EU -Turkey-Russian Energy Cooperation: "Politics can make strange bedfellows" - Russia’s Gas Strategy Gets Help From Turkey - by Marc Pierini

Politics/Energy can make strange bedfellows

It was November 19 in Istanbul. There, Russian President Vladimir Putin and Turkish President Recep Tayyip Erdoğan held a ceremony marking the completion of the first underwater segment of the Turkish Stream gas pipeline, linking Russia to Turkey’s European shores. The project is a vivid illustration of Moscow’s strategy to strengthen its position in supplying gas to Europe while reducing its reliance on the Ukrainian transit corridor.

For Ankara, the project is a symbol of Turkey’s independent decisionmaking and of the country’s significance in the wider region. Seen from Ankara, Turkish Stream serves a political purpose. It celebrates the blossoming friendship between Turkey and Russia and confirms Ankara’s ambition to be part of the solution to major international issues—in this case, securing the gas needs for a large part of the EU. 

However, Turkish Stream will also increase Ankara’s dependence on Moscow for its energy needs.

The project’s second meaning is that Turkey is contributing to an essential element of Russia’s multi-pronged, long-term strategy of remaining Europe’s major gas supplier, while creating a “third gas corridor” in addition to the Ukrainian and Baltic Sea supply routes. This strategy is unfolding on several fronts: in Ukraine; in the Baltic Sea; and through future extensions of Turkish Stream to southern and central Europe (toward Bulgaria, Serbia, Hungary, Slovakia, and to Greece and Italy.)  

This Russian strategy has raised continuous opposition from the United States.

It is also worth noting that Turkish Stream is not part of the EU’s Energy Union plans since it does not contribute to diversification of supplies. In fact, it will rather reinforce Russia’s market  predominance in both Turkey and the EU.

In Ukraine, the multi-pipeline network channeling Russian gas to Western Europe will remain a vital link. But reducing its use could inflict massive losses in terms of transit costs for authorities in Kiev, which is part of Russia’s strategy in Ukraine.

Much will depend on negotiations for the extension of the Russia-Ukraine commercial agreement, which will end in 2019. To help alleviate Kiev’s concerns, Germany has made the continuation of transit via Ukraine an ingredient of a final agreement on Nord Stream 2, the latter being the subject of controversies within the EU.

The Russian strategy is in no way limited to selling Russian gas on the European continent. It extends much further afield in the wider Eastern Mediterranean region.

Egypt is a case in point.

Following the massive discoveries in the so-called Zohr field to the north and east of the Nile River delta, Russia bought a 30 percent stake from the Italian energy group ENI in 2016 with the consent of the Italian government, which Moscow has had a long and close relationship with. The official reason for the sale was the need for ENI to spread the risk of its Egyptian operation.

Similarly, offshore gas discoveries in Lebanese waters have attracted Russian interest— although drilling off Lebanon is largely dominated by France’s TOTAL and Italy’s ENI, who have a 40 percent share each. Russia’s NOVATEK has bought a 20 percent stake.

Russia has also made moves to control both the oil and gas sector in Syria, despite the ongoing war. The actual effect of these recent maneuvers will very much depend on the final political arrangement expected to end the almost eight-year-old civil war. Many of Syria’s oil and gas fields are located north and east of the Euphrates River, currently outside the control of regime forces. In addition, for reasons linked to the ongoing naval military activities, no offshore exploration has yet taken place in Syrian waters.

In Iraq, Russia is involved in pipeline deals in the Kurdistan region through a number of oil and gas companies, although the actual exports would have to take place through Turkish territory or possibly even through Syria in the distant future.

Such an ambitious Russia strategy is justified by Europe’s gas market fundamentals.

A stronger demand for gas in Europe is good for Russia. According to Oxford Energy, gas demand in Europe (Turkey and non-EU Eastern Europe included, except Serbia) has started rising again for three consecutive years—in 2015, 2016, and 2017—to reach a level of 548 billion cubic meters (bcm), due to continued economic recovery, the impacts of climate change, and the increased use of gas by the power sector. The trend seems to be continuing in 2018.

