Every conflict has various causes, and the participating countries choose the most appropriate form them.  It is the same for the 5 day war between the Russian Federation (RF) and Georgia in August 2008.

Despite the fact that energy was not in the center of the attention, nor among the named causes of the attack of Georgia on the South Ossetia or the retaliatory reaction of the RF, its presence was felt in the background.  Causes leading to the conflict are analyzed also on the pages of DespiteBorders (1). We are going to focus on the influence of the situation in the Caucasus on the EU energy security.  Although energy itself was not a primary cause of the conflict, it became one of the main losers.

The significance of the Southern Caucasus for the transit of hydrocarbons

Georgia is a country that is not significant from the point of view of minerals production, but from the point of view of its transit.  The country plays an important role in the existing and planned projects of the natural gas and petroleum transport to the world markets.  These projects are focused mainly on accessing the natural resources of the Caspian Sea surroundings and their transport to the world markets outside the territory of the RF and Iran.

It is thus necessary to take into consideration the region of the South Caucasus as a whole, since it represents (together with the USA) the transit corridor number 4 for the EU (2).  Projects like TRACECA (3) and INOGATE (4), financed from the European sources, and are oriented on the development of the corridor.  Therefore, it is not possible to focus only on the bilateral political problems of the country, but also on the asymmetric threats of terrorism and separatism in the broader context.

Baku-Tbilisi-Ceyhan (BTC), presently the most significant pipeline that crosses the defined area, has been operational since 2005 (5).  It delivers approximately 1 million barrels of oil to the world markets daily, which represents roughly 1% of the world’s daily consumption.  Its construction was accompanied by reservations from the opponents side (mainly the RF, but also some of the European politicians and environmentalists), with the argument that it was a political line, the goal of which was to break the Russian export monopoly on oil in the region of the Caspian Sea.  Functionality itself of the pipeline was not influenced by the conflict – it was out of order several days before the outbreak of the war (6).  This event makes it important to look at the region in a complex way and it brings out the question of the stability of the region and the security of the transit areas.

Another important product pipeline is the Baku-Tbilisi-Erzurum (BTE) gas pipeline that copies the BTC route and was also partially damaged by the terrorist attack on the Turkish territory.  Its current capacity, approx. 8 billion m3 is supposed to be enlarged in the near future, because it will be connected for example with Nabucco, the planned European gas pipeline.  Both lines, BTC and BTE, are presently operational again (7).  Pipelines like Baku-Supsa and the transport of the raw materials by railroad can be included among smaller transport projects crossing Georgian territory.  In both cases, Black Sea ports and terminals where the petroleum is transferred to the tankers are the final destinations.  Baku-Supsa pipeline itself was not operational during the August 2008 conflict either; the main reason given was military blockade of the Black Sea coastline that began at the beginning of the conflict, by Russian vessels.  The common capacity of both projects is 300 thousand barrels daily (8).

Southern Caucasus plays an important role also in the plans for the construction of Nabucco gas pipeline, which is a European project focused on accessing the Caspian raw materials and their direct transport to the EU countries.  Despite the declared significance of the pipeline from the part of the EU, the situation around the construction has been unclear for quite a long time, and its financial coverage is still not assured.  It realization was further challenged by the conflict between Georgia and the RF.  Nabucco is an example of the inability of the EU member states to agree on a common project that would at least partially lower their dependence on the natural gas from the RF, even after years of discussions (9).

In 2007, Russian Gazprom together with the Italian company ENI introduced a plan for the construction of South Stream gas pipeline, which would in a big extent copy the layout of the European project, and it would represent a competition to the Nabucco project.  Since both gas pipelines are financially very demanding, it is unlikely that they would be built at the same time.  An unclear prediction of the natural gas consumption in the EU by the year 2020, which is supposed to rise, but it is not clear to what extent, is another cause for uncertainty.

The effort of the RF is to control all directions of the natural gas import to the EU.  The RF currently also cooperates with the countries of the North Africa, specifically with an Algerian company Sonatrach, but also with Nigeria and Libya.  Unlike the EU, the RF conducted partially successful political negotiations with the Central Asia countries about the purchase of their entire production of the natural gas.  A market price was offered to the production countries from the part of the RF, which would cause the decline of interest in alternative routes bypassing the RF territory (10).  That is the reason why the EU keeps having problems with securing the natural gas resources for its Nabucco project.  Russian has always been one step ahead in the Central Asian countries, which derives mainly from the historical situation.  The EU has not been able to offer to these countries a sufficiently attractive alternative in order for them to show an interest in the alternative export routes of hydrocarbons on the world markets.

Consequences for the energy supply of the EU

After the political and trade steps with which the RF affirmed its relations with the production countries mainly from the Central Asia, it also managed to use the conflict that started with the Georgian attack on the South Ossetia to its advantage.  Russian reaction that showed its preparedness to defend its interests with military means put a doubt in the South Caucasus as a stable transit country for the hydrocarbons from the Caspian Sea region.  The doubt of the stability was caused without the attack on any transit infrastructure.  The willingness of the RF to protect its interest despite the protests from the USA and the EU (whether they are considered to be legitimate or not) was the biggest blow to the image of currently damaged stability of the South Caucasus countries.  Therefore, the RF managed to weaken the position of the EU ALSO in the transit countries after successful steps in the production countries.

