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Failed Russia Project Shows Perils of Placing Political Interests over Economic Goals



The suspension of the Turkish pipeline project, announced by Russia's Energy Minister Alexander Novak on December 3, was the foreseeable product of the country's ill-fated attempts to use large infrastructure projects for political rather than economic goals.

The trigger was the termination of the intergovernmental commission between Russia and Turkey after Turkish military planes shot down a Russian fighter jet over Syria. But as predicted earlier in the year, Turkish Stream was dead on arrival—it was just a matter of time before it was canceled.

There were three reasons for predicting the project would never be completed. First, Turkish officials from the state-owned energy company BOTAS openly said from the very beginning that environmental analyses could last well into 2017 and perhaps as late as 2019.

Second, the projected capacity of the pipeline is equivalent to four times Turkey's current needs. If the pipeline is extended to Ankara only, it will be running at a large loss, hence the idea of extending it through Greece and possibly Italy. The trouble with that proposition is that Greece is bound by the European Commission's rules. The Greek government will not likely defy the European Commission on energy policy, given the painful lessons it has recently learned in negotiations over its debt burden.

Third, there is the issue of who picks up the tab, officially calculated at $19 billion for the seabed installation and another $2 billion for the land installation. Gazprom, Russia's state-owned energy company in charge of Turkish Stream, has stated it would cover the underwater part only if it received money from the government's pension fund scheme. That idea was quickly rejected in the November discussions over the 2016 federal budget. Gazprom simply cannot afford the financing, and neither can the Russian government.

What may seem most surprising in this short-lived project is why it was started at all. Clearly Russian energy officials knew the near-impossible road ahead. The answer is that Russia often uses energy as foreign policy, as suggested in this infographic. Like its predecessor South Stream, Turkish Stream was a political bet to irk the European Union. That bet failed, and it is not necessary to maintain it any longer. But as one bet after another fails, potential Russian partners in energy businesses must be wondering whether their projects, too, have not been carefully designed.

The lesson for Russia's leadership? Credibility can evaporate quickly when economic projects are used for political means.

Failed Russia Project Shows Perils of Placing Political Interests over Economic Goals

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