Ukraine and the supply of Russian gas to Europe – the European Commission and national sovereignty over energy

By Eamon Dyas

In the aftermath of the fall of the Soviet Union the West became intoxicated by the prospect of Russia’s opening up its natural resources to Western business interests. This was represented at the time as a victory for the policies of Ronald Reagan and Margaret Thatcher and it was only fitting thatthe version of capitalism that took the lead in converting Russia to free market economics was the onerepresented by both these western leaders.

By 1990 their version of capitalism, but more specifically, the version espoused by Thatcher, hadalready begun to make an impact on the EU – a fact acknowledged in a research paper of the Deutsche Bank on the occasion of the 20th anniversary of the Single Market in October 2013:

“Many aspects of EU-wide deregulation and the opening up of national markets were initiated and decisively shaped by Britain.” (“The Single European Market 20 years on: achievements, unfulfilled expectations and further potential”, Deutsche Bank Research Paper, by Stefan Vetter,31 October 2013. p.17).

The grounds for the emergence of the single market were laid out in the Single European Act of 1986 which set the target of the single market to be completed by 1992. Although the objective of environmental protection was part of the Act, in practical terms, it took longer for the energy sector of individual countries to be included either as part of the single market or the bloc’s environmental protection objectives. Nonetheless, the integration of national energy markets continued to be discussed by the Council of Ministers and in 1988 the idea of a functioning internal energy market was included in a Commission working paper. The paper acknowledged the challenges involved inestablishing such a market in terms of the harmonisation of rules and technical norms as well as the opening up of public procurement of energy and the removal of fiscal barriers. The working paper also established the object of a common carrier system for gas and electricity across member states under which consumers could purchase energy from any supplier within the Community regardless of grid ownership.

In the wake of the 1988 working paper a package of proposals addressing the need for greater competition in the electricity and gas markets was adopted by the Commission and referred to the Council of Ministers in 1989. But in 1990 it continued to meet with significant opposition, particularly to its proposal for a common European energy carrying system – something that wentagainst the grain of established national thinking whereby such systems, evolving as they had within the various national jurisdictions, had traditionally enjoyed a protected status under their own national governments.

And a few years later the EU seemed no further forward with regards to the Commission’s objective:

“The Commission continued to develop plans for a liberalised internal energy market in the 1990s, but no specific chapter on energy was included in the 1992 Maastricht Treaty, as its inclusion was vetoed by member states – notably those with large energy reserves – to ensure they retained autonomy over energy policy.” (“EU Energy Policy and the Third Package”, byJoseph Dutton. Energy Policy Group, working paper 1505, University of Exeter, July 2015).

But:

“By the second half of the 1990s the internal market for energy became more substantially developed, when the European Parliament passed a directive on the rule for the internal electricity market in 1996, which was followed by a directive in 1998 on rules for the gas market. These were watered-down versions of proposals rejected by member states originally in 1990, but nevertheless they substantially bolstered the moves towards an internal market place and attempted to remove ‘legal monopolies’ and obliged vertically integrated companies to grant third party access to networks. Article 15 of the Directive also introduced requirementsfor separation of operations for vertical integration companies.” (Ibid.)

The Maastricht Treaty, which came into effect in 1993, was supposed to represent the culmination of thesingle market ideal as encapsulated in the 1986 Single Market Act but that Treaty continued to bear witness to the difficulties surrounding attempts to create a single European market in energy.

In the meantime, in 1991, the EU launched the Energy Charter Declaration as a statement of intent on the part of the EU to promote the idea of energy cooperation. In 1994 this gave way to the EnergyCharter Treaty which entered into legal force in 1998. But:

“Since the signing of the Energy Charter Treaty, the European Commission has used its existing competencies in competition and environment and consumer protection policy to attempt to shape a European energy policy in a variety of ways. These include promoting an internal gas and electricity market, encouraging the development of alternative energy supplies, and, in cooperation with the office of the High Representative for Common Foreign and SecurityPolicy, pursuing a more cooperative approach to external relations with current and future energy suppliers.” (“The European Union’s Energy Security Strategy”, by Paul Belkin. Partnership for Peace Consortium of Defence Academies and Security Issues, Vol., 7, No, 1, Spring 2008, p.79).

