On 11 December 2014, Russian Energy Minister Alexander Novak phoned European Commissioner Maros Sevcovic stating that the South Stream gas pipeline project has been canceled. Who are the winners and losers in this culmination of the what some have called the first pipeline war?  The statement to the EC confirmed President Putin’s statement on 1 December in Ankara announcing the rerouting of Russian gas to Turkey.

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In 2007, South Stream was created to rival the proposed Nabucco Pipeline which would go from the Caspian to Europe via the Balkans. By the time of conceding the cancellation of South Stream, Gazprom, the Russian gas champion expended $9.4 billion on the failed project.  With Western sanctions taking their toll, Russia has been obliged to retrench across Central Europe and the Balkans. This project also signals the durability of the smaller yet important Azerbaijani-driven TAP, TANAP, South Caucasus Pipeline combination to bring natural gas to Turkey, Greece, the Balkans, with its terminus in Italy.

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The European Union, having seen the post-WWII order shake with the Russian dismemberment of Ukraine and the soon-to-be-frozen conflict in the Donbas, have belatedly started to act against Russian market power within the Union. Due to the constant manipulation of European energy contracts, there is now  talk of forming a new purchasing union. This Polish-led European Union project would attempt to further reduce Russian distortion of the markets. With Poland’s former Prime Minister Donald Tusk taking the reigns as the 2 1/2 year EU President, this project may take priority as climate priorities are balanced with the need for a cheap and reliable source of energy.

The Russians have stated that the cancellation of the pipeline will spell higher energy prices for the Europeans. Moreover, with the shift in focus to Turkey, they are able to exploit the growth in energy usage of a large emerging economy. The move towards Turkey can be seen as a tactical one, as Russia and Turkey continue to spar over issues ranging from Syria to Cyprus and from Ukraine to the role of the Russian Federation in the Armenian – Azerbaijani war in Karabakh.

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Besides Russia, the other loser in this project is Bulgaria. Bulgaria is losing the transit fees which would have accrued to it as well as the diversification of energy sources.  The former government of Bulgaria fell earlier this year due to the cleavages opened by the South Stream pipeline. The instability of Ukraine-transiting gas is a systemic issue that may continue as a real threat to the energy security of Central Europe. This will last as long as the Russian-driven instability continue to plague the benighted country of Ukraine. It is estimated that the investment losses to Bulgaria totals 3 billion Euro plus the transit fees totaling $400 million from the 18 billion cubic meters of natural gas transiting its territory according to Gazprom’s president Alexei Miller.  The political nature of natural gas will continue to play a role in European geopolitics as Russia is bound to continue to supply a majority of European natural gas.  Nonetheless, with the cancellation of South Stream, the increased use of LNG, and the rebalancing of Russia to Asia, expect a reduced role of Russian pipeline investments on the Balkans and Central Europe.