worth 2 billion euros with Gazprom regarding the construction of the first submarine section of South Stream and is now ready to start the work. Right at the rise of the Ukrainian crisis, in April, Austria and its biggest energy firm OMV enthusiastically supported the South Stream project. 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.
Serbia finds itself caught between its ambitions to join the EU, with which it has started accession talks, and historical ties with Russia. Nevertheless, Ivica Dacic, Serbian Foreign minister confirmed that the South Stream project is in their best national interests. After all, whether Serbia shifts to the EU or not, does not really matter. Serbia is not the key player in the project. What does matter though is Bulgaria. The gas pipeline goes through its territory, thus its approval of the project and commitment to it are crucial for the entire venture. The European Commission figured it really quickly and started pressing Bulgaria. In the very beginning, since 2010 (long before the Ukrainian crisis, by the way) the Bulgarian part of the South Stream has been criticized by the European Commission. The latter was skeptical about the transparency of the tender. Meanwhile, the tender was won by the Bulgarian Gasproject Yug and Gennady Timchenko’s Stroytransgas. Timchenko is already on the sanctions list after Russia took over Crimea in February 2014.
In April and May, the situation in Ukraine deteriorated which only strengthened Brussels’ stiff position against Russia and elevated its desire to punish it. The Bulgarian socialist government (very loyal to Russia) was holding a staunch resentment against the EU threats – until the EU reminded Bulgaria of the 15 billion euro it promised in subsidies for the Bulgarian agricultural sector and infrastructure. On June 8, Bulgarian Prime Minister Plamen Oresharski announced the suspension of the project till matters with the EU clears up. The Bulgarian head of government made his decision shortly after meeting a US troika delegation – 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. This caused the Bulgarian government to split into pro- and anti-Russian factions, and they announced early elections scheduled for September this year. Boiko Borisov, who leads the centre-right Citizens for European Development of Bulgaria (GERB) party, is the most likely prime minister to be, given that his party scored the largest number of seats (representing Bulgaria) in the European Parliament elections in May.

It is fair to say that Russia tries to manipulate Ukraine and tells it what to do. It is also fair to say that Russia wants Europe play by its rules and buy its oil and gas the way Russia offers them. Paradoxically, criticizing and punishing such misdeeds, the European Union acts by exactly same token. It disregards national interests of its individuals members and uses threats and blackmails to force them to do what the EU deems appropriate. Abusing the weak points of other states (such as bad economies or chances for future membership in the EU), Brussels is actually playing by the same rules it’s been fiercely opposing.

Advertisements

Russia-Egypt Rapprochement: is Russia Back to the Middle East?

November 14, Russia’s foreign minister Sergei Lavrov together with defense minister, Sergei Shoigu, paid ’the highest level visit in years‘ to Egypt. The talks were being held in a “2+2” format – two top diplomats and two military chiefs – for the first time in the decades-long history of relations between Egypt and Russia. In the talks, the Russian and Egyptian officials discussed military and technical cooperation, which usually implies arms sales. The latter intensified the earlier speculations about the renewal of Russia’s military assistance to Egypt following the partial suspension of military aid and equipment supplies from the United States.

Over the past three decades, the United States was Egypt’s strongest military and financial aid provider. U.S.-Egyptian relations have declined since the July 2013 coup, in which Egypt’s military overthrew Islamist President Mohamed Morsi. The subsequent crackdown on Morsi’s Muslim Brotherhood supporters, violent battles and killings of thousands of protesters in Cairo, instigated the Obama administration to withhold roughly a third of its $1.3 billion in annual military aid to Egypt. The United States has also frozen the delivery of F-16 fighter jets, M1A1 Abrams tank kits and Harpoon missiles. Al Jazeera reports, “Washington has said it would consider resuming some of the suspended aid depending on Egypt’s progress in following the interim government’s plans to hold elections.” Some view the Egypt-Russia conference as a message to the United States conveying the notion that Egypt has options beyond Washington as it seeks to arm itself; if Washington wants to maintain conditions for military aid, Egypt can simply do business with Russia. Meanwhile, Badr Abdelatty, an Egyptian Foreign Ministry spokesman, emphasized that “We are not replacing one party with another. We want to strengthen the independence of our foreign policy. We want to diversify. And Russia is a very important global power.” In fact, Russia’s return to the Middle East does not imply that Moscow’s overtures are an attempt to oust Washington from the region. First, the United States will simply never allow Russia to take control over the situation in the region. Second, Moscow and Washington are pursuing different goals in the Middle East. One seeks to maintain its naval and air defense forces, and the other, to have a constant access to the region’s rich energy resources.
Unlike the United States, who enthusiastically backed the Muslim Brotherhood taking power last year, Russia abstained from any explicit expression of support and refused to publicly criticize the debacle that brought the military back to power in July this year. “After the fall of the Muslim Brotherhood regime, Egypt flung back into the arms of its people and its sons. We have again become ourselves. I’d like to point out that we never forget our Russian friends. We greatly appreciate the position of the Russian people and the Russian government towards the June 30 Revolution…”, Nasser’s son Abdel Hakim Abdel Nasser spoke about that in interview with the Voice of Russia. Such a strategy has obviously scored points for Russia with the Egyptian authorities. Russia’s view of the Syrian crisis has also played in its hands. The Muslim Brotherhood was calling for military jihad in Syria, meanwhile the current Egypt administration entirely shares Putin’s standing on Syria. “We need a reliable friend, and hope that Moscow helps us to resist the pressure from the West”, said the former foreign minister Mohamed al-Orabi in his interview to Russia’s Kommersant newspaper. To further assure Egypt of their reliability, at the joint news conference with his Egyptian counterpart, Nabil Fahmy, Russian Foreign Minister Sergei Lavrov confirmed that “Russia is against any foreign intervention in internal affairs and we respect Egypt’s sovereignty and the rights of the Egyptian people to determine their future.”

