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Bulgaria torn apart in the Putin-Erdogan power game

The geopolitical landscape surrounding Russia’s invasion of Ukraine, beyond its military facets, finds both vivid and veiled expressions in the placement of Russian energy resources in Europe. Unlike Russian oil, which is globally mobile, Russian gas relies mostly on pipelines to reach Europe. In 2023, EU was the main market for piped Russian gas: about 40% of exports went there, followed by Turkey (ca. 30%) and China (ca. 20%). The EU is also the main market for Russian LNG, with a share that stands at about 50%, followed by China (ca. 23%) and Japan (ca. 16%). No sanctions are imposed on either Russian piped gas or LNG shipments to the EU. [1]

In the structure of Russian revenues from energy exports, gas is now a poor relative of the rich: its share in overall revenues is down to ca. 12-15% from about a third in 2021, roughly split 60/40 between piped gas and LNG.

In value terms, the decline of energy exports is even starker, from ca. 550 million Euro/day to ca. 130 million Euro/day.[2] However, the devil of what Russian energy can do in a particular location, is, as the saying goes, in the details.

The evolution of the relations between Russia and Europe has escalated to levels of market disruption unimaginable even during the Cold War. Despite the tensions experienced in the 1970s and 1980s, Soviet oil and gas flowed steadily to Europe, and the Soviet Union methodically expanded its pipeline capacity for gas exports to Europe. This trend continued under Yeltsin, but under Putin it took on a different character – his initiatives towards the EU now include the aim of bypassing Ukraine, Belarus and Moldova. All of the Nord Stream and Turk Stream projects were planned to bypass the countries along the route and eventually converge straight to the main markets for Russian gas in Europe.

The war in Ukraine has brought about a fundamental change. Initially, it appeared that Putin had succeeded in strategically bypassing Ukraine and securing alternative routes for gas exports to the EU. However, this turned out to be a strategic blunder that crossed a critical threshold of tolerance, beyond which these gas pipelines to Europe gradually lost their geopolitical relevance for the EU overall. but not for some countries in the EU. The outcome of the reconfiguration of the export routes is that active gas transit routes from Russia pass through Ukraine (still, but expected to be discontinued by the end of 2024) and Turkey. The contract with Ukraine is not expected to be extended beyond 2024 when the Gazexport transit contract expires.

The plight of the Ukrainian transit route

Earlier this year, there was a sentiment that Gazprom could somehow retain its gas transit options through Ukraine, in a manner similar to the way oil transit issues through Ukraine were resolved, with Hungary, Slovakia and Austria stepping in to cover transit costs. For natural gas, it was feasible and logical to allow European importers of Russian gas to purchase it at the Russian-Ukrainian border and pay transit fees in Ukraine, thus sparing both Ukrainian and Russian parties the need to re-negotiate in direct talks. One more twist of the issue: since the beginning of the Russian aggression, the Kremlin has apparently refrained from attacks on Ukraine’s gas infrastructure, probably seeing such action as counterproductive to its interest in the continuation of the transit of Russian gas and having a window of influence in Central Europe. However, evidence emerges that these sanctuaries will not hold as the conflict escalates. Russian missile and drone attacks on gas storage facilities, mainly on the largest ones in western Ukraine, followed by direct hits on the pipeline connecting the main gas production site at Shebelinka field in Eastern Ukraine to the national grid, have sent a clear message: Putin’s goal is now to inflict maximum damage on Ukraine at all costs. As a result, the chances of extending the transit contracts have diminished significantly, probably down to zero.