In other words, it appears that the Energy Charter Treaty was not something which brought with it an element of compulsion. It seems that the Treaty simply provided the European Commission with the environment to “encourage” and “promote” the idea of a common European energy market. This was not be surprising as the idea of a common energy market continued to be resisted by those EU members states that continued to assert their control over their energy sectors as a matter of national sovereignty. Britain had the added incentive for resisting a common energy market as it held significant energy resources at this time.

Role of Britain in the formation of the EU’s energy security policy

Ever since it joined the European Community in 1973 Britain had opposed the development of a common European energy policy. Such opposition had to a large extent been based on its perceivedcommercial interest after the earlier discovery of North Sea oil which went into production in 1975. Itwasn’t until Britain made a U- turn on its energy policy that the conditions began to emerge for the formation of a EU policy on energy security. This happened on 26 October 2005 when Tony Blair announced his belief in the need to establish a European energy policy at a meeting with MEPs at Strasbourg. At that meeting he said:

“For far too long, we have been in the situation where in a haphazard and random way energyneeds and energy priorities are simply determined by each country according to its needs, but without any sense of the collective power we could have in Europe if we are prepared to pool our energy and our resources.” (“Blair tries to mend fences with call for shared EU policies”, The Times, 27 October 2005).

The following day, on 27 October he provided more details at an informal meeting of EU heads of state at Hampton Court. In an outline of his vision he described the need for a European common energy policy as something necessary to enable the future EU to compete in a globalised world. The Times, in an editorial on Blair’s vision pointed out that the main opponents of his free-market policy for energy were likely to cohere around “the Franco-German obsession with ‘social Europe’” (“Facing the Facts”, editorial in The Times, 27 October 2005).  Blair never actually said he wasopposed to the idea of “social Europe” – something he knew at the time would only alienate those he wished to bring on side. Rather, what he claimed he wanted was a Europe that could embrace both the idea of a “social Europe” alongside one which sought to better equip Europe with the free-trade tools that would enable it to compete in the new globalised world. However, given the impracticality of those mutually exclusive objectives The Times editorial got it right.

It was as part of his vision for a Europe capable of competing on the global market that Blair soughtto encourage the EU to develop a common EU energy policy either through “an intergovernmental agreement or through ceding national powers to the European Commission”.

Blair explained this radical change of heart on the part of Britain in the following terms:

“the UK was “always opposed to any idea of a common European policy” because it feared that “the European Commission would go in and start regulating North Sea oil platforms and causing difficulties for us”.

“If that was a common energy policy, it wouldn’t be worth having. What is worth having, however, is how do we improve the competitiveness and the efficiency of European business, how do we reduce price for consumers and things like how we get the best interconnection onthe European grid – that is absolutely the type of thing that we should be looking at,” he said.

“What is different about this Commission and this Commission president is that they arefocusing on where the European Commission can add value to the European project,” headded. (“Tony Blair’s energy U-turn”, Politico, 2 November 2005).

From the perspective of the British public the fact that this decision came at a time when the output of North Sea oil and gas was on the wane helped to sell the idea of ceding control over its energy policies to the EU. But there were obviously other reasons that went beyond British domestic politics.The fact that this happened in the immediate aftermath of the signing of the agreement, a monthearlier, on 8 September 2005, between German Chancellor Schröder and Russia’s President Putin for the construction of a gas pipeline connecting both countries is something that must also be taken into account.