From the point of view of the EU energy security, the given situation has various consequences.

Projects focused on the development of petroleum and natural gas infrastructure in Azerbaijan and Georgia will have to be financed from domestic sources to a big extent, since financial institutions will be less willing to take the risks ensuing from the financing. (11).

One of the arguments why the conflict was extended with a Russian intervention in Georgia was the protection of Russian citizens in the South Ossetia.  As it is known, the RF has issued its own passports in these regions for several years, and also in Kazakhstan and Ukraine.  Both countries have a big importance for the EU in the field of energy supply, as a producer and a transit country.   It is not excluded that similar conflicts can arise in these countries as well.  Nagorno-Karabakh, causing disputes between Azerbaijan and Armenia, remains a problematic area.  This region can also destabilize Azerbaijan as a producer.

Besides the above-mentioned problems, it is necessary to take into consideration also the terrorist attack on the infrastructure in the eastern Turkey (12), causing greater direct negative impacts on the petroleum world market supply even before the outbreak of the conflict.

Direct negative impacts of the conflict itself between Georgia and the RF on the existing infrastructure, BTC petroleum pipeline and BTE gas pipeline are not anticipated (13).  According to past experience, also from the times of the Soviet Union, the energy flows were kept intact even during big crises.  However, Central Asian countries, mainly Kazakhstan and Turkmenistan, can under the influence of the conflict be even less prone to the EU suggestions to export their raw materials through other than Russian territory.  A reason for this can be fear of worsening of relations with the RF, as well as a demonstration of the military protection of the Russian interests.

The prediction of the further development for the new projects, especially Nabucco, is quite difficult, since its realization was being doubtful even before the conflict (14).  It is financially very demanding, the companies associated in the consortium for its construction are not able to build it from their own resources, and there are problems with securing enough raw materials for its economic functioning.  The destabilization of the South Caucasus can represent a big risk for the financial institutions when providing funds.  If the EU plans its construction, it is necessary to find a way to financially guarantee the project, to support it unanimously in diplomatic circles, and to sign an intergovernmental agreement between the interested countries as soon as possible.  A greater diplomatic activity is also expected from the European representatives in the Central Asian countries that are important for securing enough resources for the gas pipeline.  As opposed to the European politicians, the American Vice-President Dick Cheney flew to the region at the beginning of September 2008 and he visited directly Georgia, Azerbaijan, and Ukraine. He also supported these countries diplomatically and he announced a financial amount that the USA set off for the reconstruction of Georgia (15). The EU cannot expect that companies like Royal Dutch Shell or BP will bear the costs and risks ensuing from the securing of the European energy security (16).

A possible solution seems with the opening of the consortium to the participation of other partners, mainly Gazprom.  This alternative was mentioned already in 2007 by Hungarian Minister of Economy Janos Kok (17).  Despite the fact that the Russian side introduced South Stream gas pipeline, it is not clear where would be the natural gas source for this project.  With its participation on the Nabucco pipeline, the European project would be realized with Gazprom taking a part in it.  The Russian partner would be able to provide enough gas for its economic functioning and its participation would represent a stabilizing pillar for the pipeline in the South Caucasus.  However, the project would lose its independence from the RF.

Another possible gas resource apart from Azerbaijan and Turkmenistan are the countries of Iran, Iraq and Egypt.  These countries are another alternative that could help save the project.  However, that would mean reevaluation the policy towards Iran, and the USA would most probably not agree to that.  It would also be a political problem for the majority of the European countries.

Crisis in Georgia again pointed out the short-sighted solutions from the part of the EU in the energy sector.  Countries like Germany, France and Italy focus primarily on the bilateral securing of their own energy security and they pay little to the Community.  EU as a whole was a disappointment in the activities in the Central Asian countries where it was not able to secure a sufficient support for the Nabucco project, which would mean ceasing of the debates and beginning of construction.  The EU had strong diplomatic declarations towards the activities of the Russian Federation in Georgia and recognition of the separatist republics.  However, the only activity that can be considered a direct possible pressure from the EU were the ongoing negotiations about the strategic partnership between the RF and the EU that can be postponed.  At the same time, the EU abandoned the possibility of imposing sanctions on the RF at the summit organized by the French President Nicolas Sarkozy, although mainly Baltic countries, the Great Britain and Poland preferred this alternative.  However, it is too late for such radical steps and the sanctions would have a negative influence on the EU as well.

The situation in the energy raw materials import seems that the EU resigned on the independent policy and activities in this field.  It is reconciled with the fact that it will be more and more dependent on the RF and on the countries cooperating with the RF in the supply of the energy raw materials in the future.  If there is no conflict, we will not consider it as a problem.  The RF is still perceived as a stable supplier of the energy and it will want to strengthen this position in the future. However, it is worth considering in general whether it is good to be dependent too much on one source.  In the period of high prices of raw materials, the Russian strategy undergoes a logical development of strengthening of positions on the world energy market.

It can be concluded that one possible EU energy situation solution is a massive development of renewable sources, as well as savings in energy.  A big focus from the part of the EU for the development of these regions can provide a basis for the idea that European politicians are reconciled with the resignation in the natural gas supplies and they are trying to cross from the age of petroleum and natural gas into the age of the alternative sources of energy.  Only time will tell whether it is not as hasty decision as in the case of biofuels.