Russia and the Middle East

Russia is particularly interested in reinforcing of its relations with Egypt given its weakening strategic positions in the Middle East over the past five decades. The wave of military coups in Northern Africa, that began in the winter of 2010, eventually entitled the “Arab Spring,” has dramatically undermined military and technical cooperation between Russia and the countries in that region. As a result, Russia lost its ties with Libya, Egypt, Saudi Arabia, and other major powers, leaving only Syria as a serious customer. Syria had, until recently, been Russia’s major stronghold in the Middle East. At the same time, Russia’s support for Bashar al-Assad’s regime has become part of the reason why Moscow has been at odds with most of the Persian Gulf states. Enhancing ties with the Arab world’s most populous country would give Russia another chance to fortify its foothold in the region, whose countries have largely aligned themselves with the United States. “Russia is returning to the Arab world because the Arab states are asking us to. They want someone to rely on other than the US and Saudi Arabia,” says Sergei Markov, a frequent foreign policy adviser to President Vladimir Putin. Another recent example of this trend is found in Iraq, whose new leadership started improving its relationship with Iran and restored its military and technical cooperation with Moscow. In the fall of 2013, Russians began the supply of Mi-35M helicopters to Baghdad based on a bilateral contract.
Besides the military and technical assistance that Russia provides its allies with, Islam and Russia’s religious pluralism are another mechanism for Moscow to rekindle its relations with the Islamic world. Russia recently hosted an international economic summit with the Organization of Islamic Cooperation (OIC). “Our goals are clear and transparent – at the October meeting with Russian Muslims’ muftis”, said Putin. “Russia is interested neither in split nor in reorganization of the Islamic world. We will continue support the reinforcement of the collective action in the international community in order to assure safety and security of the modern world”.
While U.S. diplomacy is failing to maintain its influence in the Middle East, Russia is restoring its reputation among Arab countries as a reliable partner whose assistance will persist even in the face of international pressure (case in point, Syria). So far, such a strategy seems to be working in Russia’s favor.