According to the Finnish Institute for International Affairs, Russia took advantage of several factors: economic recovery and decreasing gas production in the EU, lower Russian selling prices, and the current limited availability of non-Russian liquefied natural gas (LNG) on the European market.

In addition, preexisting disputes between the EU and Russia (including an antitrust investigation against Gazprom, and a Russian complaint at the WTO) have been resolved, signaling that commercial interests on both sides have prevailed, despite a less-than-optimal political climate.

In such an environment, Russia is in a strong position to keep dominating gas supplies to the EU, 

which amounted to 40 percent of extra-EU imports in 2016—although new developments could upset the current situation, such as a rapid development of LNG exports to Europe from other sources.

LNG imports amounted to only 14 percent of total extra-EU gas imports in 2017, with the main supplies coming from Qatar (41 percent), Nigeria (19 percent), and Algeria (17 percent).

In this wider context, and seen from Brussels, Turkish Stream—with a final projected capacity to deliver 31.5 bcm/y, of which 15.75 bcm/y would go to Europe —is a relatively small component of the wider gas supply chain to the EU. In fact, it would represent just over 6 percent of the EU’s imports at 2017 levels.

Yet, seen from Moscow, the pipeline is potentially a significant addition to Russia’s capabilities to export gas to Europe (Turkey included). Assuming that Turkish Stream’s second phase will be completed and operational, it would represent between 16 and 19 percent of Russian sales to the EU and Turkey (at 2017 levels and all other factors remaining unchanged).

In that sense, the ceremony on November 19 in Istanbul was more than just another photo opportunity. It was a symbol of the success of Russia’s objectives in the wider Western European area, with Turkey’s help. 

Together with Russia’s S-400 missile deal with Turkey, it was a symbol of how efficiently Moscow has been using Ankara’s relative diplomatic isolation to its advantage. For Ankara, this was another way of telling the world: Turkey matters.

Read more: Russia’s Gas Strategy Gets Help From Turkey - Carnegie Europe - Carnegie Endowment for International Peace

World War III ? Russia vs Ukraine War? Ukrainian President Says Neighbor Is Preparing Ground Attack - by Cristina Maza

During a televised speech on Monday in which he outlined his case for imposing martial law, Ukraine’s President Petro Poroshenko claimed that his country’s intelligence service had evidence that Russia was preparing a ground attack.

Poroshenko's speech was given after Russia blocked three Ukrainian navy vessels from passing from the Black Sea into the Sea of Azov via the Kerch Strait on Sunday. The incident was a major escalation of the tensions that have existed between the two countries ever since Russia annexed the Crimean Peninsula from Ukraine and began backing armed separatists in the country in 2014. Poroshenko is close to imposing martial law in Ukraine, which would allow the military to run the country, saying it was necessary for Ukraine’s security.

Many experts said Russia’s attack on Ukrainian naval ships on Sunday was a game changer.

“The big story here is that Russia’s armed forces, in broad daylight, launched an attack on Ukrainian navy ships. This crosses a new line. Moscow, of course, seized Crimea with its military, but under the guise of unidentified ‘little green men.’

 Moscow has been conducting a not-quite-covert war in Donbass. Yes, there are thousands of Russian officers there and they control the fighting, but Moscow denies it. In this case, there is no denial,” John Herbst, U.S. ambassador to Ukraine from 2003 to 2006, told Newsweek.

Note EU-Digest :  For those of us remembering our history classes, this is starting to resemble very much how the second world war started, when on October 1, 1938, Adolf Hitler's army marched into the Sudetenland in Czechoslovakia.

This accelerating Nazi Germany's aggressive World War II offensive. 

At that time Europe also was divided, as it is now over Brexit, and to make natters even worse, the US, which used to be the West's major defender of Democracy, has now taken an isolationism turn under the leadership of a not too bright, ego-maniac President, who is in charge of a dysfunctional government, and a population, divided in two polarized camps. 

Putin looking at this picture is probably thinking in the same way as Hitler thought back in 1939. "this is a window of opportunity and it appears there is no need to pull down the shades." Bottom-line, we in the West, and specially the EU,  could become involved in a major war pretty soon, if we don't get our act together.

