Russia Strengthens Hand in Europe, Ukraine with Inauguration of TurkStream Pipeline

Russian, Turkish, Bulgarian, and Serbian leaders gathered last week to inaugurate TurkStream, a pipeline designed to supply Russian natural gas to Turkey and Europe while bypassing Ukraine. The project represents an important part of Russia’s broader efforts to entrench its market dominance and pull Ukraine back into its orbit.

TurkStream consists of two parallel pipelines linking Russia to Turkey via the Black Sea, each with an annual throughput capacity of 15.75 billion cubic meters (bcm). The first string will supply the Turkish market, while the second will supply Southern, Southeastern, and Central Europe.

Along with another Black Sea pipeline called Blue Stream, TurkStream forms the middle prong of a trident of pipelines designed to ensure Russia’s dominance of Europe’s gas supply. The northern prong comprises the Nord Stream and Nord Stream 2 (NS2) pipelines in the Baltic Sea, while the southern consists of a planned pipeline in Iraq.

TurkStream will help Gazprom, the Russian state gas company, defend its market share amid heightened competition in Europe and Turkey, which together received 83 percent of Russia’s gas exports in 2018. The project represents a counter to the Western-backed Southern Gas Corridor, designed to bring Caspian gas to Turkey and Southern Europe.

After Germany, Turkey is Gazprom’s second-largest customer, reliant on Russia for roughly 48 percent of its gas supply in 2018. But Russia’s share has declined steadily in recent years, dropping to 35 percent by June 2019, as Turkey looks to diversify its supply. TurkStream, which Turkey’s Investment Office expects will meet 35 percent of Turkish demand, could help Russia reverse this trend and maintain leverage over Ankara.

The EU, meanwhile, relies on Russia for almost 37 percent of its gas supply, up from 27 percent in 2013. Russia aims to reach 40 percent as EU gas production falls amid rising demand. Among TurkStream’s European markets, Russia’s share is even greater – particularly in countries where Moscow already wields considerable influence, such as Bulgaria, Serbia, and Hungary. This dependence leaves Europe vulnerable to Russian coercion – a risk compounded by German and Serbian efforts to exempt Russia’s pipelines from the Third Energy Package, a set of EU rules designed to diversify sources of supply.

TurkStream also poses an economic and strategic threat to Ukraine. The project will obviate Russia’s need for north-south transit via the Trans-Balkan pipeline, which crosses Ukraine to reach Southeast Europe and Turkey. Along with NS2, TurkStream will enable Gazprom to all but eliminate transit via Ukraine.

This is a longstanding Russian objective, aimed at reasserting dominance over Kyiv, decoupling Ukrainian and EU interests, and depriving Ukraine of almost $3 billion in annual transit fees – roughly 3 percent of its 2018 GDP.

Russia had hoped to terminate Ukrainian transit after 2020. But thanks in part to recent U.S. sanctions likely to delay NS2’s launch until at least 2021, Russia was forced to guarantee Ukraine roughly $7 billion in transit revenues by 2024, plus $2.9 billion in outstanding compensation. While those sanctions will not delay TurkStream, they could hinder its future expansion – something Russia might pursue if ongoing legal and regulatory battles limit Gazprom’s access to its pipelines’ capacity.

Kyiv should now prioritize developing Ukraine’s domestic gas industry, which Washington should support by stressing implementation of reforms to Ukraine’s licensing process and by leveraging U.S. development financing to facilitate private investment.

Likewise, in coordination with Brussels, Washington should push for aggressive application of the Third Energy Package and deploy expeditiously the $1 billion recently appropriated for strategic energy projects in Europe and Eurasia. Finally, Washington should facilitate U.S. LNG exports by easing burdensome licensing requirements, potentially by expanding existing exemptions to cover larger quantities.

John Hardie is research manager and Russia research associate at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). For more analysis by John and FDD, subscribe HERE. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.