The geoeconomics of the south stream pipeline project.

• Author: Vihma, Antto
• Position: Europe

Energy trade has developed into one of the most contentious and divisive issues between Russia and the EU in the post-Cold War era. It reflects a broader geoeconomic struggle in which economic means are used to advocate geopolitical goals. This article argues that the case of the South Stream Pipeline Project (SSPP)--a grand project abruptly cancelled by Russian President Vladimir Putin in December 2014--epitomizes these power politics. In 2014, Russian leadership advanced both geopolitical and geoeconomic strategies towards the EU: pursuing the former by conducting a military campaign in Crimea and Eastern Ukraine; and pursuing the latter by pushing the construction of SSPP in spite of the EU's legal and political objections. Due to Russian military aggression in Ukraine, however, the EU was able to harden its line on SSPP. Russian geoeconomic activity has long been successful as a centrifugal, dividing power within the EU. The geopolitical campaign in Ukraine, in stark contrast, has been a centripetal force, resulting in increased EU unity that contributed to the SSPP's demise. This is evidence that claims of geoeconomics as a continuation of war by other means are potentially misleading. The means of geopolitical power projection and geoeconomic power projection thus have notably different effects in today's contemporary, interconnected world.

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In the post-Cold War era, energy security and trade between the European Union and Russia was projected to be the glue that bound the two powers together in peaceful and prosperous trade relations based on mutual benefit and interdependence. (1) This partnership was projected even despite the growing asymmetry between liberal approaches to energy sector development in the EU and the illiberal, state-centric Russian approach. (2) Today, however, energy trade between these powers reflects a broader geoeconomic struggle in which economic means are used to advocate geopolitical goals. The concept of geoeconomics rivals both economic liberalism and traditional geopolitics as a paradigm of foreign and economic policy and national interests. (3) Geoeconomics challenges the liberal interdependency paradigm by under scoring the strategic interests--zero-sum power political interests that do not function in the logic of commerce--in economic relations between states. (4) Further, in a departure from traditional geopolitics, which connotes conventional military projections of power, geoeconomics highlights softer, economic versions of balancing behavior, something which traditional geopolitical perspectives often overlook. (5)

This paper argues that the case of the South Stream Pipeline Project (SSPP) epitomizes the geoeconomics power politics involved in the energy relations between the EU and Russia. The SSPP was designed to bring large amounts of Gazprom's gas across the Black Sea to the Balkans and onward to Hungary, Slovakia, Austria and Italy. The project was launched by Russia in 2006 after intense dispute with key transit state Ukraine. (6) After years of political turmoil between Russia, the European Commission, and member states, President Putin abruptly cancelled the SSPP in December 2014.

For Russia, the SSPP has been an instrument of a geoeconomic strategy to advance specific goals: to secure Russian influence in Ukraine; to maintain Gazprom's dominant market share in the EU; to maintain Russian influence on the EU member states which rely on Russian energy; and to undermine European unity in energy and foreign policy. For the EU, the opposition towards the SSPP stems from the long-term policy goal of limiting the Russian geoeconomic influence within the EU, framed as concerns over energy security.

The process tracing presented in this article examines the demise of the SSPP against the hypothesis that the EU-level opposition to the project and member state adherence was strengthened as a result of Russian military aggression in Ukraine. The process tracing draws on public sources and establishes the key trajectories of change and causal sequence both on the EU and the Russian sides. Careful description is the foundation of process tracing, and a crucial building block for analysis. (7) First, the article discusses geoeconomics as a framework for foreign policy analysis, outlining the main drivers of current scholarly interest in geoeconomics. It then turns to the geoeconomic divide et impera, or "divide and rule," strategy of Russia toward the EU, principles behind EU-level gas policy, and the conflicting interests of member states. (8) Subsequently, the paper presents a detailed case study of the SSPP, seen by analysts as epitomizing geoeconomic conflicts in the energy sector, focusing on the political struggle of 2014. (9) Lastly, some conclusions are drawn.

