THE BALTICS: New Pipeline Deal Signed in Eastern Europe [26 October 2007]

Summary:  Eastern European Union members have signed an agreement which will add 300 miles to the Odessa-Brody oil pipeline, connecting the Caspian and Baltic seas.

Development:  At the Vilnius Energy Conference last week, Lithuanian president Valdas Adamkus pioneered an agreement to extend the Odessa-Brody pipeline into the Polish seaport of Gdansk.  Lithuania, Poland, Ukraine, Georgia, and Azerbaijan supported the 300 mile extension, which will transport oil from the Caspian Sea to the Baltic Sea while bypassing Russian territory.  The anticipated completion date is set for 2025, with a carrying capacity of approximately 14 million tons per year.  This roughly equals the current annual volume of Russian crude exports reaching Baltic destinations. 

Analysis:  Once completed, this pipeline will greatly decrease Baltic regional energy dependence on Russia, and will supply crucial crude oil to economically evolving eastern European Union members.  Although construction will not be completed for nearly two decades, this agreement sends a strong political message back to the Kremlin: that the Baltic States are willing to invest in an energy project with limited marginal economic benefits solely to emancipate themselves from Russian influence.  Russia has repeatedly used energy prices as a political weapon, most notably with gas prices in Ukraine between 2005 and 2006.  It is possible that Russia may pressure the still-dependant Baltic nations by raising prices on their energy exports.  Consequently, the region may face another short-term energy crisis accompanied by negative economic ramifications within business operations and escalating price wars if tensions are not eased through diplomatic channels. 

[Lauren DeHamer]