A construction worker stands in front of two giant pipes arranged to be welded together near the village of Sajkas, Serbia.(ANDREJ ISAKOVIC/AFP/Getty Images)
Summary
The European Union remains unwilling to apply meaningful sanctions against Russia. However, as the crisis in Ukraine exacerbates tensions between Moscow and European capitals, a high-visibility pipeline project, South Stream, has become a target for rhetoric.
The complex structure of the EU decision-making process for such projects could translate into long delays for South Stream's approval and implementation, especially with the current European Commission nearing the end of its term. But the commission is unique among European institutions in its ability for independent action and will be pragmatic in assessing the Continent's continued need for a solid energy partnership with Russia, its most important supplier.
Analysis
Energy fuels the relationship between Russia and the European Union. Natural gas flows from the vast fields of Western Siberia make up around one-fourth of Europe's total consumption. In turn, Europe is by far the largest customer of Russian energy exports, and Russia's poorly diversified economy depends on that revenue to maintain any form of solvency.
As tensions persist over the political future of Ukraine, the South Stream project, a planned natural gas pipeline spanning the Black Sea between Russia and Europe, has become a subject of geopolitical competition -- not only between Moscow and Europe, but also among EU member states.
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It is expensive to build pipelines, and even more so when the pipeline runs underwater. The South Stream project includes a nearly 1,000-kilometer (620-mile) underwater section that contributes to its $24 billion price tag -- a justified expense in the eyes of Gazprom and the Russian state. The pipeline would allow Russian natural gas flows that currently transit Ukraine to bypass the chronically troubled country for direct delivery to the European Union in Bulgaria.
The pipeline therefore secures strategic benefits for Moscow. It would ensure the stability of deliveries to a portion of Russia's largest natural gas consumer market, while allowing Moscow much greater leeway in dealing with Ukraine, whose greatest source of leverage against Russia is its status as a transit nation for nearly one-third of Europe's natural gas.
The Ukrainian crisis has for now diminished the usefulness of this long-term strategic ploy for Russia, which has annexed a part of Ukrainian territory and is engaging in outright political and security destabilization operations in the country's eastern regions. But this crisis will pass -- and Russia has no desire to annex any more Ukrainian territory -- leaving the government in Kiev, whatever its form, with control over the transit of a strategic Russian commodity export.
Europe at Odds Over South Stream
A number of European leaders have condemned the South Stream pipeline since the onset of the Ukraine crisis, with some calling for a freeze in the process of approving the project. Because the European Union remains unwilling to apply meaningful sanctions against Russia, South Stream, a high-visibility project that remains in the early stages of implementation, makes an easy target for rhetorical barbs by leaders that must at least appear to comply with U.S. calls for action.
But European indignation will pass as the situation in Ukraine stabilizes enough to fade from the headlines. The reality is that Russia remains the European Union's only reliable source of large volumes of relatively cheap natural gas. Especially in the midst of an enduring economic crisis, such a partner is vital, even if it is not popular.
European member states have disagreements of their own regarding South Stream. Transit countries in the Balkans and Central Europe are quite understandably pushing for construction to begin, and Italy, South Stream's projected endpoint, is doing the same. The German magazine Der Spiegel recently reported that Russia is simultaneously coercing and bribing Bulgaria to find legal loopholes to expedite the pipeline's approval. Austria, in the meantime, has offered its territory to host the terminus of the pipeline. Poland has taken the initiative among nations that feel directly threatened by Russia's actions in Ukraine or that simply would not be directly connected to the South Stream network.
At first sight, the approval process for South Stream seems fraught with legal obstacles. The European Union cannot ban the construction of the pipeline over the consent of member states, but it has the jurisdiction to regulate the pipeline's usage. Notably, EU legislation stipulates that the natural gas producer cannot also own the pipeline and that fair transit capacity must be allocated to competing producers. This does not sit well with Gazprom.
The Legal Architecture
EU law is flexible and allows for exceptions. One such exception has facilitated the operation of the Nord Stream pipeline, South Stream's mirror project that runs under the Baltic Sea. Such decisions are not made through regular, democratic legislative channels like the EU Parliament or even the European Council. Instead, they are left to the European Commission -- the executive branch of the European Union.
The commission is one of the most powerful institutions of the European Union. The government of each EU member state appoints one of the 28 commissioners, who are approved in consultation with the president of the commission. Each commissioner manages a specific portfolio, ranging from agriculture to transport. In theory, commissioners do not represent their countries -- they serve the institutional interests of the European Union. The commission is the least democratically accountable body of the European Union. This affords it a certain freedom of action. During the more acute points of the EU financial crisis in 2011 and 2012, with other institutions frozen by national partisanship and procedural hurdles, the commission's ability to quickly put emergency measures into place helped prevent economic collapse on the Continent.
The peculiar decision-making architecture for projects such as South Stream leaves the pipeline's future in the hands of a small council that has little to no accountability to EU institutions or even constituent members. Substantial power lies in the hands of Gunther Oettinger, the energy commissioner. Despite a recent hardening of rhetoric against Russia in general and South Stream in particular, Oettinger's track record as commissioner -- including the continuation of his predecessor's work on the approval for Nord Stream -- shows a great deal of pragmatism and an understanding of the complex strategic interdependence between the European Union and Russia.
In fact, the commission's work in crafting the EU energy policy might be considered one of the deepest and most successful legacies of the European Union. The union has gained substantial negotiating leverage against its traditional suppliers over the past five years through tighter regulation, expanded internal grid connectivity and supply route diversification -- all while acknowledging the limits of such efforts and the need for a stable and cordial relationship with Russia.
Oettinger's term as commissioner ends toward the middle of this year, along with the rest of the current commission, and a new commission will take office toward the end of the year. Regardless of political rhetoric as the situation in Ukraine unfolds, Oettinger and the current commission will likely avoid any significant action either for or against South Stream's approval in the last few weeks of their mandate.
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