One incentive for Ukraine to resist losing Crimea, and for Russia to
grab the area, is that whoever holds Crimea has a claim on the
hydrocarbon resources of the Black Sea.
The Ukrainian revolution is the greatest challenge of Russian President
Vladimir Putin’s reign. The escalating conflict in the Crimean Peninsula
has created a dilemma for Moscow in the last few days. But besides
playing out the Russian nationality card (previously known from
Ossetia), there are more serious justifications behind the Crimean
situation: the question of Russian control over a significant portion of
Black Sea oil and gas, and the fact that South Stream may also take a
new route.
The policing of the renitent neighbour, which is being justified as
protection of the local Russian minority, can almost be seen as a
routine step from Moscow, as it did the same to Georgia in 2008.
However, in the
case of Ukraine, we are talking about a substantially
more serious situation, and not only considering the country’s size.
Undoubtedly there is a large Russian minority living in Ukraine,
nevertheless the known pragmatism of Vladimir Putin rather indicates an
economic rationale behind the Russian intervention.
Concerning security of supply of natural gas, Moscow and Brussels
rightfully fear for the Ukrainian pipelines. But the cradle of the
Russian-Ukrainian conflict will not be the Ukrainian pipeline system,
but the Crimean Peninsula. Beside the fact that the peninsula is 60%
inhabited by Russians, it is also the headquarters of the Russian Black
Sea fleet, underlining Sevastopol's strategic military importance. The
territory was under Russian authority until 1954, when Nikita
Khrushchev, the leader of the Soviet Union at the time, gave it back to
Ukraine on the occasion of the 300th anniversary of the Treaty of
Pereyaslav, and currently it is an integrant part of the
Republic of Crimea.
Russian control over the Crimean Peninsula - beside the fact that it
would solve the ethnic problem and the question of the fleet - would
create a brand new situation regarding the oil and gas market, because
the stakes are high: if Crimea falls under Russian authority, Russia
will be able to greatly expand its borders in the Black Sea, among
others, to the three enormous oil and gas field that can be found next
to Crimea.
Furthermore, there is a tremendous amount of gas under the shallow
waters of the Sea of Azov, as there are fields with great potential to
the southeast and to the west of Crimea as well. Each one of the
hydrocarbon locations can be found on the shallow continental shelf,
which has the advantage of the significantly cheaper extraction of the
oil and gas there, compared to the deeper parts of the Black Sea.
American and Italian companies have concessions in these territories,
but their terms were made with the Ukrainian state, and
the creation of
a Russian enclave similar to Kaliningrad would create a rather sensitive
legal situation. Additionally, the Ukrainian leadership knows well the
importance of these territories, as beside the unconventional
terrestrial utilization of natural gas, the Black Sea locations form one
of the keystones of their energy strategy. So Kiev will fight for the
Crimean Peninsula tooth and nail, not only because of its sovereignty,
but because of its hydrocarbon treasures as well.
Beyond the hydrocarbon potential that lies under the ground, we can
mention the other geopolitical concern related to the Crimean conflict,
which is the South Stream pipeline. Gazprom's pipeline would transfer
Russian gas to the European market through Bulgaria, Serbia, Hungary and
Slovenia, avoiding Ukraine. The weakest point of the pipeline – beside
the conflict caused by the Third Energy Package of the EU – is the
terribly expensive Black Sea section, where the pipelines must be placed
in
the deepest parts of the Black Sea, at great additional expense
compared to positioning on a shallow shelf. The pipelines should be
brought above the deepest sections of the sea by making a long detour,
in order to avoid Ukrainian territorial waters – which dive deep into
the Black Sea exactly because of the Crimean Peninsula. So in the case
of Moscow occupying the Republic of Crimea, the project would instantly
save approximately USD 10 billion, as it would be this much cheaper to
lay down the offshore section of South Stream on the shallow coastal
waters, across the peninsula, which would be a much smaller challenge
technically, and which would significantly abridge the passage of
Russian gas towards Europe across the Black Sea.
The loss for Ukraine would be much more significant. They would lose
their access to the greater part of offshore oil and gas locations, and
all agreements regarding these locations, made with foreign (mainly
American) oil companies, would
become invalid. And they would not be
able to economically bring ashore exploited gas from the remaining
hydrocarbon locations, as they would need to bring pipelines to the more
remote Ukrainian coastline.
To top it all, the territorial integrity of Ukraine would weaken, and
the spin-off of the Republic of Crimea, and its joining to the Russian
Federation, would be precedent to the yet largely peaceful eastern
Ukrainian territories. Because of this, the opposition to the expansion
of Moscow is obvious, from both Kiev and Washington – among other things
to protect their investments of billions of dollars.
Although the fact that Putin let even a giant like Exxon, which has an
investment of billions of dollars in the Russian oil market, into Russia
in the last 2 years creates a spicy situation. The question is as
follows: will Washington take on the confrontation, or will the US have
faith in possibility to agree on the problem of the Black Sea fields
with the Russian
side?
Nevertheless, the current situation tells us that the Russian occupation
of the Crimean Peninsula appears to be finished; the question is whether
they will be able to hold on to the territory, and if so, will they be
able to have it recognised internationally – as this is the key to
tapping into the oil and gas treasure trove.
