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.

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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.

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Some remarks on “Historical Justice”

One of the driving forces behind Putin’s determination to annex Crimea was a mission to restore so-called “historical justice,” as I mentioned in the previous post. What is “historical justice?” one can contemplate the term as far as  his/her awareness of history, education, etc. stretches. Why would it be “historically just” to attach Crimea back to Russia and not to Greece or Turkey? Crimea was a Greek colony for over 400 years and then part of the Ottoman Empire for 300 years. Neither Greece, nor Turkey, today claim their territorial rights for the peninsula. By and large, revision of borders over disputable territories looks redundant and nonsensical in the modern world. Rivers of blood are spilled for only to move a border a few meters further. Thus, to restore the infamous “historical justice,” Putin could have come up with better idea how to do it in the 21st century. Meantime, what Putin just did was a surreptitious theft of Ukrainian territory  in the midst of revolutionary turmoil. Putin pragmatically seized the momentum and grabbed a piece of another sovereign state. In other words, rather than any basis in fact, “historical justice” is merely an emotional and relative category, used by politicians as a rhetorical device.

Putin and Ukraine: Small gains at the price of irrevocable loss

Here in America, people often ask me to comment on the situation in Ukraine, Russia’s military occupation of Crimea, Euro-Maidan, and Putin. Some are even curious if I, as well as other Russians, believe that Putin is somewhat psychologically or mentally deviant. I’m not a psychiatrist, so I can’t confidently set a diagnosis. Nonetheless, I believe such outrageous comparisons of Putin to Hitler or Saddam Hussein are unacceptable. There is a good article by Aaron David Miller in which he also criticizes such hyperbolic statements.

By and large, to my great disappointment, the Western media appears disturbingly hostile towards Russia and Putin. I understand the healthy nature of criticism and exquisite reproach, but what I see in the American press is just a torrent of blind hatred with the ultimate and the only aim to defeat and, rather than an attempt to try objectively analyzing Putin’s decision-making process. People got particularly excited about Angela Merkel’s remarks on Putin such as her claim that Putin was “in another world” and not really in touch with reality.
Now, let us try to look at the situation from Putin’s perspective, the perspective of a leader who is power-hungry, who has been driven by imperialistic ambitions, who desires to restore Russia’s former glory, and who wishes to halt Western meddling within its sphere of influence. As a reminder, he once declared the fall of the Soviet Union, “the greatest geopolitical catastrophe of the century.” A strong and powerful Russia is his ideology. To me, that a leader feels so strongly about his state is quite reasonable. Especially, keeping in mind that we are speaking of an autocratic leader who is used to making critical decisions on his own, who does not act inline with the commitments his country has with a variety of international organizations and councils. Putin keeps entertaining the idea that the former Soviet states are still under Russia’s umbrella, and Moscow may do whatever it wishes to do there. This is how Putin is programmed. We should take this framework as a given and use it to understand Russia’s state of affairs in and the mind of its leader. Whether or not it is a democratic, internationally legitimate, or strategically far-sighted policy is another question. I will elaborate on those ideas further in the text.