Then alongside this there were two other important considerations that framed the context of Blair’s U-turn on energy security. These were the US-funded overthrow of the Ukrainian presidentialelections won by Yanukovych and his replacement with the western-oriented Yushchenko the previousyear as well as the role that Blair played in ensuring the entry of a swathe of ex-Soviet bloc states into the EU on 1 May 2004.

Both of these events were consistent with Britain’s geopolitical position as an ally of the US vis-a-vis Russia. In sponsoring EU membership for those states in 2004 Blair was surely not unaware that this ensured that the balance within the EU was changed irrevocably in favour of the most anti-Russian elements in the EU with Poland and the Baltic States joining the EU at the same time. This ensured, inthe following year, that the voices expressing opposition to the 2005 German-Russian gas agreementnow possessed a greater level of weight within the EU.

Those voices lost no time in making their objectives known for the following year:

“In 2006, Poland circulated a proposal for a so-called “Energy NATO,” calling on an increased role for NATO in guaranteeing the protection of member state energy supplies. In a similar vein, in an address at NATO’s November 2006

Summit in Riga, Latvia, Senator Lugar proposed the extension of NATO’s collective defence clause, Article V, to cases where a member state’s energy security is threatened. Other EUmember states, notably Germany and France, have greeted such proposals skeptically, preferring to advocate an enhanced EU role in energy security matters.” (“The EuropeanUnion’s Energy Security Strategy”, by Paul Belkin. Partnership for Peace Consortium of Defense Academies and Security Studies, Vol. 7, No. 1, Spring 2008, p.102).

At this point, with its proposal for NATO to take on the responsibility for European energy security being rebuffed by Germany and France, Poland then used a combination of German war guilt and itsveto power over the proposed Lisbon treaty to implant the former Soviet countries’ concept of European energy security at the heart of the new EU’s constitution.

“So Poland took its energy security idea to the EU, and threw it into the Union’s constitutional negotiations. It surfaced during the June 2007 summit negotiations to patch up a new EU treaty.Nominally Lithuania led the push for a solidarity clause in the treaty . . . But what got everyone’s attention was Poland’s tactics in support of Lithuania.

“Poland was the last country that the then German presidency of the EU had to square in order to get a deal on the Lisbon treaty. The Kaczynski twins, then running Poland as prime minister as well as president, used brutal rhetoric in support of Poland’s quest to keep more Councilvotes than its population would normally merit. This included blaming the Nazis for the paucity of Poles relative to Germans today and therefore for Poland having too few EU votes relative to Germany.

“In the circumstances, an energy security clause was an obvious sop for Chancellor Angela Merkel, as EU President, to placate Poland (Germany would, by size and location, be the mostpractical provider of energy solidarity to Poland, and luckily Berlin’s relations with Warsaw rapidly improved after the defeat of Jaroslaw Kaczynski as prime minister).

“So the draft 2007 Lisbon treaty has, under the heading ‘Difficulties in the supply of certainproducts (energy)’, a new sentence to the effect that: ‘The Council, on a proposal from the Commission, may decide, in a spirit of solidarity between the member states, upon measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products, notably in the area of energy.’” (“Energy and Climate Change: Europe at the Crossroads”, by David Buchan. Oxford University Press, 2009, pp.88-89).

Not for the last time would German war guilt be exploited to facilitate the ascent of east European anti-Russian sentiment in Europe. That the energy security policy was to be directed at Russia was acknowledged by the president of the EU Commission, José Manuel Barroso when, during the lead-in to the negotiations for the Lisbon Treaty, he said

“Brussels would also take over energy negotiations with third parties such as Russia, Europe’s main energy supplier, arguing that EU members will get a better deal if they combine forcesrather than negotiate on their own.” (“Fearful EU aims to take energy policy from governments”, The Times, 9 March 2006.)

This was correctly interpreted by The Times newspaper as an attempt by the European Commission to“seize control of energy policy from national governments” following the “decision by Britain to yield control over energy policy to Brussels” (ibid.).