The Rise of Geoeconomics

In post-Cold War Europe, growing economic integration and interdependence, together with advances in multilateralism and rule of law, were seen as creating the foundation for a new, peaceful security environment. (10) The expectation was that such trends would drive closer political cohesion, both within the EU and in its neighborhood. (11) The deepening of interdependency and solidarity was also seen as promoting a "European model," relegating political authority to the supranational sphere and redefining power as surveillance in different networks. As policy analyst Mark Leonard writes in his 2005 book Why Europe Will Run the 21st Century, "Europe will not run the world as an empire, but the European way of doing things will have become the world's way." (12) Simultaneously, in Russia, its integration in international trade increased export revenues, and Russia became a major host for foreign direct investment. (13)

However, after the U.S.-centric "unipolar moment" of the (1990) s, there has been an increasing tendency for regional powers to consider issues of trade and commerce through the prisms of national security and foreign policy. (14) As such, an emerging body of literature examines geoeconomics as a rising framework of foreign policy analysis. (15) Scholars seem to concur, even if they do not use the term "geoeconomics," and analyze world politics under the general banners of "zero-sum world," "multipolarity," or "multipolar order." (16) The rise of geoeconomics by no means suggests that economic liberalism, rules-based multilateralism with legal treaties, or the geopolitics of conventional military power are concepts of the past. Nor does it claim that geoeconomic conduct is a new phenomenon, as there has always been a significant degree of overlap between policy areas of international economics, foreign relations, and security. The argument simply suggests that geoeconomic conduct is gaining in relative importance, and as a result, scholars and analysts are beginning to pay more attention to it. (17)

The current importance of geoeconomics highlights its differences from and similarities to the traditional geopolitical perspective. Some linkages are clear: For example, geopolitics based on traditional "hard power" elements like military power and spending depends to a great extent on economic strength. At the same time, countries are increasingly reluctant to utilize military force and instead rely on economic influence to drive foreign policies and strategies. This may be achieved through leveraging trade in valuable commodities or resources (i.e., oil and gas), or through direct participation in the state's financial system by trade in services.

The scholar Edward Luttwak has aptly noted that the propensity of states to act geoeconomically will vary greatly, even more than their propensity to act geopolitically. (18) Geoeconomic activity is contextual, and limited and enabled by two broad factors: political ideology and state-private sector interactions. (19) In the field of political ideology, some states resist acting geoeconomically for institutional, doctrinal, and political reasons, especially if they are deeply committed to moral politics or a laissez-faire attitude. (20) A political struggle takes place in the domestic sphere of different countries in varied political contexts, in which some constituencies demand geoeconomic activism from the state, and some are against it. On the other hand, traditional geopolitical conduct such as a conventional military power projection will also limit the possibilities of geoeconomic strategies.

Another equally important variable is the nature of the coexistence of state and private economic operators. Their coexistence can be passive--for example, in the case of a large group of small, localized service businesses; or active, as in economies dominated by state-owned firms. The latter is the case in Russia, where the state's energy strategy has been analyzed in terms of a "symbiotic relationship" between the state and leading companies. (21) Gazprom, Russia's largely state-owned gas company, holds a legal monopoly in natural gas exports and is directly under the control of the Kremlin. In the geoeconomic game, Luttwak points out that "the state can be both user and used, and companies both instruments and instrumentalizers." (22)

While Gazprom benefits from its privileged position, it is also restricted by politically-driven gas pricing both domestically and internationally, as well as geoeconomically-motivated hardline policies, as became evident in the Ukrainian gas crisis of 2009. (23) According to analysts, the critical--and for Gazprom, extremely costly--decision to turn off the gas was likely made by then-Prime Minister Vladimir Putin. (24) In February 2010, as Russia was again able to count on a sympathetic government in Kiev, the price of gas was cut by almost 30 percent, and Russia gained a new 30-year contract for Sevastopol. (25) The price cut was so great that the Russian government financed Gazprom directly. (26) These events indicate that Gazprom's commercial interest is overrun by...