The ultimate casualty of the changing geopolitical landscape may well be the U.S. desire to isolate both Russia and Iran from a significant role in developing Caspian energy resources. Washington's longstanding sanctions policy toward Iran, combined with its desire to thwart Russia's rising energy dominance of Eurasia, has foundered on European intransigence and self-interest, leaving the Bush administration few options. As my mother used to say, "Between two chairs you'll sit on the floor."
What ignited the media frenzy was the signing by Russian President Vladimir Putin and Bulgarian President Georgi Parvanov of an agreement at a ceremony in Sofia, Bulgaria, on Jan. 22 committing their nations to constructing the South Stream pipeline. Gazprom and the Italian firm Eni are jointly developing the $14.66 billion project. The 550-mile pipeline would run from Russia underneath the Black Sea to Bulgaria before splitting in several directions.
In a massive understatement, Forbes said, "The project undercuts the prospective U.S.- and EU-backed Nabucco pipeline designed to ease Europe's reliance on Russia."
Putting a brave face on the news, the European Commission's Ferran Tarradellas said, "In the worst-case scenario, the two pipelines will be complementary. ... Nabucco is going to continue as planned. They will certainly not contradict each other. Nabucco is going to continue as planned."
What particularly galls Eurocrats is that Bulgaria, formerly the Soviet Union's most stalwart ally, joined NATO in 2004 and the European Union only in 2007 and the fact that Sofia had received an offer from both the United States and the EU to join the Nabucco project.
As if South Stream were not bad enough news for European Cold Warriors, in a further coup strengthening Russia's control in the Balkans, Serbian President Boris Tadic and Prime Minister Vojislav Kostunica on Friday flew to Moscow to attend the signing of a Russian-Serbian energy agreement. While the Kremlin was coy about specifics, the deal would make Serbia a hub for Russian energy supplies, as the agreement would provide for building a branch of a major prospective natural gas pipeline in Serbia. Even more galling to European Russophobes, Russia's state gas monopoly Gazprom will acquire a controlling stake in Serbia's state oil company, NIS.
The Nabucco project's Achilles heel is, given Russia's increasing dominance of Central Asian natural gas reserves, where the volumes to fill the pipeline will come from. Despite a relentless stream of European and U.S. high-level delegations jetting into Ashgabat following the death of Turkmen President Saparmurat Niyazov in late December 2006, his successor, Gurbanguly Berdymukhammedov, concluded major agreements with Russia last year to provide Gazprom with 50 billion cubic meters per year, along with a contract to build a pipeline to China, scheduled to come online in 2009 to provide 30 billion cu m annually. As Turkmenistan is Central Asia's largest natural gas producer, exceeded only by the Russian Federation's output, hopes to fill Nabucco's projected 31 billion cu m annual requirements with Turkmen gas seem dead in the water.
Enter the Iranians. Speaking at a news conference in Sofia on Jan. 22, Iranian Foreign Minister Manouchehr Mottaki said the Islamic republic was ready to export gas through the Nabucco pipeline. After reminding reporters that Iran's natural gas reserves were exceeded only by Russia's, Mottaki added, "Both countries are seeking an access to vast markets. Europe should make a choice. The European Union has stressed the need for diversifying gas delivery routes. Nabucco is a possible way of energy cooperation between Iran and the EU."
Mottaki's generous offer will make Europeans carefully calculate how much bite versus bark the lame-duck Bush administration actually has to enforce the 1999 U.S. Iran Sanctions Act, under which foreign companies investing more than $20 million in the Iranian hydrocarbon sector risk sanctions. If Nabucco is to survive and counter rising Russian influence, then it looks as if the Bush administration is going to have to make some unpalatable decisions.
Of course, Iran is hardly concerned about European thermostats. The U.S. sanctions over the years have thwarted the development of the nation's natural gas sector. Iran produces 440 million cu m of gas per day, with domestic consumption accounting for about 380 million cu m, an increase of 12 percent from 2006 levels. For Iran to provide Nabucco throughput, significant investment in the nation's gas infrastructure would be needed, which Tehran would undoubtedly seek from European investors; but Iranian gas increasingly seems Nabucco's only option.
As Nabucco is scheduled to become operational in 2012, the U.S. government has four years to determine who it detests more, Moscow or the mullahs. What does seem certain is that Europe will not wait that long before resolving outstanding issues of energy security, and whatever the EU decides, Washington will be unhappy. Given that the U.S. Energy Information Administration forecasts that U.S. natural gas consumption will rise to 33.8 trillion cubic feet annually by 2020 and global demand to 162 tcf, maybe even the United States will be forced to negotiate with Iran. Still, if the Saudis can bail out Citibank, why not the Iranians Nabucco?