Europe

The Balkan Transformation and the Underlying Energy Factor

Ioannis Michaletos
Athens, Greece
July 25, 2007

An ethnic Albanian man stands next to a giant Albanian national flag during a protest in Pristina demanding self-determination. (Photo: Ermal Meta / AFP-Getty Images)

In 2006, Kosovo announced the initiation of an international competition regarding the privatization of the energy sector of the province. Privatization is to include the creation of a new 2,100-megawatt power station, the renovation of an older facility, and the manufacture of a lignite production station to supply these power facilities. The total estimated cost is some 3 billion euros, a substantial amount that will be compensated by future high energy demands in the province and an ability to export electricity to Albania, Montenegro, and possibly Bosnia-Herzegovina—three small nations with rising energy needs. The energy market at stake consists of around 10 million people.

Regardless of the legality of such a move, since the province is still under Serbian administration, competitors for the energy investment in Kosovo come from countries that enjoy more or less cordial relations with the United States—the Czech Republic, Italy, Germany, and Greece, among others—and, of course, American companies. Russian or French companies were not present and the winner will certainly follow existing U.S. policy, meaning that it will pursue energy plans according to the planning made by the administration in Washington.

Russia, since Vladimir Putin became president, has proved to be an apt player in the economic game that is unfolding with the construction of a variety of pipelines transferring hydrocarbon from the East to the West. Nowadays, at least 25 percent of the European Union's energy needs in natural gas and oil are being met by Russia, and in some cases countries such as Slovenia. This percentage reaches 60 percent (Gas) or even 100 percent for Romania and Slovakia. Moreover, projections for the next generation are in the negative for the EU since its energy dependency levels will increase from 76 percent (Oil) to 93 percent in 2030. If one adds the political perils of imports from the Middle East and the proximity of the Russia market; then the influence of the former seems to be increasing.

Relations between the EU and Russia are inexorably related to the Balkans because of its importance as a hub from which various projects are going to facilitate the transport of energy. Furthermore, fragile political conditions in the Balkan states will prove a tinderbox for the European states that have so far failed to address regional conflicts in a peaceful manner.

In the diplomatic marathon that has begun, the Albanian side must seriously decide to negotiate the fate of Kosovo based on the protection of nation sovereignty, which is after all the cornerstone of the United Nations principles and the sine qua non for the peaceful existence of all nationalities in present day Southeastern Europe. What attracts interest so far is the formation of diverging interests between the major power units affecting the Balkan politics and consequently the underlying importance of the energy factor.

Firstly, for the new president of the France, Nicolas Sarkozy, Balkan policy differs considerably from the previous Chirac administration. In the recent G-8 meeting, Chirac proposed a delay of a Kosovo resolution, without providing of course any concrete assurance of a final positive French stance. For now, it seems that the French want to buy time so as to better place itself in the changing Balkan scenery, predicting the relative decline of American influence in the region and the rise of German and Russian influence.

Secondly, the "Ahtisaari affair," relating to the revelations of an alleged bribe of the ex-Finnish president by Kosovo-Albanian organized crime figures, has caused a stir in the Balkans, not just for the probability of the verity of the accusations, but also around possible Russia-Germany cooperation in the whole affair. Supposedly, the German intelligence agency leaked to the Bosnian press the information around Ahtisaari. German involvement in this is important. The report by the Germans made an extensive presentation of Albanian organized crime activities in the Balkans and Kosovo, thus damaging severely the reputation of the Albanian side while it was negotiating with the Serbians and the international community. Further, an additional 2,500 German troops are headed Kosovo after a decision by Berlin that anticipates trouble in the province due to Albanian resentment over fading hopes of independence. Still, German diplomats occasionally make remarks that are for the independence of Kosovo when trying to appease the sentiment of the Albanian population. Two things are certain concerning the German behavior in the region. It wants to maintain links with all sides and indirectly assist Russia in its antagonism with the U.S.

