The recent EU economic crisis summit (held in Brussels March 19 and 20) first removed, then reinstated, Nabucco on its “priority” energy project list. And construction is still scheduled to begin in 2011. Although German objections to Nabucco’s inclusion in the EU’s €5 billion “anti-crisis” energy stimulus package were overcome, the summit allotted €200 million, €50 million less than originally planned. But while Nabucco has survived, its troubles are far from over.

Envisioned to transport natural gas from Central Asia to Europe without crossing Russian territory, Nabucco is perceived by the EU as essential to weaning Europe of its Russian oil and gas dependency. But the addiction is proving hard to kick, with problems over viable sources of gas plaguing Nabucco from the start. Turkmenistan’s enormous reserves are considered one option. But Turkmenistan’s natural gas distribution operation is largely managed by Russia’s Gazprom. Whether the country’s latest massive gas discovery at the South Yolotan-Osman field will come under Russian management too, or whether the gas will eventually head west or east – Turkmenistan is developing growing links with China – is still unclear. For the gas to head west, an additional trans-Caspian link will be needed. Then there are the security problems associated with running the pipeline through transit nations, especially Turkey and Georgia.

Iran has more than enough gas to keep Nabucco busy and Tehran, with the world’s second largest reserves of natural gas, is keen to buy into the lucrative European market. But Nabucco badly needs a reliable provider, and Iran’s notoriously unreliable production track record and the uncertain geopolitical situation over its nuclear intentions are barriers to new investment. With its European aspirations stuck in the geopolitical mud for the foreseeable future, Iran, too, has turned its eyes east, and is currently cutting energy deals with Beijing.

Meanwhile Nabucco’s competition, the Gazprom-backed Nord Stream (linking Russia and Europe via the Baltic) and South Stream (linking Russia to Italy and Austria) pipeline projects are forging ahead. Nord Stream received a further boost in March when Turkmenistan and Kazakhstan agreed to go ahead with the Russian-backed pipeline along the Caspian Sea coast.

Some European energy experts are so concerned over Nabucco’s prospects that they have pushed to offer Russia’s Gazprom a stake in the project. Just how such a move would advance Europe’s energy diversification away from reliance on Russia, which has been the whole point of the Nabucco project, no one has yet said. But according to a recent report, a formal invitation to take a stake in Nabucco was received by Gazprom in early March. Not surprisingly, Gazprom declined, citing the Nord and South Stream projects as their strategic priorities. In a TV interview, Alexander Medvedev, the director-general of Gazprom’s export arm and the company’s deputy chairman, could not resist rubbing in the hard facts. “Unlike Nabucco, we have everything we need for this project to materialize,” he said. “We have gas, the market, experience in implementing complex projects, and corporate management.”

But even these basic “external” problems aside, the Nabucco project is proving a prime example of how coherent EU policies, in this case the key one of energy, are being undermined by national self-interest.

The Russo-German “special relationship”

Germany has been at the center of efforts to remove Nabucco from the EU’s priority energy projects. Though France, Italy and the Netherlands wanted Nabucco downgraded for economic reasons, it’s the Germans who have consistently been its strongest opponents. At the March summit in Brussels, German ministers argued that as Nabucco was set for construction in 2011, EU funds allotted to the project would be spent too late to be considered an economic “anti-crisis” measure, defeating the aims of the summit. German Chancellor Angela Merkel made it clear that she was only prepared to support projects that would have a substantial stimulating effect on the economy in 2009 and 2010. And she argued that the project already had sufficient private investment. The German objection was ultimately undermined, however, when the Czech presidency came up with a proposal that said Nabucco’s cash subsidies would be spent by the end of 2010. That the chief economic and energy interests of Germany, Europe’s largest economy, lie beyond the EU, however, doesn’t take much figuring.

As I have reported previously, Merkel was forced to cut a deal with the German Green Party to phase out all of its 20+ nuclear power plants to win national power. That deal left Germany even more dependent on Russian hydrocarbon imports than other parts of Europe. So while Germany provides tacit support to the EU’s goal of energy diversification, it has steadily pursued a policy geared to building ever-closer national energy ties with Russia. The Nord Stream pipeline will link Russia and Germany directly via the Baltic. However even as Vladimir Putin’s Russia is using the energy weapon against eastern European countries, Germany still wants to be in a position to make its own deals with Russia.

Former German Chancellor Gerhard Schroder is chairman of the Nord Stream shareholders’ committee. And Schroder has been earning his pay check. While Gazprom owns 51 percent of Nord Stream, German energy majors E.On and BASF own 20 percent each. Dutch company Gasunie (remember it was the Netherlands who sided with Germany to get Nabucco downgraded at the recent summit) holds the other 9 percent. That Nabucco threatens Gazprom’s energy, and thus Putin’s geopolitical interests, is clear. With gas exports to Europe having declined by 40 percent since the beginning of 2009, Gazprom has developed, in Germany, a major ally at the heart of the EU to assist Russian interests. It’s a growing relationship that helps explain Germany’s opposition, even threatening an EU veto, to Georgia and the Ukraine’s United States-backed bid for NATO membership in 2008.

Given the EU’s sense of urgency in achieving greater energy diversification, it now finds itself caught in a pincer movement of external geopolitical realities and internal national self-interest. The EU may soon be forced to admit defeat and raise the white flag over Nabucco. But however the Russo-EU energy plot-line plays out, Germany, Europe’s largest economy, is revealing only too clearly that sticking to the Eurocratic official text is one thing, conspiring with Putin over the subtext – national self-interest when it comes to energy security – is another. Europe, take note.