The message being sent by Barroso’s announcement was that it was now the Commission’s intent toensure that the EU rather than the national governments of its constituent states, would in future undertake negotiation with Russia on any issue relating to energy supplies. Nonetheless, the idea ofBrussels assuming such control remained only an aspiration that continued to be met by issues of impracticality and hostility from some member states. Indeed, the treaty itself was compelled to acknowledge the aspirational nature of what Poland and the Baltics demanded.

“The notion of solidarity also figures for the first time in the main reference to energy in the EU’s putative new treaty, as does the creation of formal EU competence to ‘ensure security ofsupply in the Union’. But we have also seen that there is a crucial qualification that the treaty ‘shall not affect a member state’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply’. This language could void the new wording about energy security of real meaning.” (“Energy and Climate Change: Europe at the Crossroads”, by David Buchan. Oxford University Press, 2009, p.89).

This is not to say that the idea of energy security was no longer something that the EU Commission was committed to or that it was not its ambition to assume control over what had previously been theprerogative of national governments when it came to their energy policies. Rather, it was an acknowledgment that, given the continued resistance, it was recognised that such an objective now required a more opaque approach.

European Commission’s tactics for taking control of national energy sectors 

The significance ofthe events in 2007 and the Lisbon Treaty was that, thanks to the likes of Poland and the Baltic countries, the member states of the EU were now encouraged to view the energy issue in the wider context of the EU’s Common Foreign and Security Policy (CFSP). This represented a victory for that element inside the EU bureaucracy and within European politics that was determined to weaken the prerogatives of national states over their energy policies – something they viewed as a hindrance to the pursuit of their federal ideal.

Towards that end they mustered a number of forces pushing that objective. Included was the growing environmental movement within Europe – a movement that sought the emergence of a supra-nationaloverlordship of policies affecting the environment. But, as we will see later, the Commission also used its business regulatory and legislative powers in dubious ways to push its agenda. The manner in which the demands of the growing climate change lobby coalesced with the Commission’s objectives on energy policy was explained in 2008 in the following way:

“The EU has traditionally exerted little if any influence over the energy policies of its individual member states. However, in March 2007, in the face of increasing concern regardingEurope’s reliance on Russian energy resources, and growing public pressure to address global climate change, the EU member states agreed on a series of policy measures intended to form the foundation of an ‘Energy Policy for Europe.” The March agreement aims to increase the EU’s ability to secure and diversify European energy supplies, while seeking to reduce EU-wide carbon emissions by promoting alternative and renewable energy sources.” (“The European Union’s Energy Security Challenges”, by Paul Belkin. Connections, a publication of the Partnership for Peace Consortium of Defence Academies and Security Studies, Vol.7, no. 1, Spring 2008, p.76).

The author of the above article was an analyst in the Foreign, Defence, and Trade Division of the Congressional Research Service in Washington and can be taken as someone who had some insightsinto the thinking of the US government at this time when he says:

“The United States and Europe have steadily broadened the transatlantic energy dialogue toinclude joint promotion of collective energy security, energy efficiency, and alternative energy sources. Leaders of both sides of the Atlantic have agreed to pursue US-EU cooperation to develop alternative and renewable energy technologies and to forge coordinated policies with regard to Russia and politically unstable regions with substantial energy resources. US officials have expressed some concern at some European member states’ unwillingness to exert more pressure on Russia to comply with EU market principles.” (Ibid.)

As has been stated, the energy sector had always been an area where the prerogative of nationalsecurity had acted as the means by which members of the EU could avoid the compulsion to apply “EU market principles” to that sector. That is why the elevation of energy to the arena of the EU-wide Common Foreign and Security Policy (CFSP) was of such significance. That, together with the influence being exerted by the United States and the European environmentalist lobby, created a growing pressure on those EU states that had continued to insist on national control over their energy sectors.