The cessation of Russian gas transit through Ukraine would deprive the EU countries closest to the Kremlin – Slovakia, Hungary and Austria – from access to Russian gas via the main routes accessible to those countries, and necessitate a reconfiguration of the logistics of supply via other routes. The effects would be two-fold: first, limiting the volumes of Russian gas exported to those counties, and hence also significantly reducing the sources of funding available to Putin’s sympathizers in these countries. The transited 15 billion cubic metres of gas, or 158 million MWh, generate approximately $8 billion annually (2023) for Gazprom and the Kremlin. These revenues are considered to be a significant prop to Putin’s war financing derived from gas exports. In an environment where Gazprom faces growing financial and operational challenges, wherein the closure of European gas pipeline routes leads to domestic production cuts and well shutdowns, all the way down to levels not observed since 1990, thus potentially jeopardizing operational integrity, yet another gas export route shutdown would be a pain. Domestic sales have increased and gas storage facilities in Russia have been full since last year. As a result, pressure is mounting on Gazprom and its de facto CEO, President Putin, to urgently find alternative routes to compensate for the loss of Ukrainian transit well before the end of the year. And that’s where the second bit of the picture comes in: a tug of war begins in the countries which still depend mainly on Russian gas exports and do not have readily available pipeline and/or LNG alternatives – or do not want to use such alternatives.

Erdogan, the middleman

Should Ukraine’s route for Russian piped gas exports to the EU shut down, given that the Baltic route is already unavailable, only one alternative route remains, the one via Turkey. Turkey is already a main market for Russian gas, both piped and LNG, and an important transit route as well. Turkey has also ambitions to become a real gas hub, where sellers and buyers would converge and trade in gas originated from many countries and the regions – piped from Russia, the Caspian (including Azerbaijan, Iran and Turkmenistan), maybe eventually from the East Mediterranean, LNG from all over the world, plus Turkey’s own, relatively small, production. Yet another detail to consider: apart from the transit pipelines – TANAP and Turk Stream, according to the law, gas imported in Turkey becomes “gas of Turkish origin”. There are few exemptions for Russian and Azeri gas. And yet another detail – deliveries to import/export points are taken over by BOTAS, and subsequently it is BOTAS that delivers gas to other entities at interconnection points. In the transaction, such parties have to also reserve capacity at entry points to Turkey and pay for the gas transmission service to the point where BOTAS would deliver the gas to them. What all this means is that gas that flows through Turkey would be certified as Turkish, regardless of its actual origin.

The constant postponement of the date of Putin’s visit to Turkey, most recently to late April-mid-May, suggests that there are still outstanding issues and challenges. Putin will only visit Turkey if there is a chance of successfully concluding the Turkish gas hub deal on terms acceptable to Russia.

The problems for Russian energy diplomacy in trying to ensure the success of Putin’s visit lie mainly in Turkey itself, but also in Bulgaria. In Turkey – because President Erdogan is running a significant and growing geopolitical risk, a tradeoff between incurring the wrath of the EU and the US and the allure of  a high price for his acquiescence that he could charge Putin, a price, which, at least for now, Russia seems unwilling to pay. Mr. Erdogan’s demands are monetary – for more deferred gas payments, cheaper gas and various other concessions – but above all for Russia’s OK to Turkey’s right to re-sell Russian gas to the EU as a part of the Turkish gas mix traded at the Turkish gas hub, with a label “of Turkish origin”. At the moment, Gazprom sells Russian pipeline gas to Turkey at a significant discount, similar to Urals discounts to Brent, as diminishing volumes of exports to the EU have led to disposal problems. Such discounts will only increase if Turkey becomes the only gateway to Europe for piped Russian gas, as well as large volumes of Russian LNG, and then also the only physical route to the EU via interconnections with Bulgaria. That’s where the devil comes up in the details.

Bulgaria’s ruling trio enters the fray

Whenever the EU sneezes over Russian energy exports, Bulgaria catches a political fever over the geopolitical stakes for Russian gas pipelines to the EU, especially if those take a fateful turn for the Kremlin. Historically, Bulgaria has been the only transit route for Russian piped gas exports to Turkey, Greece and FYROM. Now, a specific matrix of consequences and changes occurs each time Putin’s own survival comes to the fore as energy export revenues dwindle. In 2023 alone, Gazprom’s gas pipeline sales have shrunk by 56%, from 178 mcm/d in 2022 to 77.6 mcm/d in 2023. Without a steady income from oil and gas sales, the Russian president can neither wage war nor secure his existence.

