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Gaspipe Diplomacy: How Ukraine Set Off A New U.S.-Russian Energy Fight

The Ukraine crisis has given the U.S. another front to fight its war for global energy dominance with Russia. Here's the story of the pipeline at the heart of the Moscow-Washington battle to sell oil and gas to one of the world’s biggest consumers: Europe.
Gaspipe Diplomacy: How Ukraine Set Off A New U.S.-Russian Energy Fight
The South Stream pipeline's proposed route through the heart of Europe. Image from: South Stream

By Sylvia Todorova

Now that all eyes are on Ukraine and the potential of a bigger war looms, there’s never been a more important time to understand what is at stake.

As WhoWhatWhy readers know, the real reasons surrounding a conflict are often buried under the headlines and rhetoric. So it shouldn’t come as any surprise that, behind the scenes, oil and natural gas are driving a big piece of the U.S. response to Russian involvement in Ukraine.

If you want to understand where the rubber meets the geopolitical road in the Ukraine war, you need to learn about the 1,480-mile South Stream natural gas pipeline.

The pipeline is core to the larger battle being fought over Europe between Moscow and Washington. It may even have been a motivation behind Russia’s annexation of Crimea. And if there’s a crack in the unified front between the U.S. and Europe over Russia’s role in Ukraine, South Stream is it.

Why does South Stream matter? It’s a $21.6 billion project to connect Russia’s gas reserves—the world’s largest—to Europe’s markets. Europe relies on Russia for about 30 percent of its natural gas.

Any delays in finishing the pipeline—scheduled for completion in 2018—can only help Russia’s competitors in the international energy business. And one player gearing up to challenge Russia in the European energy market is the United States.

This year, the United States became the largest producer of natural gas and oil hydrocarbons in the world, surpassing Russia and Saudi Arabia. There’s solid evidence that the U.S. is seeking both commercial advantage and political influence by gaining a foothold in Europe’s oil and gas markets.

The evidence comes, in part, from the targets the Obama administration has chosen to punish for Russia’s annexation of the Crimean peninsula. All of this raises the question of how much the confrontation in the Ukraine is about who gets to sell natural gas (and later oil) to one of the world’s biggest energy consumers: Europe.

PIPELINE POLITICS
South Stream owes much of its existence to the 2005-2010 Russia-Ukraine gas disputes, which left as many as 18 European countries cut off from Russian gas. Gazprom, Russia’s state-run energy company, proposed South Stream as a way to circumvent Ukraine and ensure an uninterrupted, diversified flow to Europe. It found a willing partner in the Italy’s state-controlled oil and gas company, Eni S.p.A., and seven other gas-hungry countries.


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To truly understand how intrinsic South Stream is to Russian economic influence over Europe, one only has to look at some of the targets of U.S. sanctions against Russian or Russian-linked companies. Two of them were directly aimed at slowing down or stopping South Stream.

The first South Stream-related company the U.S. targeted was Stroytransgaz, which is building the Bulgarian section. Putin ally and billionaire Gennady Timchenko owns it and he’s already on the sanctions list. So Stroytransgaz had to stop construction or risk exposing other companies on the project to the sanctions.

For the rest of the story, please go to WhoWhatWhy.

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