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The Ιnfluence of Pipelines on Regional Politics

The Ιnfluence of Pipelines on Regional PoliticsIn our recently recently released book Does Energy Cause Ethnic Wars?: Natural gas and regional conflicts in the the East Mediterranean and Caspian Sea, Andreas Stergiou and I attempted to appraise the role of natural gas as well as the question of whether the prospect of economic benefits resulting



By Marika Karayianni

In our recently recently released book Does Energy Cause Ethnic Wars?: Natural gas and regional conflicts in the the East Mediterranean and Caspian Sea, Andreas Stergiou and I attempted to appraise the role of natural gas as well as the question of whether the prospect of economic benefits resulting from the development of energy resources can be an incentive for peace or a catalyst for war for those having to live through the ongoing power game in the Caspian Sea and the Eastern Mediterranean.

By examining the legal, geopolitical, and economic parameters of natural gas, we came to the conclusion that energy wealth either exacerbates existing ethnic conflicts or it does not play any role whatsoever in their evolution. The Caspian Sea and the Eastern Mediterranean are two regions with well-known energy resources, that bring gas to Europe. These two regions have also been haunted by deep-seated ethnic conflicts and disputes, including the Arab-Israeli conflict, Cyprus, the so-called frozen conflicts of the South Caucasus like Nagorno-Karabakh and Abkhazia, as well as the Syrian Civil War.

When looking at the EU-Russia energy relationship, it is clear that Moscow is in possession of vast oil and gas resources and Europe is energy starved. Russia can deliver the gas that needy European consumers demands at a competitive price. Any alternative would either be more costly for Europe or less profitable for Russia. In this regard, although the EU’s energy diversification strategy has so far focused on reducing its dependence on Russian gas, this policy has not in any meaningful way influenced the existing political equilibrium in the Caucasus or in the Balkans.

A decisive factor has been EU bureaucracy and the lack of sovereignty in handling foreign affairs as a bloc in order to counterbalance Moscow’s soft power. On the other hand, the increasing dependence on Russia has not stopped the EU from sanctioning Moscow over its invasion of eastern Ukraine and illegal annexation of Crimea, but against this background, we see the changing dynamics when it comes to pipeline politics within the Southern Gas Corridor – the flagship programme of the EU for diversifying its gas supply sources and routes.

Gas exports from the Caspian Sea to Europe are challenged by certain factors such as geopolitical interests, competing pipeline projects, and technical problems. This is especially true for projects that involve transit states. The decision to construct a transnational pipeline is the result of a mix of commercial considerations combined with political relationships between producing, transit, and consuming countries and is affected by the geostrategic interests of the regional/global powers involved.

Nevertheless, neither unresolved conflicts nor the region’s overall security map have been affected by the various pipeline projects. Energy exports have not been able to achieve political goals or to resolve conflicts between two or more countries. The notion of "peace pipelines” has nothing to do with reality, despite multiple attempts by various governments to promote the idea. The notion of "economic peace” also does not apply to the Caucasus. The pipelines that have been built have, thus far, not brought about a resolution to the region’s many as was expected in the early 2000s when pipelines from the Caspian to the Black Sea were built.

Despite Russia’s invasion of Georgia in August 2008 and the creation of a de facto Kremlin rule over Georgia’s breakaway regions of Abkhazia and South Ossetia and the tensions between Armenia and Azerbaijan over Nagorno-Karabakh, the five littoral states finally came to an overall agreement in Aqtau in August 2018 after 26 years of negotiations about the specifics of the Caspian.

Due to economic difficulties, field development in Azerbaijan has delayed. This fact, in combination with increasing domestic gas consumption, could be a problem when the Southern Gas Corridor, or SGC, begins its full operation. Azeri gas might not suffice for Phase II, especially for the IGB and Vertical Corridor expansions. This, in turn could undermine the EU’s energy strategy in the region. Given the estimated limited supply possibilities of Azerbaijan, however, Baku would probably direct its natural gas first to satisfy its own domestic consumption, then to cover Georgian domestic consumption and lastly to supply the SGC with the necessary volumes for Europe.

The question is, what would be the additional supply sources for the SGC? Turkmenistan or Russia itself?A game changer would be the construction of the Trans-Caspian Gas Pipeline, but that is not likely in the foreseeable future. The Russian route for the transport of Turkmen natural gas to Europe would not be welcomed by the European Union as it would increase, rather than decrease, the bloc’s dependence on Russia.

The prospect of cooperation might have affected, or even facilitated, negotiations on the Name Dispute between Greece and North Macedonia and also explains Russia’s demonstratively negative reactions to the Prespas Agreement. In the end, however, other international and domestic factors led to the resolution of the dispute. Thanks to gas discoveries in the Eastern Mediterranean, the region has attracted the attention of global energy companies in recent years. The discoveries raised the prospect of regional energy market integration and the potential for exports to Europe. A common perception is that the East Med’s gas deposits could drastically alter the EU’s energy security.

Apart from the Tamar and Zohr fields, the Eastern Mediterranean gas remains largely undeveloped and exploration proceeds slowly. Given that the gas exports from the area, in the best-case scenario, would reach the amount of 50 bcm in the next years, most likely after 2025, and that the EU market consumes more than 400 bcm/y, this perception is rather misguided.

The contracts signed so far shift the balance towards Egypt becoming a major energy hub and prompted Turkey to flex its muscles. Gas diplomacy has already solidified existing relationships between Cyprus, Greece, Israel, and Egypt mainly for security reasons. Conversely, geopolitical competition and the existing disputes and conflicts have not stopped the research and development of hydrocarbon in the exclusive economic zones of all of the producing countries.

It is now up to the markets and investors to decide if they will engage in a country and they do that primarily on the basis of commercial and risk-averse assessments. If the companies, after they have completed such a process, decide not to invest in the exploration and development of natural resources in a third country, no political alliance, directive or axis can force them to do so.

The commercial viability and bankability of a project is what really matter for a foreign investing company. Only then, provided that these conditions are met, do they seek the political acquiescence of all the actors involved. In other words, the key to regional energy cooperation does not lie outside the Eastern Mediterranean. Efforts should be made to craft a more localized and sustainable energy policy, one that understands the limitations of the energy market and the capabilities of the parties involved.




PUBLICATIONS Long-Term Gas Contracting Terms, definitions, pricing - Therory and practice The Greek Energy Sector 2019 SEEEO 2016-2017 More

COOPERATING ORGANISATIONS IEA Energy Institute Energy Community Eurelectric Eurogas Energy Management Institute BBSPA AERS ROEC BPIE