This piece, which was originally published here, has been authored by
András Jenei, Director, CFPA Energy Workshop.
grab the area, is that whoever holds Crimea has a claim on the
hydrocarbon resources of the Black Sea.
The Ukrainian revolution is the greatest challenge of Russian President
Vladimir Putin’s reign. The escalating conflict in the Crimean Peninsula
has created a dilemma for Moscow in the last few days. But besides
playing out the Russian nationality card (previously known from
Ossetia), there are more serious justifications behind the Crimean
situation: the question of Russian control over a significant portion of
Black Sea oil and gas, and the fact that South Stream may also take a
new route.
The policing of the renitent neighbour, which is being justified as
protection of the local Russian minority, can almost be seen as a
routine step from Moscow, as it did the same to Georgia in 2008.
However, in the
case of Ukraine, we are talking about a substantially
more serious situation, and not only considering the country’s size.
Undoubtedly there is a large Russian minority living in Ukraine,
nevertheless the known pragmatism of Vladimir Putin rather indicates an
economic rationale behind the Russian intervention.
Concerning security of supply of natural gas, Moscow and Brussels
rightfully fear for the Ukrainian pipelines. But the cradle of the
Russian-Ukrainian conflict will not be the Ukrainian pipeline system,
but the Crimean Peninsula. Beside the fact that the peninsula is 60%
inhabited by Russians, it is also the headquarters of the Russian Black
Sea fleet, underlining Sevastopol's strategic military importance. The
territory was under Russian authority until 1954, when Nikita
Khrushchev, the leader of the Soviet Union at the time, gave it back to
Ukraine on the occasion of the 300th anniversary of the Treaty of
Pereyaslav, and currently it is an integrant part of the
Republic of Crimea.
Russian control over the Crimean Peninsula - beside the fact that it
would solve the ethnic problem and the question of the fleet - would
create a brand new situation regarding the oil and gas market, because
the stakes are high: if Crimea falls under Russian authority, Russia
will be able to greatly expand its borders in the Black Sea, among
others, to the three enormous oil and gas field that can be found next
to Crimea.
Furthermore, there is a tremendous amount of gas under the shallow
waters of the Sea of Azov, as there are fields with great potential to
the southeast and to the west of Crimea as well. Each one of the
hydrocarbon locations can be found on the shallow continental shelf,
which has the advantage of the significantly cheaper extraction of the
oil and gas there, compared to the deeper parts of the Black Sea.
American and Italian companies have concessions in these territories,
but their terms were made with the Ukrainian state, and
the creation of
a Russian enclave similar to Kaliningrad would create a rather sensitive
legal situation. Additionally, the Ukrainian leadership knows well the
importance of these territories, as beside the unconventional
terrestrial utilization of natural gas, the Black Sea locations form one
of the keystones of their energy strategy. So Kiev will fight for the
Crimean Peninsula tooth and nail, not only because of its sovereignty,
but because of its hydrocarbon treasures as well.
Beyond the hydrocarbon potential that lies under the ground, we can
mention the other geopolitical concern related to the Crimean conflict,
which is the South Stream pipeline. Gazprom's pipeline would transfer
Russian gas to the European market through Bulgaria, Serbia, Hungary and
Slovenia, avoiding Ukraine. The weakest point of the pipeline – beside
the conflict caused by the Third Energy Package of the EU – is the
terribly expensive Black Sea section, where the pipelines must be placed
in
the deepest parts of the Black Sea, at great additional expense
compared to positioning on a shallow shelf. The pipelines should be
brought above the deepest sections of the sea by making a long detour,
in order to avoid Ukrainian territorial waters – which dive deep into
the Black Sea exactly because of the Crimean Peninsula. So in the case
of Moscow occupying the Republic of Crimea, the project would instantly
save approximately USD 10 billion, as it would be this much cheaper to
lay down the offshore section of South Stream on the shallow coastal
waters, across the peninsula, which would be a much smaller challenge
technically, and which would significantly abridge the passage of
Russian gas towards Europe across the Black Sea.
The loss for Ukraine would be much more significant. They would lose
their access to the greater part of offshore oil and gas locations, and
all agreements regarding these locations, made with foreign (mainly
American) oil companies, would
become invalid. And they would not be
able to economically bring ashore exploited gas from the remaining
hydrocarbon locations, as they would need to bring pipelines to the more
remote Ukrainian coastline.
To top it all, the territorial integrity of Ukraine would weaken, and
the spin-off of the Republic of Crimea, and its joining to the Russian
Federation, would be precedent to the yet largely peaceful eastern
Ukrainian territories. Because of this, the opposition to the expansion
of Moscow is obvious, from both Kiev and Washington – among other things
to protect their investments of billions of dollars.
Although the fact that Putin let even a giant like Exxon, which has an
investment of billions of dollars in the Russian oil market, into Russia
in the last 2 years creates a spicy situation. The question is as
follows: will Washington take on the confrontation, or will the US have
faith in possibility to agree on the problem of the Black Sea fields
with the Russian
side?
Nevertheless, the current situation tells us that the Russian occupation
of the Crimean Peninsula appears to be finished; the question is whether
they will be able to hold on to the territory, and if so, will they be
able to have it recognised internationally – as this is the key to
tapping into the oil and gas treasure trove.
This piece, which was originally published here, has been authored by
András Jenei, Director, CFPA Energy Workshop.
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