Competing Designs for Caspian Energy Highways: Russia and the EU Face Reality Checks

Report - External Series

Baev, Pavel K. (2009) Competing Designs for Caspian Energy Highways: Russia and the EU Face Reality Checks, PONARS Eurasia memo, 55. : .

In the wider Caspian region, the crisis has interacted with three crucial developments, causing a change in direction in the fluid systems of regional finance and security.

Assessing the new composition of drivers, policymakers in Berlin, Paris, Brussels, and Moscow cannot have any real confidence in their positions and have to acknowledge the possibility of political breakdown caused by economic dislocation.

Energy-centered political maneuvering in the southern “flank” of the EU-Russia interface has become more fluid and intense since the Russian-Georgian war, which effectively excluded the Caucasus from the European security system. There is a clear need to prevent a new war, and a moral obligation to help Georgia is acutely felt in many European quarters. However, rearmament is a very problematic proposition which Washington appears set to enact. This high- risk security environment scares away those Western investors who still have stakes in the energy business, but it does not deter Russia from advancing mega- projects aimed primarily at reducing its transit dependency on Ukraine. A sharp decline in revenues has forced Gazprom to reduce its 2009 investment program by twenty-five percent, but Putin has not accordingly scaled back his energy ambitions. Moscow has apparently concluded that the strengthening centrifugal momentum in the EU creates an opportunity to play hardball and disrupt the efforts of the EU Commission to shape a meaningful energy strategy combining diversification with a “green” agenda. Russia’s own vulnerability to the deepening recession is far greater than Putin is ready to admit. However, exploiting this vulnerability – or Putin’s self-deception – is not a rational choice for either the EU or the United States.

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Pavel K. Baev

Pavel K. Baev

Research Professor