The Bosphorus Conundrum

Despite the "pomp" of the September 2006 meeting between the leaders of Russia, Greece and Bulgaria, the most important point in BAPLine's (Burgas-Alexandroupolis Pipeline) latest "resuscitation" can be dated back to the April 2005 meeting in Sofia between the ministers of energy of the three states. The Sofia meeting also constituted a decisive turning point in Russia's petroleum diplomacy vis-a-vis Greece, Turkey and Bulgaria, regarding the need to balance the construction of the first major pipeline carrying Caspian Oil to global markets in ways that by-passed not only the Turkish chokepoint, but more importantly Moscow itself. In the longer term, trumping Russia's decision to underwrite BAPLine and the ramifications of such a decision on the comparative attractiveness of every other alternative by-pass, is the emergence of Kazakhstan as the dominant exporter of Caspian crude. The servicing of Kashagan's output will demand by the mid-2010s a third Main Export Pipeline after the BTC and - in all probability - the BAPLine. This report will focus on the medium-term projections regarding the development of the region's net export potential and in particular the western-oriented oil flows that are expected to transit through the Caspian and Black Sea. Further, the report will provide a detailed risk assessment of the seven major export alternatives for both the second and the third Bosphorus by-pass. Finally, some general conclusions are drawn regarding the prospects of Russia's foreign energy priorities in the Greater South-East Europe region, with a particular emphasis on its natural gas transit policies after the January 2006 Russian-Ukrainian debacle.