Russia-Egypt relations in hindsight

The Soviet Union and Egypt enjoyed close ties during the 1960s and early 1970s, when the Arab country was led by Gamal Abdel Nasser. Egypt’s president became popular in the Soviet Union both for his economic program and foreign policy, in which he was often critical of the West. Along with military support, the Soviets assisted Nasser with economic aid and helped to construct the Aswan High Dam along the Nile. In 1964, Soviet leader Nikita Khrushchev during his visit to Cairo awarded Nasser with the highest Soviet decoration – the Hero of the Soviet Union. After the death of Nasser, the new president, Anwar Sadat began to turn the country towards the West. In July 1972, he expelled roughly 20,000 Russian military advisers stationed in Egypt. Bilateral relations have never fully recovered.
In the November 14th talks, Nabil Fahmy, the Egyptian foreign minister, said Cairo was looking to “reactivate” an old relationship with Russia. “We want to give a new impetus to our relations and return them to the same high level that used to exist with the Soviet Union,” Fahmy said following a meeting with his Russian counterpart, Sergey Lavrov.
General Abdel Fattah al-Sisi, Egypt’s army chief and defense minister, told his Russian counterpart, Sergei Shoigu, that the visit indicated the continuation of “historic strategic relations via starting a new era of constructive, fruitful cooperation on the military level”, the state news agency reported. Additionally, for the first time since 1992, a Russian warship docked at the Egyptian port of Alexandria. The arrival of Russia’s flagship cruiser, Varyag, likely marks the resumption of joint naval maneuvers between the two countries. During their visit Russian diplomats and their Egyptian counterparts discussed military collaboration (arms supplies) and agreed to hold joint military drills to counter terrorism and piracy, said Shoigu. Nabil Fahmy said in an interview with Russia’s state-owned RT television channel that aired prior to the meeting on Tuesday, “the issue of purchasing new Russian weapons should be carefully examined.”
To some extent, Russian arms deals resumed back in the 2000s when Moscow upgraded the systems it had supplied to Egypt in 1960s and early 1970s: the S-125 Pechora surface-to air missile system (in the Pechora-2M version), the Kvadrat surface-to-air missile system (which received the missiles and some control elements from the modern Buk complex) and the self-propelled anti-aircraft Shilka weapon systems. The latter were upgraded with portable infrared surface-to-air Igla systems. Egypt also received new medium-range Buk-M1-2 and short-range Tor-M1E. The total volume of military trade between Russia and Egypt is not large by world standards, but nonetheless significant, $1.852 billion from 2005 to 2012 (19.4% of supply to Egypt), second only to the United States with $6.865 billion (71.8% of the total).
According to Russian media reports, the Russian Defense Minister might have also discussed the supply of modern weaponry to Egypt such as MiG-29 fighter planes, air defense systems, and anti-tank missiles – a package worth up to $4 billion.11 However, no agreement or pact on arms sale has been concluded so far. Russia’s supplies are contingent on Egypt’s ability to finance the purchases. “The economy will not permit major weapons purchases,” said Safwat el-Zayyat, a former general. “Policies in the region depend on the man in power, and that can change very easily.” After the coup and in the situation of unsettled government, Egypt’s economy remains unstable and the government is borrowing money from its neighbors (Saudi Arabia, the United Arab Emirates, and Kuwait). Thus, there is a big question mark over the prospect import of relatively expensive Russian armaments.
“We are ready to help Egypt in all the fields where it seeks cooperation,” Russian Foreign Minister Sergei Lavrov said. Sergei Lavrov and Nabil Fahmy discussed perspectives for trade and economic cooperation. “Russia is preparing offers, which include cooperation in the energy sector and heavy industry, the procurement of building and transport equipment…”. Besides, Russia is a major exporter of wheat, which Egypt desperately needs in light of the ongoing economic disruption.
Finally, the Russian and Egyptian foreign ministers discussed the situation in Syria and the elimination of chemical weapons there. Sergei Lavrov emphasized Egypt’s role in solving the Syrian crisis.

Conclusion

Recently, some commentators have claimed that Russia’s revival of Cold War-era friendships with Middle Eastern states, long a part of the American sphere of influence, are a sign that Cold War rivalries are back. Realistically, however, such comparisons with the Cold War are laughable, at best. Most importantly, Russia is no longer a superpower. With an economy basically reliant on natural resources, Russia’s economic growth has stagnated. Today, its GDP is only about 15 percent of the United States. Additionally, Russia’s population is fleeing the country.

Second, Moscow is rapidly losing its influence in the so-called “zone of privileged interests”- namely the countries of the Commonwealth of Independent States (CIS). Several Central Asian former Soviet republics, the Ukraine, and Georgia have all opted to sympathize with the European Union rather than ally with Russia. China is expanding westwards and plans to rent 5 percent of Ukrainian agricultural land. How coincidental it is that Chinese Xi Jinping has recently concluded a ten day-long journey throughout Central Asia, signing a series of economic agreements with the local republics, clearly drawing Central Asia closer to China – and away from Russia?
Driven by its historically imperialist ambitions (inherited from the Russian Empire and then the Soviet Union), Russia is reaching out to the Middle East, seeking to take on a role of mediator, thereby boosting its, inter alia, international prestige. So far, Russian diplomatic mediation efforts have been a failure. Allying with very unpopular Assad regime, Moscow is further alienating nearly all the major powers in the region- Turkey, Israel, Saudi Arabia. Thus, as the Washington Post article highlights, Russia is increasingly despised throughout the Middle East. If any of the Arab states happen to deal with Russia these days, Egypt in our case is such an example, they must do so out of sheer pragmatic interest, namely, the desire to purchase arms. Russia also has an interest in commercial deals with Middle Eastern customers such as Syria, Iraq, Saudi Arabia, UAE, Iran, but the arms trade turnover with them should not be overstated. The major foreign contracts on weapons supplies have largely gone to China and India. Overall, Russia’s trade with the Middle East still represents a smaller portion of its overall trade volume than its trade with India, China, or the European Union.
Moscow’s current interests in the region are more political/strategic than economic in nature. Russia’s aims to restore its image as a powerful player and a mediator, a country that not only shares a similar religious tradition, due to the large Muslim minority of Russia, but also will not attempt to pressure Middle Eastern states towards democracy (unlike the West). Another strong motivation for Moscow to actively engage with the Middle East is the urgent need to improve its image among its own citizens. In the ongoing protest movements in Russia one can clearly recognize methods and technology the rebels used in the Arab states. The idea of replication of the Arab Spring in Russia with a popularly organized opposition is of great concern to Putin. If Russia loses its two last major client states in the region, Iran and Syria, it will appear that Russia has lost its influence in the Middle East, and that Russia has lost its credibility both at home and abroad. These concerns explain why Russia’s rapprochement with Egypt appears to have considerable momentum.