Friday, October 24, 2008

Europe view 104: pipelines & iran


President's dilemma
Oct 23rd 2008

Deciding between Nabucco and South Stream

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WHICH will it be? The next American president will have to decide. Either Europe gets natural gas from Iran, or Russia stitches up the continent’s energy supplies for a generation.

In one sense, it is hard to compare the two problems. Iranian nuclear missiles would be an existential threat to Israel. If Russia sells it rocket systems and warhead technology, or advanced air-defence systems (or vetoes sanctions) it matters. By contrast, Russia’s threat to European security is a slow, boring business. At worst, Europe ends up a bit more beholden to Russian pipeline monopolists than is healthy politically. But life will go on.

Europe’s energy hopes lie in a much discussed but so far unrealised independent pipeline. Nabucco, as it is optimistically titled (as in Verdi, and freeing the slaves) would take gas from Central Asia and the Caspian region via Turkey to the Balkans and Central Europe. That would replicate the success of two existing oil pipelines across Georgia, which have helped dent Russia’s grip on east-west export routes.

Russia is trying hard to block this. It is reviving the idea of an international gas cartel with Qatar and Iran. It also wants to kybosh Nabucco through its own rival project, the hugely expensive ($12.8 billion) South Stream. Backed by Gazprom (the gas division of Kremlin, Inc) and Italy’s ENI, it has already got support from Austria, Bulgaria and Serbia. The project has now been delayed two years to 2015.

But politicking around it is lively. This week the Kremlin managed to get Romania—until now a determined holdout on the Nabucco side—to start talks on joining South Stream. As Vladimir Socor, a veteran analyst at the Jamestown Foundation, notes, that creates just the kind of contest that the Kremlin likes, in which European countries jostle each other to get the best deal from Russia. Previously, that played out in a central European battle between Austria and Hungary to be Russia’s most-favoured energy partner in the region. Now the Kremlin has brought in Slovenia to further increase its leverage.

All this works only because the European Union (EU) is asleep on the job. Bizarrely, Europe’s leaders publicly maintain that the two pipelines are not competitors. They have given the task of promoting Nabucco to a retired Dutch politician who has not visited the most important countries in the project recently (or in some cases even at all).

The main reason for the lack of private-sector interest is lack of gas. The big reserves are in Turkmenistan, but Russia wants them too. Securing them for Nabucco would mean a huge, concerted diplomatic push from the EU and from America. It would also require the building of a Transcaspian gas pipeline.

That is not technically difficult (unlike, incidentally, South Stream, which goes through the deep, toxic and rocky depths of the Black Sea). But it faces legal obstacles, and could be vetoed by both Russia and Iran. As Zeyno Baran of the Hudson Institute argues in a new paper, “the fortunes of the two pipelines are inversely related”.

That is America’s dilemma. Befriending Iran would create huge problems for Russia. An Iranian bypass round the Caspian allows Turkmen gas (and Iran’s own plentiful reserves) to flow to Turkey and then on to Europe. But the same American officials, politicians and analysts who are most hawkish about Russia tend also to be arch-sceptics about starting talks with the mullahs (or even turning a blind eye to Iranian gas flowing through an American-backed pipeline).

If Iran can make it clear that does not want to destroy Israel and promote terrorism (and stops issuing rhetorical flourishes on the subject) it stands to benefit hugely. The “grand bargain” has never looked more tempting—or more urgent.

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