Adriatic Watch: a Must for the European Commission

Croatian Prime Minister, Jadranka Kosor, is expected in Moscow on March 2 for her first official visit (HINA, February 24). Kosor’s talks with the Russian Prime Minister Vladimir Putin and Kremlin-connected energy companies may yield a breakthrough into Croatia’s energy sector. Such a breakthrough could interfere with, or even block, the Adriatic lifeline for non-Russian energy supplies into Central Europe. By cutting off this alternative route, Russia could cement its dominance or monopoly on energy supplies in several countries in that region.

Croatia is the under-utilized and unheralded, yet potentially major energy transit route from the Adriatic coast into Europe. Such a contribution to European energy security should dovetail with Croatia’s far-advanced candidacy for membership in the European Union. However, Russia seeks to nip Croatia’s transit role in the bud, offering deceptive advantages in the short term that could permanently implant Russian companies in Croatia’s energy system. This move would preclude Croatia’s long-term development into a major international transit route.

Thus far, this country has been largely free of a Russian presence in its energy sector. The small energy market of Croatia can hardly interest Russia’s oil and gas giants from a business perspective. Croatia’s location on the Adriatic coast is what interests the Kremlin. If Russian state-linked companies acquire stakes in the Croatian energy transportation infrastructure, they could cut off or restrict non-Russian oil and gas deliveries from the Mediterranean via the Adriatic and Croatia into continental Europe. In that case, several Central European and Balkan countries would lose this chance to diversify their energy import options away from overdependence on Russia. This could then open the way for Russian expansion into those countries’ energy systems.

The political atmosphere, recently orchestrated in the Croatian media and internal debates, can facilitate Russia’s breakthrough into the country’s energy system. This is being fed by unrealistic expectations of a Russian energy bonanza to Croatia, prevailing over more realistic assessments (Vjesnik, Jutarnji List, Poslovni Dnevnik, Novi List, February 17 – 24).

Unlike its continental neighbors in Central Europe, Croatia is suddenly facing this problem, often without the benefit of acquired experience or detailed knowledge of issues involving Russia and European energy security. The popular head of state Stjepan Mesic, who completed his final term of office in January, has lent his aura to the propaganda line that Croatia “missed great opportunities” by not inviting Gazprom and Russian oil companies into the country under the previous government (EDM, December 18, 2009, January 14).

In parallel, Croatian media and some interest groups are being fed unsubstantiated allegations of malfeasance (or simply demands for contract revision) against the Hungarian privately owned MOL company, the dominant stakeholder in Croatia’s INA oil and gas company. MOL’s INA holdings are regarded as a major obstacle to the expansion of Russian energy companies into Croatia. After MOL had successfully defended itself against Russian takeover attempts in Hungary, Russian interests are attempting to undermine MOL’s position in Croatia, as a local backdrop to Kosor’s visit to Moscow.

The Kremlin would like Kosor to open the gates for Russian energy companies to expand their business to the Adriatic. According to Gazprom Vice-President Aleksandr Medvedev in a recent interview, “Gazprom is interested in arriving at the Adriatic coast” (Southeastern European Times, January 10). Gazprom seeks to reach the coast, if only virtually, through an extension of the planned South Stream pipeline. The main goal is not necessarily to build a pipeline extension, but to create rivalry against the liquefied natural gas (LNG) project on Croatia’s Adriatic coast, intended to supply Central European countries. Pipeline-delivered gas and LNG, however, can hardly coexist in the same market or along the same route inland. Gazprom’s “arrival to the Adriatic coast” would inhibit international investment in the LNG Adria project. In Croatia, just as in the Nabucco countries, South Stream is being deployed not as a supply project in a real sense, but rather as an anti-diversification project.

Toward that goal, Putin has personally offered in recent months to build a branch-off line to Croatia from the planned South Stream. The branch-off is a suboptimal solution, placing the recipient country (Croatia in this case) at the tail end of the supply link, and turning it into an ordinary importer, rather than a transit country (an option that Moscow is now also offering to Romania). Thus, Croatia would forfeit transit revenues, bargaining leverage, and other benefits accruing to transit country, in the implausible event of South Stream materializing. The only realistically possible outcome would be a halt to the Adria LNG project.

In Croatia’s oil sector, Russian oil companies would like to acquire a stake in the Adriatic Oil Pipeline (JANAF), which runs from the port of Omisalj across Croatia’s territory to northern Hungary. This line’s traditional function is to carry Middle Eastern oil to markets in Central Europe. The Russian government has long sought to reverse the pipeline’s flow, so as to use it for Russian oil exports via the Adriatic Sea. Toward that end, Moscow wants to connect the Druzhba oil pipeline with the JANAF pipeline (Druzhba-Adria integration proposal). Such a reversal could cut off Central Europe from alternative supply options, leaving that region more heavily dependent on Russian oil from the Druzhba pipeline.

Moscow has succeeded in reversing the flow of Ukraine’s Odessa-Brody pipeline, which is being used in reverse to carry Russian oil for export via the Black Sea, instead of the original function to carry non-Russian oil into Ukraine and Poland.