Why shelving South Stream is good news for Europe

Video transcript of Ask the Experts by Professor Stefan Hedlund

Was Putin’s decision to drop South Stream a short-sighted manoeuvre which will cost Russian’s economy, or was it a calculated move which will have serious repercussions throughout Europe?

Professor Stefan Hedlund:

Well it’s definitely not a calculated move. It’s more of a sudden gesture of defiance. Mr Putin has longed been angered over how the European Union allegedly creates trouble for the South Stream, and now he’s obviously had enough. So now he’s going to say, ‘Well if you don’t want the pipeline, you’re not going to get the pipeline, and there you’ll have it.’

The second question is whether this will be damaging? I don’t think so. I think it’s very good for the European Union in the sense that it puts an end to this eternal game by the Kremlin to play different EU member states off against each other - on having South Stream or not. So that’s going to be very helpful.

It is also, paradoxically, going to be very good for Gazprom and for the Russian economy. Building South Stream was never a commercial project, it was always political – designed to circumvent Ukraine and to prevent the European Union from building its own pipeline to circumvent Russia.

And it couldn’t have become commercially viable from the outset, and definitely not now with the gas prices coming down. So this is very good for Gazprom.

What is short-sighted is that Gazprom started building the thing before they even had the contracts in place. But they have been relieved of this. And Gazprom finance is doing very badly because the price of gas is coming down and they are losing markets in the European Union. So not having to build South Stream is going to be good for all concerned.

Central and Eastern European countries are the obvious losers. How will this impact on Europe’s overall energy security strategy, and stability?

Professor Stefan Hedlund:

This is where the trouble arises. Countries like Bulgaria, Serbia in particular, and also to some extent Hungary have been very much in favour of Gazprom, hoping that it would pass their territory and that it would generate jobs and it would generate transit fees.

So they are up in arms now, saying it was very stupid of the European Union to provoke Mr Putin into doing this. But that is short-sighted on their account.

But it will not be very harmful to the European Union’s energy security since the European policy at present is to wean itself from reliance on Russian gas supply. So not having South Stream is a step in the right direction.

Something may have to be done to secure gas supply for South East Europe, Serbia in particular, but that can be handled without giving Gazprom the South Stream. So, I think on that count it is also helpful.

Is the European Union in any way to blame for this outcome?

Professor Stefan Hedlund:

Well, the European Union is definitely to be blamed since it provoked the conflict with Mr Putin.

What I would rather say is that the European Union is to take credit from this.

The core of the conflict is what has been known in Brussels as the ‘Gazprom Clause’. A clause in the energy security treaty that says companies that produce gas are not also allowed to pipe the gas. So that would definitely be aimed at Gazprom.

The Commission in Brussels has definitely objected to any saying that it is aimed at Gazprom, but that is clearly the case. And now that issue is off the table.

So, from Brussels’s point of view this is a triumph of legality of politicking and extortion by the Kremlin.

So, aside from the fact that there will be jobs lost, and there will be irritation in some member states, I think on the whole its good riddance.

The South Stream pipeline should never have been built, and now it won’t probably be built, and we’re better off without it.

(Photo credit: dpa)