Russia continues its drive to become Europe's energy supply powerhouse and the Balkans seem to be the perfect terrain for that. Of course, energy is one aspect of Moscow's expansion; ultimately, it wants to gain as much geopolitical space as possible.

A few weeks ago, another grand deal was signed between Athens, Sofia, Rome, and Moscow, related to the creation of a massive pipeline transferring natural gas from Bulgaria to Northern Greece and up to Southern Italy, called the "South Stream." The pipeline will have a total length of some 3,200 kilometers and will pump some 30 billion cubic meters of gas each year from Russian reservoirs. The total cost of the pipeline will exceed $10 billion.

Turkey will be affected because the proposed pipelines will bypass its territory, thus degrading to an extent its role in regional energy politics. Iran will also suffer from a partial exclusion from the European market. Moreover, Italy's options for Russian gas imports, and in general the European common energy policy, is heading toward an end.

The pipeline will traverse the Black Sea to Burgas in Bulgaria. Afterward, it will split most probably into two parts—one heading toward Southern Austria or Northern Italy and the other one passing through Greece and terminating in Otrando in Southern Italy, just opposite the island of Corfu. This massive project will be commenced in late 2009 and will be financed by the Italian ENI Corporation and the Russian energy giant Gazprom.

Over the past four months, other important deals have been reached concerning energy routes in the Balkans. The first deal was on the Burgas-Alexandroupoli pipeline transferring oil from Bulgaria to the Greece's Alexandroupoli. The Russians have a 51 percent stake in it. Also, an initial agreement has been reached for the Constanja-Trieste pipeline that will connect the Black Sea with the Adriatic via the central Balkans. Finally, the Turkish-Greek-Italian natural gas pipeline will support the exportation of Azeri energy to the West, again through the Balkan terrain.

Only the last one has full American support; the rest have received the tacit disapproval of Washington, at least for the time being. That can be explained by the United States' persistence in securing the interests of the Albanian side in the Balkans. American policy over the past decade was based on the fact that Russia is weak and that Europe in unwilling to invest political capital in the Balkans. On the contrary, the modern political climate favors Russian expansionism whereas the main European actors, and most importantly Germany, are seeking energy sources and new markets in order to survive in the very competitive global arena as shaped by globalization as well as the emergence of the giants of the East (China and India) and the unpredictable Arab-Islamic world.

Since the political strategy of the 1990's is effectively discredited, American foreign policy experts are in a position to reshape their aims without at the same time being seen as blaming themselves for mistakes that were made. The possibility of radical change in the United States' Balkan policy should be excluded since large nations never admit past mistakes for reasons relating to their international prestige and posture. Therefore an engagement with Russia in relation to the Balkans, energy routes, and Kosovo should come about gradually and certainly after careful consideration of possible trade-offs and negotiations between Washington and Moscow, as has recently been seen. As far Kosovo is concerned, Washington supports independence, along with Teheran and many other Islamic states that seek to benefit from the creation of stronger bonds with the a newly created mini-state in the Balkans strongly influenced by "Islamic charities."

The strategic aim of the United States is to at least retain its influence in Eurasia, and the Balkans is an integral part of that. The importance of the region is as a hub for the energy needs of the West and the Russian ambitions. Moreover, its proximity to the Middle East and North Africa reserve a truly unique placement for the Balkans in the strategic considerations of London, Washington, Moscow, Paris, Berlin and Beijing. The coming months will reveal more of the intrigues involved, and, most importantly, the winners and the losers of the "energy game" of the 21st century.

The state of Balkan affairs is in flux, more so than even at the beginning of the Rambouillet negotiations in late 1998, and there are numerous scenarios that could unfold depending on Russia's ambitions, the willingness of the United States to negotiate or manipulate developments, and the ability of the Europeans to exert influence in between. Other non-state actors such as the organized crime syndicates, the Islamic terrorist nucleus and the plethora of international N.G.O.'s will also be assessing the situation since their vital interests depend on a final "Balkan solution," of one sort or another.




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The Balkan Transformation and the Underlying Energy Factor

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