In the end however, it was the European Commission’s use of its regulatory and legislative powers that would make the most significant contribution to the erosion of the use of the national prerogative in the energy sector. In targeting that sector the Commission developed the idea of “unbundling” of national energy companies within the EU:

“The Commission’s most recent and controversial proposal would reduce the power ofstate-owned energy companies by obligating them to split up ownership of generation and distribution networks (a process known as unbundling). The Commission contends that dual ownership blocks competition and allows for price manipulation.

“However, opposition to unbundling from Germany, France, and Spain leads analysts to predict that the Commission will seek to allow national energy industries to continue to operate bothgeneration and distribution facilities, but subject them to oversight from an independent Europeanregulatory body. The Commission is expected to announce its formal proposal in the fall of 2007.” (Ibid., p.99).

Despite the continued opposition of the likes of Germany and France to the attempts of the Commission to diminish national government control over their respective energy sectors thosecountries left the door open through their commitment to carbon reduction targets – something that the Commission would use to argue its place in establishing a supra-national oversight of the sector.

“Although member state governments remain reluctant to cede national sovereignty over aspects of their foreign policies relating to energy security, they have set binding EU-wide targets for the use of renewable energies and biofuels, and have agreed to ambitious but non-binding energy efficiency and carbon emission reduction targets for the year 2020. In addition,member states are considering potentially significant reforms to further liberalise the Europeanenergy market. Nonetheless, most observers expect member states to continue to retain significant national control over their energy markets and their relations with energy-producing countries.” (Ibid. p. 77).

Then on 19 September 2007 the Commission unveiled its draft legislation which included the unbundling proposal as well as “safeguards against unwelcome foreign investment” which was unmistakably targeted against Gazprom. Included among the proposals was the establishment of Independent Service Operators (ISO) “which would leave the owners of national grids or pipelines as financial holding companies with no day-to-day operational control over their assets” (Buchan, op.cit., p.64). But,

“If the Commission had hoped that the hard line opponents of OU (full- ownership unbundling- ED) such as France, Germany and Austria would grasp at the ISO option, it was quickly disabused. For while the opponents might regard the ISO option as the lesser evil (because it did not involve the sale of network assets), some of them regarded it as an even biggernonsense, reducing a network owner to nothing more than a financial holding company.” (Ibid., p.75).

After their requests to the Commission to come up with ‘a third way’ had been rebuffed, France andGermany decided to work on their own alternative together with the other seven countries that had previously joined them in signing a protest letter against the Commission’s full ownership unbundlingproposal in July 2007. However, before they could finalise their proposals the European Commission had prised Cyprus away with the promise that, as a small isolated market Cyprus could have a derogation from the unbundling arrangements. So it was that the remaining eight countries tabled their compromise proposals to the Commission on 29 January 2008.

In the meantime, there had occurred an incident which highlighted the tensions which were arising not only between some EU governments of the European Commission but between the business sectors and administrative components of those governments.

On 7 March 2007 the Spanish Government fell foul of the European Commission by failing to comply with the European Commission’s demand that it withdraw the political conditions it hadattached for its approval of a takeover bid from the German energy company, E.ON for the Spanish company, Endesa. The Commission declared those conditions illegal and told the Spanish Government that the Commission alone had the authority to decide if cross-border mergers should be approved and furthermore it was also the only authority which could attach conditions to such mergers. It gave the Spanish Government seven days to drop those conditions or it would proceed to take the Spanish Government to the European Court. Events however, were overtaken when Italy’s main electricity provider, Enel and another Spanish company, Acciona, decided to enter the bidding for Endesa. Eventually, the issue was resolved in July 2007 when the Commission approved the combined takeover bid launched by the Italian and Spanish company.

Unlike the German E.ON bid, the Spanish Government – presumably because the new bidders would include a Spanish partner – attached no conditions to this new proposal. In turn, the European Commission also approved the new deal declaring that only the Spanish market would be affected bythe deal and it would not reduce the level of market competition that already existed (see: “Commission ends battle for Endesa”, The Times, 6 July 2007).

