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Greek Energy Diplomacy and Future Balkan Oil Pipelines

November 2, 2006

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By John Demopoulos*

Energy diplomacy has come to dominate the foreign policy agenda for countries on Europe’s periphery and the Balkans is no exception. As the West seeks to strengthen and diversify its energy supplies, the region has become awash with proposals for new transit routes to ease the flow of resources from the Caspian. Since the mid-1990s, successive Greek governments have sought to carve out a role for the country as an ‘energy hub’ in this most lucrative of sectors, investing millions in new infrastructure. But how do countries like Greece expect to benefit from the array of pipelines under consideration? And how can they exploit the opportunities provided by the energy needs of the West in order to further their own strategic interests?

Of course, location alone cannot transform a small Balkan country into a major European power. Greece is a long way downstream from Russia and the Caspian, and the country’s influence in Brussels – where it remains on the periphery – will benefit little from the prospect of energy diversification. Nevertheless, the geopolitical benefits of securing a position on the oil route are real enough, and it is this that seems to provide the rationale for the country’s new energy policy.

The clearest illustration of Greek thinking is the recent re-prioritisation of a proposed oil link, the B-A pipeline. B-A would bypass the overcrowded Bosporus Straits by transporting up to 35 million tons/year of Russian crude from the Bulgarian port of Burgas to Alexandroupoli on Greece’s Aegean coast. Designed to serve West European markets, the project has been on the cards since as early as 1993, but it was only in 2004 – some 11 years after the project’s conception – that it rose to the top of the Greek foreign policy agenda. So why the decade-long lag?

Greece’s recent push to see B-A in operation is the result of a series of developments in the region spanning the course of the last decade. In the mid-1990s – the height of the infamous dispute between Athens and Skopje over the Macedonian name issue – a similar pipeline (AMBO) came under discussion. Running from Burgas to Albania’s Adriatic port of Vlore, AMBO would supply crude oil to Bulgaria, the Republic of Macedonia, and Albania. Like B-A, its chief objective was to provide a Bosporus bypass for Caspian crude en route to Western markets. Despite American support for the US-registered AMBO corporation, the project – and with it the diversification of Skopje’s oil supplies – soon floundered. Instead of looking to the Balkans for new oil routes, the West had diverted its attention to the BCT pipeline, a route which could bypass Russia altogether on the way from the energy-rich Caspian.

With AMBO and B-A both grounded, Greece’s state-controlled Hellenic Petroleum took the opportunity to construct its own pipeline to Skopje, one which continues to serve as Macedonia’s only large-scale supplier of crude. The oil company’s subsequent acquisition of Skopje’s sole refinery meant that by the turn of the century, Hellenic Petroleum had established almost complete control over Macedonian oil consumption. Seen in the context of mass Greek investment in the former Yugoslav republic – the bulk coming from Greece’s large public sector – Athens’s influence over Skopje had grown immeasurably.

With BCT now operational, production levels in the Caspian are widely considered insufficient to justify two Balkan oil routes to the West. The construction of AMBO would offer Skopje the chance to diversify its oil supplies away from Greece, while Athens will hope that progress on B-A can forestall this eventuality and consolidate the status quo. Inevitably then, heightened interest in AMBO has seen Greek lobbyists redouble their efforts to promote the rival B-A pipeline. In the past two years a flurry of summits have been organised between leaders and foreign ministers of B-A countries Greece, Bulgaria and Russia, and high-profile visits have been exchanged by Putin, Greek PM Karamanlis, and Gazprom chief Alexei Miller.

While both projects can offer the Kremlin reduced export costs and a consolidated market share, Moscow may expect an endorsement of B-A over AMBO to benefit Russia’s other chief export, natural gas. Recent discussions on B-A have been paralleled by Russian approaches for access to the new Turkey-Greece gas link – billed for completion by end 2007 – and the possibility of concessions here will look attractive to Russian energy companies deciding which Balkan oil route to back.

Conversely, US energy companies active in the region may look to court BA in order to achieve the opposite effect. Europe’s demand for gas is growing faster than that for oil, and US concerns over the continent’s dependency on Russia means that keeping companies like Gazprom out of new gas links is a top priority. While Mr. Miller’s overtures on the subject provoked a stern warning to Athens and Ankara earlier this year, the State Department appears to have warmed to BA, recently billing the pipeline as a €šÃ„òpositive’s development for the region.

Nevertheless, developments in the Middle East and Caucasus, as well as basic market forces – Vlore is better equipped for large tankers while B-A is shorter – will also have an impact. Whatever happens, Greek forays into the regional energy sector look set to continue. Hellenic Petroleum hopes to extend the Thessaloniki-Skopje oil pipeline to Belgrade (and perhaps further afield), while the Greece-Turkey link will be extended across the Adriatic to Italy. In keeping with its Balkan preoccupation, the Greek government is pressing for a second extension to the gas pipeline, which will run north through Macedonia and the Western Balkans, eventually terminating in Austria.

In setting itself up as a gateway for the flow of energy and investment into emerging Balkan markets, Greece has been able to exploit its regional expertise to develop real political clout in the region. Much of the finance for the country’s economic expansion northwards has come through strategic partnerships with Western corporations, or indirectly from EU cohesion funds.

Likewise, the oil being funnelled from Greece to Skopje is anything but Greek in origin. The result is that in the case of bilateral disputes with its northern neighbors – as and when they arise – the country is likely to find itself in an advantageous negotiating position. Nevertheless, with an increasingly unpredictable Turkey upstream, as well as rising interest over oil deposits in the Republic of Macedonia, Greek policymakers will not have much time to rest on their laurels.

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*Greek economics specialist John Demopoulos has written extensively for Platts’ EU Energy, as well as a number of other trade publications. He is currently a postgraduate of the London School of Economics and is based in Athens and London. He can be contacted at: j.a.demopoulos@lse.ac.uk

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