As noted by Steve LeVine at his Oil & Glory blog, Vladimir Putin recently racked up another in a string of unbroken victories in the European Pipeline War as Gazprom purchased a majority stake in the state oil company, NIS, and joined Russia’s South Stream Pipeline consortium. Last week, Bulgaria signed onto South Stream as well. As the post reports:

“..The [South Stream] pipeline is part of Putin’s strategy to cement Russia’s domination of Europe’s energy market, which receives around a third of its oil and natural gas from Russia. Ultimately at stake is political influence in Europe…[and] Putin has far eclipsed the rival Nabucco pipeline project, which would feed natural gas from Turkmenistan to Europe….”

Interestingly, Stratfor’s analysis on the same issue argues that the Bulgaria deal shows that Russia is actually losing the pipeline war. I tend to side with LeVine’s thoughts but, since we’ve been following this pipeline tussle for some time, it is useful to present all sides:

“…Putin has sought to strengthen [his] energy leverage via two pipeline projects in particular. The two natural gas lines — Nord Stream, which would run under the Baltic Sea from St. Petersburg to Germany; and the aforementioned South Stream, which would run under the Black Sea from near Novorossiysk to Bulgaria — would increase the European dependency on Russian natural gas from 25 percent to 35 percent of its total consumption.

Economically, neither of these projects makes sense. Building long underwater pipelines to Europe — a region with which the former Soviet Union shares a land connection — is simply asinine; landlines typically cost less than a third of their underwater equivalents. Additionally, Nord Stream would be the world’s longest underwater natural gas pipeline and South Stream the deepest.

But the Russians did not plan these projects with profitability in mind — having tripled their natural gas export prices since 2000, they have profit aplenty. Instead, they are thinking of the Americans. The Kremlin’s Cold War mantra has long been that if the Europeans can be neutralized, then American influence can be purged from Europe.

…Given the political nature of these projects, then, the numbers have always been a touch wacky. The Russians have underestimated the costs of both of the natural gas lines to a humorous degree (likely by a factor of four or more), they lack the technological ability to build the lines themselves and they have insisted that the Europeans foot the bills. Specifically they expect ENI to pay for South Stream, and BASF, Gasunie and E.On to cover Nord Stream. Topping it off, they expect themselves — not the countries on which the pipes will lie or the companies that finance and build them — to own the projects when they are completed.

“…[but] Russian history is one of occasional foreign occupation, which has resulted in a culture that mixes xenophobia, bitterness, persecution and a sense of entitlement in equal measure. This idea of “we have suffered so much so you should do what we say” — a sort of superiority complex based on an inferiority complex — clouds Russian strategic thinking and contributes to the seeming inability of the Kremlin to sense that the Chinese are stealing Central Asia from under the Russian nose.

It also explains why the Russians have not realized that the Europeans are moving away from them in as expeditious manner as feasible. The European reactions to Russian entreaties on these natural gas projects can best be summated as humoring the Russians. Few states want an out-and-out breach in their relations with Moscow, which could result in an actual and immediate energy cutoff before the Europeans are prepared to sever economic ties. So they have been taking advantage of Russia’s cultural blind spot while quietly developing alternatives.

This is doubly true for firms such as E.On and Gasunie, which supposedly are involved in consortia to build the projects. All are key purchasers of Russian energy exports and have found it easier to feign support than to be bluntly honest and so risk losing reliable deliveries of Russia natural gas….

…Years from now, Putin’s Jan. 17 trip to Bulgaria will likely be seen as the turning point in the European-Russia power balance, because that is when the humoring broke down. As Putin was en route to Bulgaria, Sofia insisted that, should South Stream come about, it will be Sofia — not Moscow — that holds a majority share in the portion on Bulgarian territory. A compromise — a 50-50 ownership split — was ultimately struck, simply because there is little Moscow can do to punish Bulgaria without deeply damaging its own interests. Bulgaria does not border Russia (or any former Soviet republic) and since it is a transit state for Russian natural gas to third countries, it cannot simply be cut off….

…In short, Europe is reorienting its entire energy sector to eliminate the “Russian factor.”