On the one hand, it would be fair to say that any state’s leader’s mission is to protect the interests of his nation and to struggle to the bitter end in any conflict or crisis situation that could potentially threaten the security of his state. And that is exactly what Putin does. What is insane about it? In situation with Ukraine, Putin’s political steps are pretty rational – again, from the authoritarian leader’s perspective. The main reason Russia is so concerned about Ukraine is NATO, the Cold War military alliance. NATO was formed to defeat an enemy – the Soviet Union, or to be more precise – the Eastern European members of the Warsaw Pact. It is first and foremost a military alliance. Although, its members claim its purpose is now merely political, as opposed to military, the evidence proves the opposite. Both Putin and the average Russian believe that the only reason for NATO to exist is the existence of an enemy. With the collapse of the Soviet Union, the Alliance found itself in a situation with no potential threat to the existence of its member-states. However, the Alliance does not want to disband. Or rather – the US (essentially it’s CEO) doesn’t want to shut the Organization down. Thus, NATO will simply invent enemies out of whole cloth to justify maintaining large military forces and adding new members. Russia is one of those mythical enemies. Thus, NATO is adamant in its desire to move anti-ballistic missile systems closer and closer to Russia’s borders, under the guise of targeting Iran and North Korea. From 1999 to 2009, NATO added 12 new member states, most of whom were former Warsaw Pact members, and is widely believed to have further expansion in mind. By “further” I mean as far as to “the Black Sea” – a region with enormous strategic value to Russia. Thus, Russia’s calculation is pretty simple: first, Ukraine joins the EU, then NATO, then NATO deploys forces to Sevastopol, blocking Russia’s sole southern seaport. Such a situation would be a strategic disaster for Russia. Thus, Putin was eager to pay any cost to keep Ukraine away from any kind of association with EU. Speaking of the currently deployed Russian troops in Crimea and the annexation of the Peninsula, Putin realized that with the abdication of Yanukovich – a pro-Kremlin leader – Putin lost his last grip on the country. At the same time, he can’t yield a strategically important region of Crimea which the feckless Khrushchev willingly gave to the Soviet Socialist Republic of Ukraine in 1954. As if the strategic rationale was not a strong enough justification, 60% of Crimea’s population are ethnic Russians bolstering Russia’s territorial claims.

Given internal consistency of Putin’s actions thus far, why would prominent Westerners aggressively parrot Merkel’s rumor? Putin’s behavior towards his neighbors is essentially identical to US actions worldwide, yet few called Bush or Obama insane when America invaded and bombed Yugoslavia and Iraq. Where were the calls to levy international sanctions against America back then? Why was there no world-wide hysteria as we are witnessing now? Why can America interfere in any part of the world and act as the world’s policeman, while at the same time Putin is expected to remain passive in the face of unfolding chaos right next to Russia’s immediate border? In other words, why are the West allowed to effectuate change whatever, whenever, and wherever they want and Russia is not? The questions are an attempt to picture reality the way Putin sees it. To this point, I want to remind readers that in the 20th century the borders of most Middle East states were drawn by the West in the ways the Western powers deemed it most convenient for them to operate in the region. Saudi Arabia, Jordan, Lebanon – all these states were created at the discretion of Western powers. In the 1940’s, during World War 2, these territories were not yet dominated by nationalists but rather were under the dominion of Axis and Allied armies.

On the other hand, had Putin acted more pragmatically, being internationally minded and strategically far-sighted, he would have had to assess the entire situation (even before Yanukovich fled Kyiv) with a strong consideration of number of problems piled up. These include declining Russian demographics, technological backwardness, insecurity of its southern borders, complex relations with China, etc. Considering all these long-term systemic issues Russia needs to maintain good relations with the West – US and EU – based on mutual trust and stability. The stabilization in Ukraine could have been achieved by different methods – acting collaboratively with other states within the Security Council, where Russia is a permanent member. Unilaterally intruding with military forces Russia violated all its previously established doctrines and international agreements (including the Budapest agreement) regarding sovereignty of other states. Thus far, Russia has not only damaged its relations with Ukraine, but also with the US and EU. Had Ukraine signed a major treaty with EU, it would have probably started moving towards EU membership. Accession to the EU, however, was never certain (look at Turkey), no doubt because it is in Ukraine’s interest to keep a balanced relationship with Russia. By abruptly disregarding international law and its commitments to various agreements, Russia has strengthened NATO’s hand, as Poland, Czech Republic, Lithuania will now feel very insecure and thus call on NATO to fortify their borders with Russia.

