In a measure of the dramatically reshaped relations between Russia and the West, Russian President Vladimir Putin on Monday scrapped plans for a major new natural gas pipeline to Europe, a surprise decision that came as the ruble slumped to an all-time low against the dollar.
The move deprives the Kremlin of a tool that would have increased Russian political influence over south-eastern Europe and detoured natural gas around Ukraine, leaving it more vulnerable to Russia. Putin's decision came after European Union leaders intensified their opposition to the plans because of the grinding conflict in Ukraine.
Putin said Russia would build a smaller pipeline to Turkey instead of the bigger project, for which construction started two years ago, to funnel large quantities of Russian gas underneath the Black Sea to Europe. The cancellation appeared to end an era, at least for now, in which Russia pursued grand, expensive infrastructure projects in Europe that gave it political clout through energy supplies. The decision follows a drop in the price of oil by more than 30 per cent since the summer, starving Russia of revenue and forcing it to curtail its economic ambitions.
"If Europe does not want to implement the project, then it won't be implemented. We will refocus our energy resources to other parts of the world," Putin said Monday in the Turkish capital, Ankara, after a meeting with Turkish President Recep Tayyip Erdogan. "It would be ridiculous for us to spend hundreds of millions of dollars on the project, go all the way through the Black Sea and then stand in front of the Bulgarian border," since Bulgaria's new government has opposed the project.
The decision capped seven years of planning and billions of dollars of Russian investment laying the groundwork for the 15 billion-euro project, which would have bypassed Ukraine in a new route for Russian gas into Europe. As recently as a few weeks ago, Russian officials said construction on the underwater Black Sea section of the pipeline would begin within months.
Russian leaders had argued that the new southern gas route to Europe would have shielded EU consumers from energy disputes between Ukraine and Russia. Before this year, Russia twice cut off the gas to Ukraine in deep winters, in 2006 and 2009.
But European leaders this year have concentrated more on decreasing their dependence on Russian energy rather than consuming more of it. EU countries rely on Russia for about 30 per cent of their natural gas. Lithuania just unveiled a vast liquefied natural gas terminal that will allow it to diversify its suppliers. And after Russia cut gas flows to Ukraine in June, Ukraine's neighbors tried to help by sending gas through pipelines that usually flow in the opposite direction.
The South Stream pipeline, which Putin cancelled Monday, had been intended as a southern complement to the Nord Stream pipeline, which links Russia and Germany, bypassing the Baltic states. That project, which opened in 2011, also helped decrease reliance on Ukraine for shipments of natural gas.
EU officials had raised objections to the companion project, saying that, as planned, it would violate competition rules. Leaders worried that it would both increase European dependence on Russian gas and leave Ukraine dangerously exposed to Russian cut-offs. Opposition from Bulgaria's new government, which was elected in October, appeared to deal the fatal blow to the Russian effort.
Putin said the alternative pipeline would run through Turkey and end in a hub near the Greek border.
Western sanctions against Russia have also made foreign investors wary of ties to major Russian state-owned companies, including Gazprom, the natural gas giant that was leading the efforts to build the pipeline. Restrictions on long-term lending to major Russian banks have made it difficult for Russian companies to raise money for new projects.
With the price of oil dropping, some analysts said Russia may simply be trimming its ambitions. On Monday, the ruble lost up to 5 per cent of its value against the dollar before settling closer to a 2.5 per cent loss for the day. It is down 37 per cent this year, and the decline is closely tied to oil prices.
"The oil price collapse may have something to do with the timing of this announcement," said Edward Chow, an energy expert at the Center for Strategic and International Studies. "They can't afford to call the EU's bluff anymore."
Michael Birnbaum – The Washington Post
Image: Adem Altan / AFP / Lehtikuva