Bulgaria's Shock and Awe on South Stream

The dramatic events that recently took place regarding the termination of South Stream and its replacement by the so-called 'Turk Stream' pipeline has caused shock throughout Bulgaria, which is already rife by public discontent against the current political and economic elite.

The instructions by the EU based on political considerations along with the ongoing Ukraine crisis had effectively stopped South Stream since Bulgaria, which was considered as the entrance point had over the past few months, put its participation on hold, in contrast with other countries such as Austria, Serbia and Hungary that continued to be its active supporters.

Moscow from its side through President Putin himself made some negative remarks on Sofia's stance by noting that Bulgaria should seek compensation from the EU for the losses deriving from the cancellation of the pipeline and should start behaving as a sovereign state.  This was a clear message to Bulgarian politicians that by following EU's strict adherence to rules, they stood to lose significant long-term capital investments.

The former Ambassador of Bulgaria to Russia, Ilia Vesiliev, estimates that the project was cancelled due to financial difficulties Gazprom is facing and due to the status of the Russian energy sector in general.

Former Bulgarian Energy Minister Rumen Ovcharov stated that his country would lose more than €600 million per year from this development and blamed the current Bulgaria government for incompetence in the negotiation process. He also added that other big energy infrastructure plans like the oil pipeline Burgas-Alexandroupoli and the Belene Thermonuclear plant were cancelled for similar reason and through fault of Sofia's political administration.

Energy expert Atanas Tasev believes that Bulgaria has become a hostage to power politics of world powers which turned against the interests of the state at a great cost to the local economy.

Bulgarian Prime Minister Boyko Borisov was stunned by the developments and was widely blamed by local press as responsible for the cancellation. In a move to re-assure both voters and the local economic establishment, Borisov promised he would conduct negotiations as soon as possible with both Moscow and Brussels in an effort to revive South Stream since it has not received a formal declaration of the cancellation.

On a similar note-, the TASS news agency quoted Bulgarian Economy Minister Bojidar Loukarsky as saying “For me, the South Stream project is not closed yet. We have not received an official statement from Russia.”  He promised to comment on the issue after Bulgaria received confirmation.

The EU from its point of view has already stated that there is no basis for compensation from Bulgaria, which in total stands to lose €2.5 billion of infrastructure projects within its territory and between €400 to €600 in annual turnover and transit fees, currently at 4% and 0.7-1% of its nominal current GDP.

Another interesting aspect is the enlargement of the importance of Turkey in geopolitical energy affairs in Southeast Europe vis-a-vis Bulgaria and the rest of the Balkan region.

Thus, the new alignment between Moscow and Ankara has the following immediate results:

Trade between them is scheduled to reach $100 billion over the next couple of years, a $20 billion nuclear power plant agreement, the new 63 bcm per annum Turk Stream pipeline, a 6% decrease on gas imports by Turkey with a concurrent increase of imports by Russia and upgrade of the Blue Stream pipeline to bypass Ukraine.

Moreover, agricultural exports by Turkey to Russia stand to increase at the expense of EU producers along with a tourism wave to Turkey, whilst Turkish construction companies are set to gain further clout in the Russian real estate market. These were all areas of future cooperation between Bulgaria and Russia that seem to be derailed and gained by a country which Bulgaria views as neutral to hostile.

An overview on the natural gas energy alliance that is being formed between Moscow and Ankara:

• Elevates Turkey's role in the whole of Europe as main gas hub 
• Provides an alternative for Russia and increases its leverage vis-a-vis the other Balkan states
• Decreases the USA plan to use Turkey as an alternative to gas consumption in Europe and decreases in effect the role of Azerbaijan in that role as well, especially should Gazprom enters as a partner in the TANAP system and consequently and in indirect form in TAP.

It can be safely said that both the public and the political elites of countries such as Serbia and Bulgaria are furious with the EU and US because they lose very big investments without having any practical gain. Therefore in terms of policy, we should expect these two countries to try to forge closer ties with Moscow one way or another or view the emergence of radical and fringe groups in prominence with an "anti-Western" platform in political and social terms.

There will also be an increased focus on whether Moscow will now befriend Azerbaijan as a result of Baku's partnership with Turkey and the energy entanglements and all the aforementioned projects in between.  In this case and as far as Bulgaria is concerned, Moscow stands to continue to have a strong grip on the Bulgarian gas imports, but Sofia will lose any leverage, which translates in weak bargaining position to demand lower gas prices or any investment in its energy sector.

Moreover it is of interest to note that Bulgaria-Serbian relations may suffer a setback since media reports streaming from Belgrade indicate that Serbia considers Bulgaria as the guilty party in the termination of the project in which they also stand to lose a considerable wealth of capital, along with leverage both in the EU and Moscow of geopolitical value.