SOFIA - South Stream, the multi-billion-euro pipeline intended to bring Siberian gas to Europe, has become an economic pawn in the Ukraine crisis, analysts say, after Bulgaria halted work under pressure from Brussels and Washington.
The pipeline project backed by Russian giant Gazprom Italy's ENI and France's EDF is intended to bring an annual 63 billion cubic metres of Russian natural gas to Europe. But following pressure from the US and Europe, Sofia announced over the weekend that it is halting preparations on its part of the pipeline, which was to begin construction in the middle of the year. Analysts say South Stream has essentially become a political and economic pawn in the EU-Russia standoff over Ukraine, but that it will not be blocked forever.
Resumption of work on will depend upon finding a solution to the unrest in Ukraine and on the ongoing EU-brokered Russia-Ukraine gas talks, they say. Moscow and Kiev are currently engaged in tough negotiations in Brussels to avert a gas cut-off to Ukraine if it fails to cover a debt of nearly $4.4 billion (3.2 billion euros). "It depends if there is a political solution in Ukraine. If there is a political solution then I think they can find a regulatory solution for the pipeline," said Jonathan Stern of the Oxford Institute for Energy Studies.
This was a reference to Brussels' argument that Bulgaria might be breaking EU rules if it went ahead with the project. "South Stream is being used to nudge Russia to make concessions in the Ukraine crisis in general and notably in the gas talks," said Gerhard Mangott, a Russia expert at Austria's University of Innsbruck. For Martin Vladimirov from the Sofia-based Centre for the Study of Democracy: "It is too early to speak about a freeze." "A big Gazprom-EU agreement might be expected in the coming days," he noted.
"The question is if Europe's geostrategic interests will take the upper hand over the purely economic interests of the South Stream partners such as Italy's ENI, France's EDF and the big consumers from Germany's chemical industry." Russian Foreign Minister Sergei Lavrov lashed out at Brussels on Monday for pressuring Bulgaria on South Stream, claiming the pipeline was being used to seek revenge on Moscow for the Ukraine crisis. "Sometimes Brussels is guided by a desire to punish, a desire to take revenge," Lavrov said.
The EU already urged in mid-April that South Stream be scrapped as a rebuke to Moscow for its actions in Ukraine. But it has refrained from pushing for an outright cancellation and has instead engaged in a legal showdown with Gazprom and Bulgaria over regulatory details of the project. "The EU wants to pause before being seen to allow a new piece of infrastructure which might substantially increase Russian exports to Europe," Stern noted. In a sign that the project was far from dead however, Serbian Prime Minister Aleksandar Vucic said on Monday that Belgrade was continuing work on South Stream as planned, despite a report that it might follow in Sofia's footsteps.
Even Bulgaria's Economy and Energy Minister Dragomir Stoynev said Tuesday that "South Stream seems quite irreversible as a European project." "The question is not if but how exactly it will be implemented," he added. The EU's poorest member and a country that relies almost entirely on Russia for energy, Bulgaria has been a staunch supporter of South Stream, which it sees as vital in diversifying its gas routes -- which currently run via Ukraine, causing several supply issues in the past.
Neither ENI, nor France's EDF have issued comments on the project's hold-up. But sources close to the French company said its long-term engagement in South Stream was not in doubt.