Russia vs Europe: From strategic partnership to commercial partnership

Russia vs Europe: From strategic partnership to commercial partnership

Russian President Vladimir Putin’s announcement in December 2014 to scrap the South Stream for the sake of another pipeline to the European markets via Turkey was deemed very surprising. But the move might not be so surprising when the details of energy ties between Russia and the European Union are examined. What is more, the already-fragile world economy may not bear the burden of such a dramatic change right now.

A crucial report was recently published by the Oxford Institute for Energy Studies to analyze why Russia has recently given up on working directly with the European Union in future gas pipelines and has revised its energy plans.

The following comments regarding the move in December 2014 by Gazprom CEO Alexei Miller clearly showed this shift: 

“The principle of our strategy in relation to the European market is changing. The decision on stopping South Stream is the beginning of an end to our operation model of the market within which we oriented ourselves toward supplying gas to the end consumer … But you can’t win love by force. If the buyer doesn’t want the purchase to be delivered home, perhaps he needs to get dressed and go to the store; if it happens in winter, perhaps he needs to get dressed more warmly. From the store, he could take a package … which could well be the 'Third Energy Package.' What counts most is that the package should not be empty. In our case, the store is certainly the delivery point on the Turkish-Greek border.”

This firmly closes the door on any possibility of a “strategic partnership” between Russia and Europe on gas, and places the trade at the level of a “commercial partnership,” according to the report.

Two other leading energy developments have clearly demonstrated the change. The first is related to Gazprom’s share in the onshore extensions of the Nord Stream pipeline OPAL. Although the German regulator granted an exemption, allowing Gazprom to use 100 percent of OPAL, the European Commission's Competition Authority capped it at 50 percent, after which Gazprom and the European Commission negotiated for more than a year and reached a solution allowing Gazprom to utilize 100 percent of capacity unless access requests were received by third parties. The European Commission was expected to approve the exemption by March 2014, but repeatedly postponed the decision citing technical issues and linking it to the worsening EU-Russia relationship over Ukraine. Secondly, Germany’s BASF, (the world’s largest chemical company by revenue), and Gazprom called off an asset-swap deal amid mounting political tensions between Russia and the West in December 2014. The deal mattered a lot for European gas security, as BASF, through its wholly owned oil and gas subsidiary, Wintershall, had planned to divest itself of its gas trading and storage operations through an asset exchange with Gazprom. The trade, announced in November 2012, would have given Wintershall access to natural gas fields in Siberia.

“We are tired of being worried every summer if we would have enough energy in the winter,” EU Energy Chief Maros Sefcovic said in an exclusive interview with the Wall Street Journal at the World Economic Forum. “The biggest economy in the world shouldn’t have such a worry and the biggest customer who pays 400 billion euros a year shouldn’t be worried about whether somebody will keep the energy flowing after we pay for it,” he added.

Russia says the EU is not keeping the promises it has given, while the EU says Russia manipulates its power in energy in dealing with the rest of the world. Some of these parties may be bluffing, but the game of taking advantages may cost new dramatic bursts in the world economy, as the European economy is still trying to recover from its recession and Russia’s economy heads into a deep crisis.