And Bulgaria holds the trump cards in its deck, taking centerstage in the forced endgame of reconfiguring Russian piped gas export routes and the Russia-Turkey chess game. A hint: in 2016 Kremlin’s interests purged all “dissenters” to the Turk Stream project from the Bulgarian parliament and government. The project would allow Russian gas to continue flowing to the EU even after the closure of the Baltic and the Ukrainian routes. The same is happening today in Bulgaria:  pro-Atlantic and pro-European politicians are ousted, brutal attacks by the unreformed and notoriously pro-Kremlin secret services and prosecutors are carried out on pro-Western officials and journalists, coupled with the re-emergence of the coalition that brought Turk Stream to life – President Radev, ex-Prime Minister Borissov and the dark cardinal of the Bulgarian political backstage, Mr. Peevski.

To put it bluntly – an upgrade of the original Turk Stream project is underway, with Bulgaria poised to continue acting as the backdoor for Russian energy exports to Europe, and, consequently, for Russia’s geopolitical interests as well.

Turk Stream’s first phase aimed at bypassing Ukraine and securing a route to deliver Russian gas to Putin’s key partners – Serbia and Hungary -as well as to the Austrian and the Slovak markets, and possibly seeking access to the Italian gas market. It ended with the launch of the Turk Stream project on 1 January 2021. The second stage is about ensuring a politically and legally acceptable way for the Turkish gas mix, based mostly on Russian gas, to reach Central Europe without provoking a backlash from the EU and the US. To this end, specific instruments were developed and used: a  tripartite protocol between Turkey’s Botas and Bulgaria’s Bulgartransgaz and Bulgargas, which  triggered a Botas-Bulgargas gas supply and transmission services agreement. The instruments embody the political will of Presidents Radev and Erdogan. The Bulgargas-BOTAS contract, the contents of which were leaked to the media, proves that the purpose of these instruments was never business-as-usual, but primarily political considerations at the highest state level, boiling down to securing the transit of Russian gas through Turkey, Bulgaria, Serbia and Hungary, and then onwards if technically possible. In the deal, BOTAS also got access rights to gas transmission infrastructure and the gas market in Bulgaria and further on to the EU gas market.

And yes,  the CEO of Bulgargas and its parent company BEH were kept in the dark and asked to sign an already initialed term sheet by the then energy minister Rosen Hristov. Talk about politics driven by business… or the other way round.

Recently, a parliamentary commission was set up in Bulgaria with the objective of carrying out an inquiry of the Bulgargas-BOTAS deal. The  commission has collected a huge amount of evidence about the political nature of the deal, in which elementary business rules were ignored. All the evidence points to a politically orchestrated test of the possible use of Bulgarian companies as conduits for the transit of Russian gas through Turkey’s Botas. The debate on the commission’s report on the Bulgargas-Botas contract has exposed hidden dependencies between parliamentary groups in this grand geopolitical game between Putin and Erdogan. Indirectly, it reflects the rivalry within the Turk Stream coalition between President Radev, ex-Prime Minister Borissov and DPS leader Delyan Peevski, who has been designated a corrupt politician under the US Magnitsky Act.

Considering pro-Russian and pro-Western arguments, the political outlook in Bulgaria right now is bleak. Ex-Prime-Minister’s GERB and the Mr. Peevski’s DPS are trying to whitewash the Bulgargaz-BOTAS contract political sponsors, building on traditional ties with Turkey and considerations of Erdogan’s interests, and claiming that the deal would diversify supplies to Bulgaria and the EU beyond Russian gas. The pro-Russian Vazrajdane and BSP parties are mobilizing against it, in line with Kremlin’s interests and prioritizing Putin’s case over that of Erdogan in Bulgaria. Richly garnished with the verbiage of Bulgarian national interests, Russian and Turkish agents of influence continue to shape the political landscape.

