Russia accounts for 45% of the EU’s net imports of oil and 43% of its gas imports, making it the largest supplier in each case. Oil and gas passing through Russia also make up 38% of the EU’s total consumption of oil and 27% of its consumption of natural gas. With both oil and gas production in decline across the EU, dependency on Russia is likely to grow. The EU Commission is anxious to keep such growth to an absolute minimum: hence its search for gas from other areas, notably the Caspian, North Africa and the Middle East.

Russia, for its part, appears determined to consolidate and improve its hold on Europe’s oil and gas markets, both for economic and political reasons. During the 1990s, when Russia was economically weak and oil prices were low, Moscow rapidly lost the political hold it once had on the eastern half of Europe. Former economic and political allies demonstrated their new-found freedom by applying for membership of western organizations like the EU and NATO and by importing energy from other countries in an attempt to reduce Russia’s stranglehold over their fuel supplies.

This process of increasing Eastern Europe’s energy independence was greatly assisted by a sharp decline in Russian oil production between 1987 and 1996, when it fell by 47% to 6.1 mbd, and by rising production from the North Sea and elsewhere. The EU’s oil production peaked in 1999 and the output of natural gas reached its maximum just two years later. Since then, Russia has benefited from a combination of rising oil and gas prices and an increasing need for imports on the part of the EU.

Much of the EU’s concerns have centred on Russian imports of natural gas. Gas is becoming less easily substitutable than oil as EU members try to reduce carbon emissions from oil and coal. Russia is contracted to provide 12.5 bn cfd of gas to the EU: equivalent to 43% of its total gas imports.

Many in the EU believe Russia is trying to increase its hold on the EU’s gas market in order to extract future political concessions, such as non-interference by the EU in Russian foreign policy towards the other former republics of the USSR, such as Ukraine. The EU Commission is therefore trying to promote gas links with other suppliers, notably with those bordering the Caspian - which also happen to be former Soviet republics. To this end, it has given its support to a 3 bn cfd pipeline link from the Caspian via Turkey to Austria. The project is known as Nabucco.

Russia, however, is trying to pre-empt any such move by ensuring that as much Caspian gas as possible goes through its own pipeline system en route to Europe. The deal to build a pipeline link to Bulgaria is the first stage of a pipeline that will directly compete with Nabucco. The Russian pipeline is called South Stream.

Under the deal, signed in January, Gazprom and ENI will build a 3 bn cfd pipeline from Russia under the Black Sea to Bulgaria. The next stage will be to extend the line through the Balkans on a route more or less parallel to Nabucco to connect with the main European pipeline system. The South Stream route is likely to go via Serbia. Russia is keen to increase its influence in the Balkans, where its main political ally is Serbia. For their part, the Serbs want a more secure route for the import of the 250 mn cfd they currently buy from Russia. Their current supply route is through Ukraine, which has cut supplies to Serbia on previous occasions during disputes over pricing between Ukraine and Russia.

Gazprom appears to be preparing the way for a deal with Serbia over the route by acquiring a controlling interest in Naftna Industrija Srbija (NIS), Serbia’s state oil and gas company. If all goes well with the Serbian and subsequent stages, South Stream should be completed in 2013.

South Stream and Nabucco are the two largest of the proposed links between the Caspian and Europe; but there are three other routes of 1each, involving combinations of suppliers that border the Caspian Sea. All three involve links via Greece, from where the pipelines are meant to connect with the rest of Europe: either through Austria or Italy. Two further pipelines have been proposed to bring gas from even further afield. One - the Arab Gas Pipeline (AGP) - envisages the transport of gas from Egypt, Iraq or the Arabian Peninsula to Europe. The other - the Trans-Saharan Gas Pipeline (TSGP) - is a scheme to pipe gas all the way from Nigeria, across the Sahara Desert and then across the Mediterranean to Almeria, in Spain.