It remains unclear what Russia seeks to gain by absorbing Crimea. To protect Russian speaking population there? From whom? The Russians form a majority there and have never been oppressed by ethnic Ukrainians. To get more territory? Russia is a vast country – the largest in the world. An access to the Black Sea and its fleet there? Russia has been allowed to keep its naval forces in the Sevastopol harbor according to the agreement with Kyiv, and renewal of that agreement has never been in doubt. Despite the preceding, under Russian supervision, Crimeans held a referendum to secede from Ukraine and join Russia on March 16th, 2014. Although the official results are not ready, initial results suggest an overwhelming victory for joining Russia. Looking merely at the referendum misses the point. On the surface this appears to be a Wilsonian expression of self-determination, the Crimeans wanted to re-unite with Russia and the Russian government has favorably responded to their will and allowed a referendum. This is reminiscent of traditions from the Middle Ages when the Polyans and Drevlyans of ancient Russia invited the Varangians to come and rule them. Today’s rules are clearly different. We have certain norms and legislation that regulate territorial issues. Russian legislation clearly outlines the procedure of absorbing new territories. Russia may annex a state if that state sincerely asks to join Russia, note the term “state,” not “portion of a state.” Although autonomous, Crimea is still a part of Ukraine. Russia, therefore, cannot legally annex Crimea. The Ukrainian Constitution does not allow secession either. If Russia nevertheless obtains Crimea, in the long run, it will bring nothing but constant confrontations with Ukraine and the international community. Crimea will neither be recognized as either a new state, should it wish to follow in the footsteps of South Ossetia and Abkhazia, nor as a part of Russia. Furthermore, Crimea is a very poor region, with an average salary of $500 a month. Thus, Russia will gain just another dependency, again similar to South Ossetia and Abkhazia.

How can the West respond to Putin’s occupation of Ukraine? It could respond with economic sanctions, introducing bans on financial assets of certain people involved into the crisis, it could impose travel restrictions, and cooperation with Russia overall could be curtailed. Realistically speaking, however, I don’t think the West will impose draconian economic and financial sanctions on Russia. Europe, to a certain extent, is still dependent on Russian energy supplies. Russian gas accounts for 30% of Europe’s imports. Obviously, European states cannot suddenly give up on a key input to their economies. The biggest risks that Russia faces are not a momentary sanctions but rather the long-term threat of international ostracization. Such disengagement does not simply imply that the EU will leave Russia alone and ignore it. The consequences of such isolation and lack of respect and international recognition could be, in fact, catastrophic for Russia. The combined GDP of the Western countries (EU, USA, Canada, but not including Japan, Australia, and New Zealand) is 17 times bigger than Russia’s. Thus, simply by the massive economic superiority the West will start rendering Russia less and less competitive in the global market. While Russia’s energy resources are still essential, it is not the only supplier any more. Europe will gradually diversify its gas and oil imports towards liquefied natural gas (LNG) from the US and Qatar. Even Yanukovich, when he was still in power, declared that Ukraine was going to end dependency on Russia’s gas supplies by 2020, while together with Chevron they are starting shale gas exploration this year. Over the past five years, Ukraine’s gas imports from Russia have fallen by half. In addition, the West can facilitate the fall of oil and gas prices similarly to what President Reagan did after the military intrusion in Afghanistan, namely encouraging an increase in crude oil production both in the US and abroad. Thus Reagan explicitly demonstrated how a petrostate whose leader claims he is great, can wake up one beautiful morning and realize that it has confused superior leadership with high oil prices. At the same time, with the fracking proposed in Ukraine, and Poland, Russia risks losing its comfortable position in the European gas market as well.

Putin pursues policies unpopular in the West to prevent possible spillover effects from Ukraine’s revolution on Russia, to restore the so-called “historical justice” (i.e. reuniting with Crimea since it was always a part of Russia), and to restore his approval rating among the Russian population. These measures will benefit three groups in the short run: Putin and his closest oligarchs, the ethnic Russians in Crimea, and the new government of Ukraine (which can expect to be showered in Western aid money). Yes, looking a few years out, although Putin may well retain the reputation of a great leader who defended the Russian minority in Ukraine, who restored the “historical justice”, who secured access to the Black Sea, and who was able to stand up for Russian sovereignty. This glory will be short-lived. Looking forward, out years and decades, Russia loses Ukraine as a strategic partner and neighbor (a country whom Kissinger called a bridge between Russia and Europe), Russia loses trust and respect from the West, Russia becomes less resilient to China’s challenge in the Far East, and finally Russia becomes even more isolated and exposed to political disintegration.