Putin’s all-out push

Unable to achieve direct results in his talks with Erdogan, Putin has activated his Bulgarian proxies to capitalize on natural public resentment over the fundamentally flawed gas treaty with Turkey, while mobilizing nationalist sentiment. This line has strained relations between President Radev, ex-Prime Minister Borissov and DPS leader Peevski, torn between Moscow’s push and Ankara’s pull. However, a fundamental common platform between them exists: self-interest in sharing the benefits of redirected Russian gas transit flows, which would now enter the EU via Bulgaria via Turkey rather than Ukraine. President Radev leans towards his Moscow allegiance, while Mr. Peevski and Mr. Borissov favor Mr. Erdogan, given their legacy of ‘doing business’ with the Turkish president.

The stark contrast in the understanding of what “national interests” means between Mr. Erdogan and his Bulgarian counterparts lies in the results they have achieved in their confrontations with Mr. Putin. For Mr. Erdogan, success translates into tangible benefits for natural gas consumers, Turkish businesses and the state budget. For his Bulgarian partners in the Turk Stream saga, the story is different. The benefits of the Turk Stream expansion are more likely to be privatized while the costs are socialized – a stark reality illustrated by the precarious financial situation of Bulgargaz.

Agreements to redirect Russian gas flows via new routes are precarious.  Greek and Turkish gas companies compete fiercely for transit capacity in Bulgaria. The Bulgarian section of Turk Stream cannot accommodate the 15 bcm/y flow redirected from Ukraine. The alternative is to use Trans-Balkan pipelines capacity connecting to Turkey and Greece in the opposite direction, which have sufficient spare capacity, and then reach out to Romania and Ukraine via the proposed Vertical Gas Corridor. The Corridor would use upgraded legacy pipelines that once-upon-a-time flowed Russian gas to the Balkans via Ukraine in the opposite direction. The problem pops out, however, when new routes for Russian gas are framed as an EU project that is aligned with Western views on the Ukraine conflict. That is a challenge. The stakes are high, and the Kremlin is unwilling to risk its grip on the region’s political elites with energy-related financial leverage. Just as a matter of-fact, Bulgaria still depends on some 60-80% of oil products and over two-thirds for its gas imports on Russian companies.

Take one of Putin’s best friends in the EU, Mr. Victor Orban. His power and resource base have been cultivated since the early 1990s by brokering the sale of Russian energy resources. Major Hungarian companies such as OTP, MOL, MVM and MET have deep capital roots in Gazprom gas brokerage. Orban is seeking wider influence beyond Hungary, pursuing the political grand designs of Occupy Brussels, acquiring the media company Euronews to influence the European Parliament elections, and rallying MEPs to block aid to Ukraine once again.  His mission will be heavily fueled by future financial inflows from Russian energy brokering. On a smaller, mostly introvert scale, Bulgaria right now seems happy to re-join the pro-Russia gas club in the EU.

The importance of maintaining Russia’s energy dominance wherever possible (the devil is in the detail!) is enhanced by the status-quo and by the outlook. Maintaining Russia’s networks in the region requires fresh resources, a growing challenge given the dwindling revenues from sales of Russian gas and oil and the exploding costs of the war in Ukraine. The foundations of Putin’s confrontation with the West – the Reserve Fund and the National Welfare Fund – are being rapidly depleted by war spending.

From now on, the contractual, political and institutional security of Russian gas flows through Turkey and  Bulgaria is likely to remain crucial in the eyes of the Kremlin. Suppose the upcoming snap parliamentary elections in Bulgaria do not produce a clear winner, or the parties with the most MPs are unwilling (GERB) or unable (PP-DB) to form a politically decisive government. In this case, the top three figures in Bulgarian politics may choose to operate through caretaker governments, diluting responsibility while tacitly securing exclusive use of the reverse flow capacity in Bulgaria for “Turkish” gas that is actually mostly Russian, versus non-Russian LNG from Greece.

The thing to watch: in the wake of an expected Russian president’s visit to Turkey, a likely outcome would be the securing of the Russian gas routes through Bulgaria by the deep state.

Ilian Vassilev

[1] Cf. visited on April 22, 2024.

[2] Ibid.

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