But it was all a charade set up to avoid the Commission losing face and the Spanish government notbeing put in the position where it had to openly cede its sovereignty to the Commission. The charade led to the resignation of the president of the Spanish National Securities Market Commission, Manuel Conthe Gutierrez (also referred to as Manuel Conthe). Gutierrez had found himself at odds with the other members of the Spanish National Securities Market Commission over its handling of the affair.

That body had originally ruled out a new counter-bid from E.ON in response to the combined bid from Enel and Acciona. E.ON then claimed that the offer from Enel and Acciona was illegal andasked the Spanish courts to make a ruling on the matter. The Spanish court rejected E.ON’s claim inlate March, thereby clearing the way for the combined offer of Enel and Acciona to succeed and save both the Spanish government and the European Commission a significant element of embarrassment.

What the experience revealed at this time was the existence of a dangerous level of dissonance emerging between the strategy of those governments that sought to maintain sovereignty over theirenergy policy and the energy companies that operated within their jurisdictions. Alongside this there were elements within the administrative components of the countries involved that held that their main loyalty was to the Commission rather than their own governments. Whether those business and administrative components acted out of purely business motives or because they were staunch Europhiles or environmentalists is neither here nor there. What was important was that they represented elements within each state whose loyalties became increasingly compromised in terms of their government’s energy strategy.

This in turn created a lack of cohesion which weakened the ability of those governments to effectively negotiate with the European Commission in ways that might protect their desired level of sovereignty over energy policy.

A very clear example of this occurred exactly a month after the group of eight countries led byGermany and France (known as the anti-OU camp) had submitted their alternative plan to the European Commission’s unbundling policy.

“But the anti-OU camp suffered a setback, when, on the morning of 28 February 2008, Energy Ministers Council, EON and the Commission announced that they had come to a preliminary deal in which EON would sell off its German electricity grid and Brussels would drop its anti-trust investigations into alleged power market manipulation by the German utility. Peter Hinze, Germany’s economics minister learned about this as he walked into the Justus Lipsius council building in Brussels. . . He rounded on the Commission for its ‘very questionable game’,effectively accusing it of timing the announcement to humiliate him and weaken his bargaining position.” (Buchan, op. cit., p.76).

In fact, what Hinze said was “The coincidence of these events, at a moment when the Commission is trying to force through a very sharp position against a minority, is a very questionable game” (see: ibid. p.70).

The Commission denied that the timing was anything other than a coincidence – a denial that becamemore threadbare when just six months later, before the June 2008 Energy Council meeting, the Commission and the German energy company, RWE, jointly announced that they had come to a very similar arrangement.

“The U-turns by EON and RWE did not alter the stance taken in [energy – ED] council meetings by German ministers, who were also angry at being made to look foolish by their companies. As the practical reasons for defending their companies from OU (unbundling – ED) slipped away, German ministers elevated opposition to OU even more to a matter of principle. But the sight of Brussels forcing Germany’s two biggest utilities into plea bargains over unbundling had an impact on some of Germany’s allies. ‘The EON announcement was very important’, said a senior Commission official some months after. ‘It changed the dynamic because whatever the German government said, there was no longer a unified German position.’” (Buchan p.77).

So it was that the European Commission used its powers in other areas to exploit the conflated motivations of energy businesses and elements within the administrations of those governments that continued to dissent from the Commission’s energy objectives. In this instance they used the threat of instigating an anti-trust investigation in order to drive a wedge between them and their governmentsin ways that deprived those EU states of mounting an effective defence of their sovereignty over their energy sectors..

