It’s the Pipeline, Stupid!

In all the hand ringing over the Georgian crisis, the politics of Russian pride and Georgian folly have dominated the discussion.

It’s understandable. Vladimir Putin, unhappy about the prospect of Georgia’s joining NATO, and still seething from Poland’s decision to allow the US to install a missile shield all too near the Russian border, feels obliged to make a display of militarism, to remind those to the west that he is not to be toyed with.

Why should anyone be surprised? The U.S. is still nervous about the communist regime in Cuba, and after 50 years, still insists on an economic and political firewall isolating the island. It’s strategic muscle flexing, which is why Margaret Thatcher sent British troops into Grenada, and the first George Bush sent US troops into the Gulf.

But it’s the lesson of the second Iraq war – a sink hole of wasted lives, troops and money, and a diplomatic disaster of staggering proportions – that seems already forgotten amid all the saber rattling in the Caucasus. Just as the U.S. invasion of Iraq in 2003 was not really about Al Qaida or the non-existent "weapons of mass destruction," It was about oil. And the crisis in Georgia is not about sovereignty, or minorities, or NATO or even really over Russia’s sphere of influence, at least not directly.

It’s the pipeline, stupid! It is about whether or not the Nabucco Gas Pipeline that would traverse Georgia, will ever be completed and Europe be given an alternative to dependence on Russian oil. The 3,000 kilometer pipeline leads from Azerbijan through Turkey’s border regions with Georgia and Iran, skirting Russia altogether to deliver natural gas to markets in Europe.

A week and a half into the crisis, Nabucco Gas Pipeline International, the Vienna-based consortium of six regional oil and gas companies overseeing the €8 billion, EU supported project, remained confident – at least publicly – that construction of the pipeline would proceed.

"We don’t see any impact on the development of our project," says consortium spokesman Christian Dolezal. The legal work should be completed by sometime next year, he says, at which point the pipeline capacity will be offered to the market. The group expects to start construction in 2010 with the first deliveries in 2013.

"Of course, we hope things will be solved on a political level by that time," said Dolezal. "But the point for us is that we are not stuck to just one source. We could also deliver from other sources, from the Asiatic region and there are of course big resources in the Middle East through the Trans Arab Pipeline from Egypt or even Iran. It has to be solved on the political level but the technical ability is there."

In the short run, it seems unlikely that investors will want to risk investments on this scale in the face of the current political unrest – which plays exactly into the hands of Kremlin power politics.

But it is also clear that while the Kremlin is making a show of aggression, their bargaining position may not be as strong as their current posturing suggests. And cooler heads may still prevail.