Putin’s Gas Problem

HOUSTON – Russia watchers are rightly focusing on the latest brittle ceasefire in Ukraine, seeking to discern President Vladimir Putin's intentions there. But they would be wise not to overlook another unfolding struggle – one that will have profound long-term consequences for Europe and for Putin's ability to exert pressure on the continent.

Last December, Russian's giant gas firm, Gazprom, and a Turkish pipeline company signed a memorandum of understanding to construct a pipeline from Russia to Turkey under the Black Sea. This new “Turkish Stream" is an alternative to the “South Stream" Black Sea pipeline from Russia to Bulgaria – a project that the Kremlin abandoned in December, in response to the sanctions imposed by the European Union after Russia's invasion of Ukraine and annexation of Crimea.

The South Stream project failed to comply with EU competition and energy directives, and the announcement of the $12 billion Turkish Stream is likely to reinforce Russia's reputation as an unreliable partner, thus accelerating Europe's search for alternate supply sources. Indeed, in risking his most lucrative market, Putin is exhibiting an almost suicidal disregard for the Russian economy – apparently for no other reason than to cement enmity with Ukraine.

The Kremlin intends to remove Ukraine from a gas-delivery system that has been in place since the 1980s, routing supplies instead through a new and untried network to a market that may not even exist. Last month, Gazprom announced its intention to cease shipments through Ukraine when the contracts with the country's gas pipeline company, Naftogaz, expire in 2019. Gas from the Turkish Stream will be delivered to the Greek border on a take-it-or-leave-it basis. Gazprom expects permission to carry out design and survey work “soon," with its first delivery to Turkey to arrive in 2017.