Putin Just Scrapped a Gas Pipeline to the West. Should Europe Be Scared?

A construction site in Serbia for Russia's South Stream gas project Photograph by Oliver Bunic/Bloomberg

Has Vladimir Putin triggered terror in Europe by abandoning the planned South Stream gas pipeline that would have carried Russian gas westward under the Black Sea?

Certainly not—even though some Russian news outlets claimed today that the scrapping of the $20 billion project had “caused panic in the European Union” and sent energy prices spiking across the region. In fact, benchmark prices on European gas contracts were mostly lower after the Russian president announced the cancellation on Dec. 1, saying he would pursue a pipeline link to Turkey instead.

In one sense, South Stream’s demise is a victory for the EU. Because the pipeline would have bypassed Ukraine, now the key European transit route for Russian gas, its construction would have given Moscow more leverage to demand concessions from the government in Kiev, which is seeking closer ties with Europe. The EU had asked member states to stop construction of parts of the pipeline connecting Russia with Bulgaria. Putin said those actions had effectively doomed the project. “If Europe does not want to carry it out, then it will not be carried it out,” he said in Turkey.

For the Kremlin, the decision is “a defeat that they are trying to mask as a victory,” Igor Bunin, director of the Moscow-based Center for Political Technologies, told Bloomberg News. “The South Stream project was dying,” even though gas export monopoly Gazprom had poured more than $9 billion into it.

Even so, cancellation of the pipeline is likely to stir tension within the EU. Some member countries on the bloc’s eastern rim, such as Bulgaria and Hungary, would be left short of gas if the conflict in Ukraine led Russia to shut off supplies, as it has done in the past. So would Serbia, which wants to join the EU.”These countries are pretty exposed,” says James Henderson of the Oxford Institute for Energy Studies. By contrast, most of Western Europe is sitting on comfortable gas stockpiles during the mildest year on record in the region. “Putin may be trying to fracture the discussion within the EU,” Henderson says.

Ukraine, not surprisingly, expressed relief over the decision. But for most of eastern Europe, “the scrapping of South Stream complicates the region’s energy security, making it all the more dependent on the Ukrainian pipeline,” Andras Deak, an associate fellow at the Hungarian Institute of International Affairs, told Bloomberg News.  “The EU and the IMF effectively will have to finance Ukraine’s gas bill now, if they want to make sure that gas keeps flowing through Ukraine to Europe.”

The EU, for its part, appears eager to keep the project alive. A planned Dec. 9 meeting of EU and national government leaders on the pipeline will go ahead despite Putin’s announcement, European Commission Vice President Maros Sefcovic said on Tuesday. EU officials have “hosted several meetings aimed at finding a solution to this project,” he said in a statement.

In the near term, a big winner from the controversy is likely to be Turkey. In lieu of South Stream, Russia will step up deliveries to Turkey and offer discounts starting next year. Gazprom announced on Dec. 1 that it is teaming with a Turkish company to build a pipeline that could be used to supply the Balkans—and possibly Greece—via Turkey. “This will strengthen Turkey’s role as a transit hub,” says Stephen O’Rourke, an analyst at Wood Mackenzie consultancy in London. In the end, Europe could still get all the Russian gas it wants–just by a more circuitous route.