Read more: Russia vs. Ukraine War? Ukrainian President Says Neighbor Is Preparing Ground Attack

EU-Russia trade bouncing back - "Russia is not the EU's enemy, despite US rhetoric to the contrary"

Russia is not an enemy of the EU, to the contrary

The EU-Observer reports that after three years in decline due to sanctions, EU-Russia trade relations have picked up 20 percent so far in 2017;

In September, the EU Parliament published a report confirming that this decline continued in 2016 and this news was also reported by EUobserver.

However, the trend has changed in 2017.

Eurostat data from the first seven months of the year shows that this decline has stopped and, in fact, the trend was reversed with an expected increase of 20 percent by the end of the year compared to 2016.

EU-Russia trade was up to €285 billion in 2014. In 2016, this number dropped to €181 billion. In only three years, EU members imported €64 billion less from Russia and exported to it €31 billion less.

This decline affected Germany, Italy, Austria and Lithuania above all, which constitute €14.5 billion less in export towards Russia.

However, Austria, Ireland and Lithuania are the three members that suffered the most in relative terms with declines in export of 51, 50 and 40 percent respectively in two years only. Interestingly,

Luxembourg is the only country that increased its exports to Russia from 2014 to 2016.

The average decline for EU members was 34 percent in import and 29 percent in export with Russia.

The trend was reversed starting in January 2016 when trade with most of EU member states started to recover.

This is evident if we look at data for the half-year period. When we compare the first six months of 2016 with the same period of 2017, we notice that the volume of EU-Russia trade increased by €27 billion. The lion's share is for Germany with an expansion by €6 billion and the Netherlands with €4 billion. The only country that reduced its trade is Malta with a decrease of €400,000.

If we look at the exports only in the first six months of 2017 compared to last year, then the leading countries are Germany (plus €2.6 billion), Italy (plus €739 million) and the Netherlands (plus €707 million). The only countries decreasing their exports are Malta, Cyprus and the United Kingdom.

The behaviour of trading partners may be an indication that the Crimea crisis has been discounted already and that politics will, slowly, adjust.

One of the signals was the critical stand of some EU members to the recent round of secondary sanctions imposed by US Congress on Russia, which could create problems for companies involved in the construction of Nord Stream II.

While it is hard to predict the direction of trade flows in the future, we can state that the positive trend seems to lead towards a normalisation of EU-Russia trade in the coming future despite the unresolved crises in Crimea, Ukraine and US meddling in the EU-Russia relations..

EU-Digest

Ukraine: Something Is Happening Here... - by Kenneth Courtis

Ukraine’s President, 51-year old Petro Poroshenko – or Porky, as he is known to all Ukrainians – is at single digits in the polls. With elections scheduled for 2019 that cannot sit well with the oligarch-turned-president.

But in their assessment of him, Ukrainians are simply echoing the disdain that, all smooth-talking rhetoric aside, he has shown them. Remember that he promised to divest himself of certain assets – presumably acquired “legally” once he was elected.

What has happened is the opposite. His group has acquired more state assets at below rock-bottom prices. His firms are already lined up at the trough to gobble up all kinds of stuff in the coming wave of privatizations that the IMF has instructed the county to carry out.

Porky is pretty much the chocolate king of Eastern Europe and the CIS. People on the ground tell me that his three most profitable chocolate factories are in, yes, Russia…

All that sweet stuff can’t obscure the harsh realities. Real wages of workers have been chopped by more than half over the last three years. The emerging middle classes have been crushed.
 
Read more: Ukraine: Something Is Happening Here... - The Globalist

Steel Industry: EU proposes duties on Brazil, Iran, Russia, Ukraine steel

The European Union is planning to impose duties of up to 33 percent on hot-rolled steel imports from Brazil, Iran, Russia and Ukraine to counter what it sees as unfairly low prices, according to a document seen by Reuters.

The EU has over 40 anti-dumping measures to aid European steel producers, mostly aimed at China. 

In June, the bloc set duties of up to 35.9 percent on Chinese hot-rolled steel, prompting an angry response from Beijing. 

Steel is the second biggest industry in the world after oil and gas and the EU's attention has recently shifted as barriers aimed at cheap Chinese imports have an impact.

Read more: EU proposes duties on Brazil, Iran, Russia, Ukraine steel