It should be noted at this point that the original point of weakness for national energy sovereignty was laid down much earlier with the obligation placed on nation states to privatise their previously state-owned energy companies – something that was a precursor to the directive of the European Union’s First Electricity Directive, issued on 19 February 1996 which sought to establish a new regulatory framework. This began a process of market liberalisation in national energy sectors which was framed around the objective of ensuring that every household and industrial consumer of electricity in theEuropean Union would be entitled to choose their electricity supplier by 1 July 2007. On this point it should also be noted that the direct result of this requirement was the loss of over 300,000 European jobs in the electricity supply industry between 1990 and 2005 (see: “European Union Gas and Electricity Directives, by Steve Thomas. Public Services International Research Institute, University of Greenwich, September 2005, p.48). In circumstances where an energy company was in privatehands it relies on the support of its shareholders. Even if such a company has not been involved in nefarious activities the mere threat of the European Commission instigating an anti-trust investigation would be sufficient for many of those shareholders to move their investment elsewhere – in itself a powerful motive for private energy companies to comply with the demands of the European Commission.

From this point forward the European Commission was able to increasingly advance towards its ambition to ensure that the European Union would operate to a common energy policy – a policyincreasingly framed by a combination of the influence of the former Soviet nations and the growing environmental movement that was beginning to be bulked out by the mainstream media in Europe.

However, the Commission never fully got its way with Germany whose economic success had come to rely to a large extent on access to cheap energy from Russia. When it came to energy policy Germany continued to plough its own furrow. In this regard it has to be said that other countries, and even the European Commission grudgingly acknowledged that the German economy, if it was tocontinue to act as the engine-room for Europe’s economic success, would require such access.Nonetheless, as later events would show, while it may have stood back at this point in time, the European Commission never really abandoned its efforts to prise Germany away from Russian energy.

Commission seeks to establish European alternatives to Russian energy

The logical objective that followed from the European Commission defining Russian oil and gas as a threat to European energy security was the emergence of a policy which sought to reduce the European Union’s reliance on Russian energy. Alongside, the use of coercive administrative measures to inhibit such reliance the Commission also used the inducement of possible access to alternativesuppliers of oil and gas – all of which sat alongside the environmentalist objective of reducing the overall use of carbon-based energy sources.

In practical terms, the effort to find alternative sources of energy involved the European Commission providing political and financial support for projects that involved the construction of new pipelinesto convey oil and gas from non-Russian sources to the European market even if this made no economic sense.

Although the European Commission’s objective in terms of its attitude towards Russian energy was given impetus in the aftermath of the EU’s eastern expansion in 2004 it had followed a policy ofencouraging the use of alternatives to Russian energy before that – in fact it went out of its way to encourage the de-coupling of former Soviet countries from Russian energy even prior to them joining the EU in spite of the fact that it made no economic sense for those countries to do so.

We see this in the example of the Odessa-Brody oil pipeline

“The Odessa-Brody oil pipeline is the best example to highlight the risks that come along with immense political interference in a project that is not aligned with economic reality. In fact, this pipeline was conceived to limit Polish and Ukrainian dependence on Russia, by transporting oil from the Middle East through Odessa, Ukraine, to Brody, on the Polish-Ukrainian border. Strongly supported by the EU, this project was completed in 2001.” (“Oil and Gas Delivery to Europe: An Overview of Existing and Planned Infrastructure”, by Susanne Nies. Published by the French Institute for International Relations, 2008, p.35).

Although the countries directly involved were not at this time members of the EU the European Commissioner of Energy and Transport declared the pipeline to be one of pan- European interest andtherefore worthy of EU support. Consequently, on 23 May 2003, the European Commission signed a joint declaration with the Council of Ministers of Poland and the Cabinet of Ministers of Ukraine in support of the project as a “Euro-Asian Oil Transportation Corridor”.

However, in the meantime the pipeline had remained unused from 2001 through a failure to secure ample“downstream” markets – unsurprising given that the product to be delivered by this route was more expensive than the existing Russian oil – and a lack of oil supply from the intended source. In effect the original intention of this pipeline was never realised and, although it remained for some years a “live” project, with Poland and Ukraine having lost large sums of money in the project, in November 2013, the Polish Ministry of Infrastructure and Development made the decision to downgrade the project from its list of priority projects to the reserve list.

When it came to gas we find a similar fate with regards to establishing alternative pipelines. There was anearly attempt to establish an alternative gas pipeline with the initiation of talks between OMV, the Austrianenergy company, and the Turkish BOTAŞ company in February 2002. In June 2002, a consortium of five companies, OMV of Austria, the MOL group of Hungary, Bulgargaz of Bulgaria, Transgaz of Romania and BOTAŞ of Turkey signed a cooperation agreement in October 2002. The title of the project was the Nabucco project and in December 2003 the European Commission provided a grant to the amount of 50% of theestimated cost of a feasibility study for the pipeline project. The idea of the pipeline was to transport natural gas from Iraq to Erzurum in Turkey and then to Baumgarten-an-der March in Austria. It was hoped that future supplies would come from Azerbaijan, Turkmenistan, and Egypt.

A subsequent joint-venture agreement was signed by the five Nabucco partners in June 2005. EU involvement was confirmed with the nomination of Jozias van Aartsen by the European Commission as the Nabucco project coordinator in September 2007 and in February 2008, the German company RWE became a shareholder in the consortium. The first contract to supply gas from Azerbaijan through the Nabucco pipelineto Bulgaria was signed in January 2009 with Azerbaijan committing to at least double its gas production to supply the pipeline. In April that year Turkey confirmed that it was prepared to sign a deal providing that Turkey was given 15% of the natural gas carried through the pipeline.

The inter-governmental agreement between Turkey, Romania, Bulgaria, Hungary and Austria was signed byfive prime ministers on 12 July 2009 at a ceremony in Ankara. The importance of the geopolitical dimension of this pipeline to the EU and the US was evidenced by the presence at this ceremony of the President of the EU, José Manuel Barroso, and Richard Morningstar, the special envoy of the US Secretary of State for Eurasian Energy. Morningstar had previously been US ambassador to the EU and later became the US ambassador toAzerbaijan. He was also to become the Director of the Atlantic Council’s New Global Energy Sector while his wife was a former member of the human rights group Freedom House. Morningstar’s main contribution to the Nabucco project was to block any possibility of the involvement of Iran in the project. The US was also represented at the signing ceremony in Ankara by a member of the US Senate Committee on Foreign Relations, Richard Lugar.

Construction of the pipeline was scheduled to begin in 2013 with the intention that it would becomeoperational in 2017. But by 2014, despite the support of the European Commission and the US it had become obvious that the Nabucco pipeline was not going to perform the function it was planed to perform and although there were other non-Russian gas pipelines in existence those were limited in range and incapable of providing anything like the volume of gas that the European market demanded.

We had now reached the point where both the European Commission and US realised that, for the time beingat least, there was no practical alternative to Russian energy when it came to serving Europe’s energy needs. Consequently, Ukraine would continue to be the only practical means by which Russian oil and gas could be transported to Europe in the quantities required.

However, Ukraine remained politically and socially incapable of establishing a coherent state which could be relied upon to provide the means by which a consistent supply of Russian gas and oil could reach Europe. Its recent past had witnessed different governments that swung from hostility to friendship with Russia and this meant that it could serve two diametrically opposed purposes. It could become the vehicle for the emergenceof a reliable partnership between Russia and Europe in terms of facilitating Russian oil and gas supplies or it could remain an unpredictable entity. What happened in 2014 has to be viewed in the context of a desire on the part of the United States to ensure that if Ukraine was to be the conduit of Russian energy to Europe forthe foreseeable future it was not prepared to permit any subsequent Ukrainian government to exercise that responsibility in ways that could benefit Russia. Far better to have a permanently disabled Ukraine that one that could attain stability on the basis of cooperation with Russia.

In the next article I will go into the tactics employed by the European Commission in its efforts to manage Ukraine’s role as Europe’s gatekeeper of Russian energy.